(1993) 114 ALR 355

(1993) AIPC 91-033 (extract)

(1993) 42 FCR 470

(1993) 27 IPR 133

Trade Practices - Whether the term "conduct" in s. 4(2) of Trade Practices Act 1974 embraces the giving of warranties in an agreement without any anterior representation - whether inaccurate warranties of this kind are capable of constituting misleading or deceptive conduct - remedies under Trade Practices Act and common law compared - discretion to grant relief under s. 87 - ss. 4(2), 51A, 52, 75B(1)(a), 82, 87 Trade Practices Act 1974.

Copyright - Infringement of copyright in literary works being computer programs - whether a substantial part of a computer program was reproduced - Autodesk Inc v Dyason [1992] HCA 2; (1992) 173 CLR 330 and Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 111 ALR 385 considered - ss. 10(1), 14 and 31(1)(a)(i) Copyright Act 1968.

Counsel and solicitors Mr D.K. Catterns QC for the respondents: instructed by Rosenblum and Partners.

2. The appellants pay the costs of the respondents of the appeal.

4. The respondents pay the costs of the appellants of the cross-appeal, which should be set off against the costs payable under order No. 3.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NORTHROP J This appeal raises a novel, but very important, issue under s52 of the Trade Practices Act 1974. Sub-section 52(1) provides:

"52(1) A corporation shall not, in trade or commerce, engage

in conduct that is misleading or deceptive or is likely to mislead

or deceive."

2. The most important issue, because of its widespread effect, raised by the appeal is whether a corporation, merely by making a contract containing warranties given by the corporation which warranties are false, thereby engages in conduct in contravention of sub-section 52(1).

3. By judgment given on 10 July 1992, the Court, constituted by O'Loughlin J, made the following orders and declarations:

"1. The whole of the following agreements are declared void ab

initio:

(a) Copyright Assignment between the Second Applicant and

the First Respondent dated 23 December 1988 (Exhibit

A8);

(b) Option to Acquire Copyright between the First and

Second Applicants and the First Respondent dated 3

January 1989 (Exhibit A11);

(c) Option to Acquire Shares between the First Applicant

and the First Respondent dated 3 January 1989

(Exhibit A10); and

(d) Shareholders Agreement between the First Applicant

and the First and Second Respondents dated 3 January

1989 (Exhibit A12).

2. It be declared that, to the extent that the Second Applicant

has allotted shares to the First Respondent pursuant to the

Copyright Assignment referred to in order 1(a) above, the

Second Applicant is entitled to cancel the allotment.

3. It be declared that the First Applicant is not obliged to

make any further payments to any of the Respondents in

relation to any work carried out by them with respect to the

accounting products pursuant to the Consultancy Agreement

dated 23 December 1988 (Exhibit A7).

4. The First and Second Respondents pay damages to the First

Applicant in the amount of $95,033.11 together with interest

calculated to the date hereof in the sum of $51,330.77.

5. The First and Second Respondents pay the Applicants' costs.

6. The Applicants pay any costs incurred by the Third

Respondent additional to those incurred by the First and

Second Respondents."

4. In that proceeding CCH Australia Ltd and Castle Douglas Pty Ltd were the first and second applicants respectively. In these reasons, they can, for practical purposes, be treated as one and shall be referred to as "CCH". Accounting Systems 2000 (Developments) Pty Ltd and Accounting Systems 2000 Pty Ltd were the first and second respondents respectively. At the trial, they were treated as one. In these reasons they shall be referred to as AS2000. The third respondent was Gregory Stokes, a director of each of the AS2000 companies.

5. AS2000 has appealed from the judgment of O'Loughlin J and is seeking orders that the orders numbered 1 to 6 be set aside and that the application by CCH be dismissed. CCH has cross-appealed seeking orders that the orders numbered 4, 5 and 6 be set aside and that in lieu thereof AS2000 and Stokes be ordered to pay damages to CCH Australia Ltd in the amount of $95,033.11 together with interest in the sum of $51,330.77 as well as their costs.

6. On the appeal, it became apparent that the quantum of damages and interest were not, really, in dispute. Orders 1, 2 and 3 were made pursuant to s87 of the Trade Practices Act. The power to make those orders was challenged by AS2000. Further, it was argued that if there was power, as a matter of discretion the orders should not be made. In addition, it was argued that there was no power to award damages under the Trade Practices Act. It was argued further that had there been a breach of warranty by AS2000, CCH was entitled to damages for breach of warranty only. CCH argued that in law a breach of the warranty was in truth a breach of condition entitling it to rescind the agreement.

7. The facts giving rise to this appeal are very complex but for the purposes of determining the appeal can be stated in short form. The issues concern copyright in computer programs relating to accounting software to be used by a business as part of its accounting system. A company, Focus Business Systems Pty Ltd ("Focus"), carried on the business of a computer software developer. As part of its business it developed computer programs and claimed copyright in these programs. Under the Copyright Act 1968 a computer program, as defined, is a literary work. Thus, under s31(1)(a) of the Copyright Act, Focus claimed the exclusive right to reproduce its computer programs and to make adaptations of them.

8. Focus claimed copyright in computer programs known as "Focus Business Software". One of the programs was known as "the General Ledger and Accounts Receivable Software" which was described as the FBS V1.3 program. The V represented the word "version" and the current version of the program was thus 1.3. This program will be referred to as "the Focus program". The Focus program was provided to businesses to assist the businesses to maintain their accounts.

9. AS2000 also carried on the business of a computer software developer. It desired to develop computer programs suitable to be used by accountants who did the accounting and tax work for a large number of businesses which were engaged in many different types of business. Accountants who carried on this type of business are said to be in "the Public Accounting and Tax Agent market". The Focus program was not suitable to be used by accountants in that market. That program would need to be modified so that when used in conjunction with related computer programs, all would be suitable for use by accountants in that market. In order to develop its computer programs for use in the Public Accounting and Tax Agent market, AS2000 desired to make use of the Focus program. For the moment it is best to avoid the use of the words "reproduce" or "adapt" the Focus program. In order to fulfil its desire, AS2000 entered into an agreement with Focus. The agreement, which will be called the Focus agreement, is in writing. It is dated 4 December 1987 and the relevant parts of it are as follows:

"LETTER OF AGREEMENT BETWEEN

FOCUS BUSINESS SYSTEMS PTY LIMITED

and

ACCOUNTING SYSTEMS DEVELOPMENT PTY LIMITED

It is agreed between Focus Business Systems Pty Limited and

Accounting Systems 2000 Development Pty Limited to undertake the

following:

1. Purchase of sourcecode for Focus Business Software to

include General Ledger and Accounts Receivable for a

consideration of $9,000 paid to Focus by Accounting Systems

2. The consideration paid to Focus by Accounting Systems 2000

entitles Accounting Systems 2000 to modify, resell and

represent the purchased software as the property of

Accounting Systems 2000 to the Public Accounting and Tax

Agent market without the payment of royalties or licence

fees to Focus.

3. The resale of Focus Business Software to markets other than

the Public Accounting and Tax Agent markets will attract

licence fees under the normal terms and conditions defined

in the Focus Agent Agreement and provides the option for

marketing said software under the Accounting Systems 2000

logo or brandname.

4. The purchased software will not be made available to other

organisations targeting the Public Accounting and Tax Agent

markets as a significant part of their operations.

5. Other modules of Focus Business Software will be available

for the Public Accounting and Tax Agent markets under the

terms and conditions stated above."

10. Reference to "source code" in para 1 is, in reality, a reference to the computer program being the Focus program. This follows from the definition of "computer program" contained in s10 of the Copyright Act. In that Act, unless a contrary intention appears, "computer program" means:

"an expression, in any language, code or notation, of a set of

instructions (whether with or without related information)

intended, either directly or after either or both of the

following:

(a) conversion to another language, code or notation;

(b) reproduction in a different material form;

to cause a device having digital information processing

capabilities to perform a particular function;"

11. It is clear that the Focus agreement enabled AS2000 to reproduce or to make adaptations of the Focus program for use by a limited group of persons being persons in the Public Accounting and Tax Agent market without infringing the copyright of Focus. Although not an issue in this appeal, it is possible that the Focus agreement authorizes clients of AS2000 in the Public Accounting and Tax Agent market to use the computer programs supplied to them by AS2000 without infringing the copyright of Focus. Of necessity, to be effective for use in that market, the reproduction or adaptation of the Focus program would need to be used in conjunction with other computer programs developed by AS2000.

12. Attention is directed to paragraphs 3 and 4 of the agreement. The present case involves a sale of what is alleged to be a reproduction or adaptation of the Focus program by AS2000 to CCH and the issue of whether the reproduction or adaptation of the Focus program by CCH constitutes an infringement by CCH of the copyright of Focus in that program. CCH is not an accountant in the Public Accounting and Tax Agent market but is a supplier of appropriate software to accountants in that market. Paragraph 4 imposes a limitation on the rights of Focus.

13. The learned trial Judge rejected a submission made on behalf of AS2000 that the Focus agreement assigned the copyright in the Focus program from Focus to AS2000. He held copyright in the Focus program did not pass and was not intended to pass from Focus to AS2000. Thus, Focus retained copyright in the Focus program. This finding was not challenged on the appeal. This finding is of crucial importance in the submissions made on behalf of CCH.

14. In the 12 months between December 1987 and December 1988, AS2000 developed computer programs designed to be used by accountants in the Public Accountancy and Tax Agent market. These programs will be called the AS2000 programs. Having regard to the Focus agreement, it was to be expected that the AS2000 programs would include parts of the source code of the Focus program or, as the agreement states, modifications of the Focus program. Further, having designed the AS2000 programs, it would be expected that AS2000 had copyright in those programs.

15. Between 23 December 1988 and 3 January 1989 the four agreements referred to in order No 1 of the orders made by the Court on 10 July 1992 were entered into between AS2000 and CCH. For present purposes, the copyright Assignment agreement is the most important. That agreement is in writing and was entered into between Accounting Systems 2000 (Development) Pty Ltd, as assignor, and Castle Douglas Pty Ltd, as assignee, but for present purposes can be treated as being between AS2000 as assignor and CCH as assignee. It is necessary to set out the recitals and clauses 1, 2 and 3 only of this agreement which can be called the Copyright Assignment agreement. These parts of the agreement are as follows:

WHEREAS:

A The Assignor is the proprietor of certain accounting

software products known as the "Client Accounting System",

the "Office Management System", and the "Client Management

System".

B The Assignor has agreed to sell and the Assignee has agreed

to purchase the copyright in the accounting products

referred to in recital A on the basis set out below.

NOW IT IS AGREED:

1 DEFINITIONS

1.1 In this Agreement unless the context otherwise requires:

(a) "Accounting Products" means the software products

owned by the Assignor and intended for use by

accounting practitioners and known as the "Client

Accounting System", the "Office Management System",

and the "Client Management System" and includes all

Associated Documentation, all other related and

ancillary documents, programs and other supplementary

material;

(b) "Associated Documentation" includes all operating

manuals, user manuals, programming manuals,

modification manuals, flow charts, drawings and

software listings.

2 ASSIGNMENT

2.1 The Assignor hereby assigns to the Assignee absolutely all

of the Assignor's right, title and interest in and to the

copyright in the Accounting Products.

2.2 In consideration of the assignment the Assignee agrees to

allot to the Assignor two hundred thousand "B" Class

Ordinary shares of one dollar each in the Capital of the

Assignee.

3 WARRANTIES

3.1 The Assignor warrants that:

(a) it is the sole beneficial owner of the copyright in

the Accounting Products, that it has not granted any

licence in respect of any or all of the Accounting

Products to any person except certain licences to use

the object code of the Accounting Products or

mortgaged or otherwise encumbered the same in any

way;

(b) it is entitled to assign such copyright to the

Assignee without the consent of any person

whomsoever;

(c) there is no claim or potential claim against the

Assignor of any person whomsoever for infringement or

breach of copyright in respect of any or all of the

Accounting Products.

3.2 The Assignor hereby indemnifies and agrees to keep

indemnified the Assignee from and against all claims,

demands, actions, proceedings, costs, expenses and

liabilities whatsoever and howsoever arising in connection

with or incidental to any actual or alleged infringement of

copyright resulting from the use or exploitation by the

Assignee of the Accounting Products."

16. It appears that CCH did not know of the Focus agreement at the time it entered into the Copyright Assignment agreement. The Copyright Assignment agreement was prepared by the solicitors for CCH. It was presented by CCH to AS2000 for signature. It was signed for and on behalf of AS2000. There is no evidence that AS2000 had made any oral or other representation to CCH to the effect of warranties 3.1 (a), (b) or (c) before the agreement was presented for signature. In the events which have happened, on the appeal CCH abandoned relying upon any allegation that AS2000, in refraining from disclosing any defect in copyright it had in any of the computer programs, engaged in conduct in contravention of s52 of the Trade Practices Act. The learned trial Judge held that each of the warranties was false, even though AS2000 believed them to be true, and that each warranty constituted conduct by AS2000 in trade or commerce that was misleading or deceptive or likely to mislead or deceive in contravention of s52 of the Trade Practices Act. This finding is challenged most strenuously by AS2000.

17. Under clause 2 of the Computer Assignment agreement, AS2000 assigned to CCH all its "right title and interest in and to the copyright in the Accounting Products". By definition, the "Accounting Products" mean the AS2000 programs which are identified as 1: "the Client Accounting System", 2: "the Office Management System" and 3: "the Client Management System". Of these three programs, the Client Accounting System is the largest and, probably, the most important. CCH asserts that the evidence establishes that the Client Accounting System is a reproduction or adaptation of the Focus program and that Focus has copyright in that program. The other two programs were developed by AS2000 to complement the Client Accounting System. The three programs, being the Accounting Products, together are essential to enable accountants to benefit from them. At the trial, CCH submitted that AS2000 had no copyright in any of the computing programs within the Accounting Products and thus warranty 3.1 (a) was false. The learned trial Judge accepted that submission. On appeal, counsel for CCH expressly abandoned that submission and conceded that AS2000 had copyright in those programs. The concession appears to be well founded. Thus, there has been no breach of warranty 3.1 (a). Nevertheless, counsel for CCH submits that there has been a breach of each of warranties 3.1 (b) and (c) insofar as Focus has copyright in any part of the programs within the Accounting Products and that each of those breaches constitutes a contravention by AS2000 of s52 of the Trade Practices Act.

18. For the purposes of this appeal, it is not necessary to consider in detail any of the three agreements referred to in orders No 1 (b), (c) and (d) of the orders of the Court made on 10 July 1992. They dealt with the subsequent development and marketing of the Accounting Products the subject of the Computer Assignment agreement. In essence, these agreements provided for a complex series of transactions which would result in CCH becoming committed to pay some $1,000,000 for those computer programs and in addition to expend large sums of money in further developing those programs to enable CCH to grant licences to its customers to use the programs.

19. As a secondary defence, counsel for AS2000 submitted that even if, on the facts of this case, warranties 3.1 (b) and (c) did constitute conduct by AS2000 in contravention of s52 of the Trade Practices Act, the learned trial Judge should not have exercised the discretion conferred upon him by s87 of the Trade Practices Act to make the orders 1, 2 and 3. In order to show error in the exercise of that discretion, counsel referred to the error in finding that AS2000 had no copyright in any of the AS2000 programs.

20. The trial of this proceeding was heard and determined in two parts. The issues relating to what can be described as liability were heard prior to the issues relating to remedies. The parties agreed that 12 questions should be answered and the issue of liability could be determined from the answers given. One of the questions related to the wording of the warranty 3.1 (c) of the Copyright Assignment agreement. The parties agreed the warranty should be rectified to read:

"3.1 The Assignor warrants that:

(a) ...

(c) there is no claim or potential claim against the

Assignor or any person whomsoever for infringement or

breach of copyright in respect of any or all of the

Accounting Products."

21. The rectification involved the substitution of the word "or" as underlined for the "of" as appearing in the agreement.

22. The questions raised at the hearing relevant to this appeal, and the answers of the learned trial Judge, are set out:

Question

"1. Whether as at 23 December 1988:

a) the first respondent was the proprietor of certain

accounting software products being computer programs

known as the 'Client Accounting System', the 'Office

Management System' and the 'Client Management System'

('the Accounting Products' and the 'computer

programs' respectively);

b) the first respondent was the sole beneficial owner of

the copyright in the Accounting Products;

c) the first respondent was entitled to assign the

copyright in the Accounting Products without the

consent of any person whatsoever."

Answer: 1. (a) No

(b) No

(c) No

23. It is to be noted that the correct answer to question 1(a) is "Yes".

Question

"3. ... whether, as at 23 December 1988 there was no claim or

potential claim against the first respondent or any person

whatsoever for infringement or breach of copyright in

respect of any or all of the Accounting Products."

Answer

3. No

Question

"4. In the event that all or part of the questions 1 or 3 above

is answered negatively, whether the respondents or any of

them knew the true state of affairs as at 23 December

1988."

Answer

4. No

Question

"5. Whether as at December 1988 or January 1989 the respondents

knew that:

a) it was the intention of the first applicant to grant

licences in Australia to any persons to do acts

comprised in the copyright in the Accounting Products

and the computer programs;

b) the applicants believed that the second applicant

would be entitled, following the execution of the

agreements referred to in paragraph 5 of the

statement of claim (the agreements referred to in the

order of

10 July 1992 plus other agreements not necessary to

refer to) to grant to any person whatsoever a licence

to do any act comprised in the copyright in the

Accounting Products or any of the computer programs

without the licence or consent of any other person;

c) the applicants believed that the second applicant

would be entitled following the execution of the

agreements referred to in paragraph 5, to grant an

assignment of the copyright in the Accounting

Products or any of the computer programs to the first

applicant without the licence or consent of any other

person ;

and

d) the applicants believed that, upon the assignment of

the copyright in the Accounting Products or the

computer programs by the second applicant to the

first applicant, the first applicant would have the

right to grant an assignment of such copyright to any

persons whatsoever without the licence or consent of

any other person."

Answer

5. (a) Yes

(b) Yes

(c) Yes

(d) Yes

Question

"6. If the answer to any of the questions 1, 3 or 4 above is in

the negative, whether the giving of the written warranties

(being 3.1 (a), (b) and (c) of the Copyright Assignment

Agreement) or any of them is as a matter of law capable of

constituting misleading conduct within the meaning of the

s52 of the Trade Practices Act."

Answer

6. Yes

Questions

"7. Whether the computer programs and the Accounting Products

(the AS2000 programs) are reproductions in a material form

of the whole or a substantial part of computer programs

which together form the Focus program.

8. Whether in the alternative the (AS2000 programs) are

adaptations of the whole or a substantial part of the Focus

programs.

9. Whether copyright, or in the alternative, part of the

copyright in the Focus programs was in December 1988 and

January 1989 owned by Focus Business Systems Pty Limited or

some person other than the first respondent.

10. If the questions numbered 7, 8 and 9 above are answered in

the affirmative, whether, by reason of the matters set out

in paragraphs 7, 8 and 9 above the licence or consent of

Focus Business Systems Pty Limited or its successors in

title or some other person was required before the

respective applicants could do any of the acts referred to

in sub-paragraphs 5(a) to (d) of question 5."

Answers

7. Yes

8. Yes

9. Yes

10. Yes

Question

"11. Whether the respondents knew each of the matters referred

to in paragraphs 7 to 10 above."

Answer

11. No

24. On the appeal, AS2000 challenged the answers to questions 1(b) and (c), 3, 6, 7, 8 and 9. Before turning to consider each of these questions, it is helpful to make some general comments concerning copyright. Copyright is in the nature of a chose in action. It is the exclusive right to do the acts referred to in s31 of the Copyright Act. See also s13. Copyright is personal property and may be assigned, but an assignment does not have effect unless it is in writing signed by or on behalf of the assignor; s196. The owner of copyright is able to enforce copyright by an action for infringement of the copyright; s115. Copyright is infringed where a person, not being the owner of the copyright and without the licence of the owner, does in Australia, or authorizes the doing in Australia of any act comprised in the copyright; s36. The owner of copyright may licence a person to do any act referred to in s31. The licence may be in writing, oral or to be implied, but any exclusive licence must be in writing signed by or on behalf of the owner; see definition of "exclusive licence" contained in s10 of the Copyright Act.

25. Having regard to the affirmative answer to question 1(a), AS2000 is, for the purposes of this appeal, to be treated as the owner of copyright in the Accounting Products, including the Client Accounting System, and thus is able to assign the copyright in the Accounting Products to CCH. The parties seemed to assume and accept that despite AS2000 being able to assign its copyright in the Accounting Products to CCH, Focus could claim copyright in parts of the Accounting Products and in particular in the Client Accounting System. This follows from the finding that the Focus agreement did not constitute an assignment of copyright in the Focus program from Focus to AS2000. The Focus agreement did not confer an exclusive licence on AS2000 to do the acts in paragraph 2 of the Focus agreement but did constitute a licence. Thus, at the trial, and on the appeal, the parties assumed and accepted the relevance of questions 1(b) and (c) in that if Focus was the owner of copyright in any part of the Client Accounting System, Focus could claim infringement of copyright by CCH if CCH did any act comprised in that copyright in relation to a substantial part of the Client Accounting System. As a result, at the trial, much evidence was directed to the issue of whether the Client Accounting System was a reproduction or adaptation by AS2000 of the copyright of Focus in the Focus program.

26. AS2000 had the licence of Focus to use its copyright in its source code constituting the Focus program. There can be no doubt AS2000 had access to that source code. Under the Focus agreement, Focus expressly authorized AS2000 "to modify, resell and represent (the Focus Program) as the property of (AS2000) to the Public Accounting and Tax Agent market without the payment of royalties or licence fees to Focus." Thus, there was no reason why AS2000 should not reproduce or make adaptations of the source code for the Focus program.

27. A computer program is, for the purposes of the Copyright Act, a literary work; see definition of literary work in s10. The definition of a computer program has been set out earlier in these reasons. There can be no doubt that the source code for the Focus program is a computer program. Evidence was led at the trial that the source code of the Focus program contained 99 files, each of which contained a number of lines. Twenty nine of those files, chosen at random, were compared with comparable files in the source code of the AS2000 Client Accounting System. The methodology used was to take each line in turn from the source code of the 29 Focus files, search for the same or similar line in the relevant source code of the AS2000 program and compare the contents. This comparison disclosed that 3907 lines out of a total of 6917 lines, that is 56% of the lines in the 29 files compared, were exactly the same, that is were reproduced, in the AS2000 source code. A further 2058 lines (30%) of the lines in the 29 files of the Focus source code were not reproduced in the AS2000 source code. The remaining 952 lines (14%) were said to be "very close".

28. At the trial, counsel for AS2000 challenged the methodology of the comparison relied upon and the fact that 29 Focus files only were made the subject of comparison, not the total 99 Focus files. These objections were not repeated on the appeal.

29. As a result of acceptance of this evidence, the trial Judge held that the AS2000 source code was a reproduction or adaptation of the Focus source code. His Honour said:

"I have come to that conclusion for two reasons. First, I am

overwhelmed by the extent of the exact copying (that is not a

quantitative statement; the extent is so great that it takes on a

qualitative mantle). And if to that, there is added some part

only of the close copying, the case for the applicants is the

stronger. In some of the files the extent of the copying was

extreme; for example, 7 of the 29 files showed copying ranging

from 82.2% to 100%. The respondents would prefer to emphasise

that all but 1 of the 99 files had some changes or alterations

but it is necessary to bear in mind that those changes or

alterations can range from minor modifications to new works. To

the extent to which they might be minor modifications, the Privy

Council said in Interlego A.G. v Tyco Industries Inc (1989) AC

217 at 256:

"In the nature of things the original drawings come to be

reproduced, probably many times, and updated from time to

time as minor modifications are made in design or methods of

manufacture. To accord an independent artistic copyright to

every such reproduction would be to enable the period of

artistic copyright in what is, essentially, the same work to

be extended indefinitely."

This, in turn, leads me to the second reason for rejecting the

respondents' witnesses. In my opinion they have concentrated too

much on the work done by AS2000 in 1988 and too little on the

extent to which original Focus work was retained in the AS2000

program. No amount of new or additional work will compensate for

the retention of a substantial and material part of the Focus

program. (Ladbroke Football) Ltd v William Hill (Football) Ltd

(1964) 1 All ER 465; Blackie and Sons Ltd. v Lothian Book

Publishing Co Proprietary Ltd [1921] HCA 27; (1921) 29 CLR 396.

I am satisfied that my acceptance of Mr Grouse's evidence

justifies, and leads to, the finding that the AS V2.1E program was

a reproduction (and if not a reproduction, then an adaptation) of

the FBS V1.3 program. Hence, AS2000 did not own and was not able

to assign copyright to the CCH group without the assistance of

Focus ..."

30. There was argument before the Full Court on whether this finding was, on the evidence, open. Paragraphs 31(a)(i) and (vi) of the Copyright Act provide:

"31(1) For the purposes of this Act, unless the contrary

intention appears, copyright, in relation to a work, is the

exclusive right:

(a) in the case of a literary ... work, to do all or any of the

following acts:

(i) to reproduce the work in a material form; ...

(vi) to make an adaption of the work;"

31. It is noted that the words "material form" are defined in s10, but there is no issue in this appeal in relation to this. The word "adaptation" is, defined in s10 and the relevant definition is:

"adaptation" means:

(a) ...

(ba) in relation to a literary work being a computer program - a

version of the work (whether or not in the language, code or

notation in which the work was originally expressed) not

being a reproduction of the work;"

32. Reference should be made also to sections 13 and sub-section 14(1):

"13. (1) A reference in this Act to an act comprised in the

copyright in a work or other subject-matter shall be read as a

reference to any act that, under this Act, the owner of the

copyright has the exclusive right to do.

(2) For the purposes of this Act, the exclusive right to do an

act in relation to a work, an adaptation of a work or any other

subject-matter includes the exclusive right to authorize a person

to do that act in relation to that work, adaptation or other

subject-matter.

14. (1) In this Act, unless the contrary intention appears:

(a) a reference to the doing of an act in relation to a word or

other subject-matter shall be read as including a reference

to the doing of that act in relation to a substantial part

of the work or other subject-matter; and

(b) a reference to a reproduction, adaptation or copy of a work

shall be read as including a reference to a reproduction,

adaptation or copy of a substantial part of the work, as the

case may be."

33. The basic nature of infringement appears in sub-section 36(1) as follows:

"36. (1) Subject to this Act, the copyright in a literary,

dramatic, musical or artistic work is infringed by a person who,

not being the owner of the copyright, and without the licence of

the owner of the copyright, does in Australia, or authorizes the

doing in Australia of, any act comprised in the copyright."

34. Remedies for infringements of copyright are contained in Part V of the Copyright Act commencing with s114.

35. Section 14 of the Copyright Act has an extending effect. Under s36, infringement occurs where a person, without the licence of the owner, does "any act comprised in the copyright." For present purposes, the relevant acts are reproduction of the Focus source code and the adaptation of the Focus source code. The whole of the Focus source code has not been reproduced, but on the evidence, the AS2000 source code at the very least is an adaptation of the Focus source code. The issue is whether the adaptation is "in relation to a substantial part" of the Focus source code.

36. Difficulties arise in applying copyright protection to computer programs on the footing that they are literary works. This is made evident by the Autodesk cases in the High Court; Autodesk Inc v Dyason [1992] HCA 2; (1992) 173 CLR 330 and Autodesk Inc v Dyson (No 2) [1993] HCA 6; (1993) 111 ALR 385. Neither of these decisions had been published at the time O'Loughlin J gave the judgments in the present matter. A very helpful summary of the first Autodesk case is given by Mason CJ in Autodesk (No 2) at pp387-8:

"The present case is a pioneering step into a technically and

conceptually complex world. That is partly because the 1984

amendments to the Copyright Act 1968 (Cth) extended copyright

protection to computer programs on the footing that they were

literary works and is one reason why there has been difficulty in

ascertaining precisely how the appellants presented their case.

Autodesk was the first decision of this court dealing with the

amendments made to the Copyright Act in 1984. It was only the

second decision of this court dealing with the issue of copyright

protection for computer programs, the decision in Computer Edge

Pty Ltd v Apple Computer Inc [1986] HCA 19; (1986) 161 CLR 171 being made on the

basis of the law as it stood before the 1984 amendment. And the

precise interpretation of the legislation and its application in

this case are likely to have a significant effect on the future

development of the computer industry in Australia.

The decision in Autodesk confirmed two fundamental principles.

First, the definition of a "computer program" by reference to "an

expression ... of a set of instructions" should be understood as

conferring protection upon the set of instructions itself - which

must be identified with some precision - but as doing so in a way

which is adapted to the nature of copyright. Thus, the protection

of computer programs is to conform to the dominant principle of

copyright law that protection is given not for ideas, but only for

the form of expression. However, as the judgment of Mason CJ,

Brennan and Deane JJ makes clear, this distinction must not be

applied too strictly. A distinction needs to be drawn between the

relevant set of instructions and the form of storage or

representation of the instructions, so that a person who

reproduces a set of instructions in a different form - such as by

turning source code into object code - does not escape

infringement. The object of protection is the computer program,

not just the particular form of storage or representation chosen

by the author.

The second fundamental proposition confirmed in Autodesk derives

from the first. Functionality is not the proper object of

copyright protection. As Dawson J stated in Autodesk, the purpose

or function of a utilitarian work is its idea, while the method of

arriving at that purpose or function is the expression of the

idea."

37. In the present case, in determining whether the act, being the reproduction or adaptation of the Focus source code, is in relation to a substantial part of the Focus source code, regard must be had to quality rather than the quantity of what is taken. The learned trial Judge was aware of this as appears from the quotation set out earlier in these reasons. In Autodesk (No 2) Mason CJ said at p389:

"It is clear that the phrase "substantial part" refers to the

quality of what is taken rather than the quantity. Hawkes and Son

(London) Ltd v Paramount Film Service Ltd (1934) Ch 593; Ladbroke

(Football) Ltd v William Hill (Football) Ltd (1964) 1 WLR 273;

Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd (1990) 95 ALR

275; 17 IPR 417, at 436; Dixon Investments Pty Ltd v Hall (1990)

[1990] FCA 117; 18 IPR 481. In Ladbroke (Football) Ltd v William Hill (Football)

Ltd, Lord Pearce stated (1964) 1 WLR, at 293:

Whether a part is substantial must be decided by its quality

rather than is quantity. The reproduction of a part which

by itself has no originality will not normally be a

substantial part of the copyright and therefore will not be

protected. For that which would not attract copyright

except by reason of its collocation will, when robbed of

that collocation, not be a substantial part of the copyright

and therefore the courts will not hold its reproduction to

be an infringement. It is this, I think, which is meant by

one or two judicial observations that "there is no

copyright" in some unoriginal part of a whole that is

copyright.

As this statement makes clear, in determining whether the quality

of what is taken makes it a "substantial part" of the copyright

work, it is important to inquire into the importance which the

taken portion bears in relation to the work as a whole: is it an

"essential" or "material" part of the work? Ricketson, The Law of

Intellectual Property, (1984), p169."

38. In the present case, the inference is clear. Adopting the qualitative test, the part of the AS2000 source code which constitutes a reproduction or adaptation of the Focus source code is an "essential" or "material" part of the whole of the work being the Focus source code. This is to be expected since it formed the basis of the Focus agreement.

39. This does not mean that in producing its Accounting Products, AS2000 has infringed any copyright of Focus in the Focus source code. This was done with the licence of Focus. In all probability, the Focus agreement is sufficient to constitute a licence to AS2000 to sell its programs to persons in the Public Accounting and Tax Agent market and to enable these persons to use the programs with the result that those persons, in using the AS2000 programs, are not infringing the copyright of Focus in those programs. CCH is not in that market. It is difficult to see any basis by which it can be argued that the Focus Agreement could form the basis for implying a licence from Focus to CCH to make use of its copyright in the AS2000 programs.

40. By the Copyright Assignment agreement, AS2000 has assigned its copyright in the AS2000 programs to CCH. If CCH uses these programs without the licence of Focus, it may infringe the copyright of Focus in these programs.

41. On the facts found, the correct answer to questions 1(b) and 1(c) is No. Parts of the AS2000 programs contain reproductions or adaptations of the Focus program. Focus retains copyright in those parts. Thus AS2000 was not the sole beneficial owner of the copyright in the Accounting Products. In one sense, it is true that AS2000 is able to assign its copyright in the Accounting Products, but any assignment, of necessity, is to enable the assignee to acquire copyright in the products. Insofar as Focus has copyright in the Accounting Products, Focus can enforce its rights against the assignee. Thus, to be effective, to enable the assignee to make use of the Accounting Products, it would need the consent of Focus. It is noted that questions 1(b) and (c) relate to 23 December 1988, the date of the Copyright Assignment agreement.

42. It is necessary to consider question 3. In his introduction to his second judgment on 11 March 1992, O'Loughlin J said:

"Although I found that there was no claim existing against the

(AS2000) or any other person as at 23 December 1988 for

infringement or breach of copyright in respect of the Accounting

Products or any part of them, I concluded that it was not possible

to find that there was no potential claim then subsisting."

43. On the appeal, it was not challenged that as at 23 December 1988 there was no claim then existing against AS2000 or any other person. Hence the negative answer to question 3. However, the appellant challenged the finding that it was not possible to find that there was no potential claim then subsisting.

44. This finding must be considered having regard to the finding that Focus, or some person other than AS2000 claiming through Focus, was the owner of copyright in the Focus program which is contained in the AS2000 programs whether by way of reproduction or adaptation and could bring an infringement action against AS2000, CCH or any other person who without the licence of Focus or its successor in title in Australia did or authorized the doing in Australia of any act, as defined in s14 of the Copyright Act comprised in that copyright.

45. Logically, this must be so. It must be understood that the time relevant to be considered with respect to any potential claim is 23 December 1989. Logically, it should make no difference to the answer to question 3 if, after 23 December 1989, the persons who on 23 December 1989 had a potential claim, said they would not make a claim. It is too late for that to have effect on liability, but it could affect remedies. Yet this is what AS2000 attempted to do to support an affirmative answer to question 3.

46. The issue raised with respect to question 3 is illustrated by the following passage from the first judgment of O'Loughlin J given on 27 March 1991:

"Subsequent to the execution of the agreements (23 December 1988)

Focus went into liquidation and such rights as it had in the

copyright in the FBS V1.3 program (the Focus program) vested in

another company, Adept Business Systems Pty Ltd ("Adept"). The

CCH group have complained that the money spent or intended to be

spent on the acquisition, development and promotion of the

Accounting Products would be wasted or, at least, jeopardised if a

third party (such as Adept) could restrain the use or the

sub-licensing of the program for the Accounting Products by the CCH

group or if the group did not own the program exclusively. The

claim continued that it was essential for the group to acquire and

hold copyright in the program so that they could, in turn, sell

the software as purchased, or, the software as purchased and

developed, to their customers.

Mr Shanahan (for CCH interests) sought from Mr Stokes (for AS2000

interests) evidence or assurances that Focus and Adept did not

have and would not have any claim against the CCH group in respect

of its ongoing development and marketing of the Accounting

Products. As neither was forthcoming to Mr Shanahan's

satisfaction, the CCH group ceased marketing the Accounting

Products and thereafter instituted these proceedings on 23 June

1989."

47. His Honour then considered question 1 and having determined that the answers should be in the negative, said:

"These answers, in turn, must mean, in my opinion that there was,

at the least, a "potential claim" - perhaps against the first

respondent - perhaps against the CCH group - for infringement.

Hence, to match the language of Question 3, the answer must be -

"No"."

48. On the appeal, counsel for AS2000 challenged the conclusion. It was conceded that at 23 December 1988 there was no existing claim against any person for infringement or breach of copyright in respect of any or all of the Accounting Products. Counsel contended that it did not follow from the negative answers to question 1(b) and 1(c) that at 23 December 1988, there existed any potential claim against any person for infringement or breach of copyright.

49. From the reasons of O'Loughlin J, it is apparent that any possible potential claim was limited to a claim by Focus or a person claiming through Focus, namely Adept. After the proceedings between CCH and AS2000 had been commenced on 23 June 1989, AS2000 procured the execution by Adept of a deed dated 29 September 1989 by which it purported to acknowledge the legitimacy of what AS2000 had done. Subsequently, during the hearing of the trial, Adept executed a further deed in which it purported unreservedly to acknowledge that it would not take action against any person to whom AS2000 had sold its program. Counsel for CCH contended that this was not supported by the evidence.

50. The short answer to these contentions is that at 23 December 1988, either Focus or Adept had copyright in part of the AS2000 programs. The licence given to AS2000 by the Focus agreement would have prevented any infringement claim against AS2000 based on the AS2000 programs and against persons in the Public Accountant and Tax Agent market. On the findings made, the Focus agreement would not have provided a good defence to an infringement action by Focus or Adept against AS2000 arising from the Copyright Assignment agreement, or an infringement action against CCH or against persons to whom it had sold the Accounting Products. A subsequent disclaimer does not deny a potential claim existing before the disclaimer.

51. In any event, neither of the deeds is sufficient to remove a potential claim. The first deed is based on a wrong assumption, namely that the AS2000 program is not a reproduction of the Focus program. This cannot affect the rights of the Focus or Adept insofar as the AS2000 programs are a reproduction or adaptation of the Focus program. Under the second deed, Adept did not assign its copyright in the Focus program so as to enable CCH to acquire that copyright. In fact Adept expressly preserved its rights in the Focus program. AS2000 fails on this part of its appeal.

52. From what has been said, the affirmative answers given by the learned trial Judge to questions numbered 7 to 10 inclusive are correct. The answers to questions 4 and 5 are not challenged. The answers to questions 1(b), 1(c), 3 and 4 are all in the negative. It becomes necessary, therefore, to consider question 6 which is as follows:

"6. If the answer to any of the questions 1, 3 or 4 above is in

the negative, whether the giving of the written warranties

(being 3.1 (a), (b) and (c) of the Copyright Assignment

Agreement) or any of them is as a matter of law capable of

constituting misleading conduct within the meaning of the

s52 of the Trade Practices Act."

53. In some respects, the questions and answers which formed the basis for the first judgment are of a similar nature to a special verdict of a jury. The questions and answers in the present case are directed to questions of fact and of law, but the form of the questions and the answers have a limiting affect. This is so particularly with respect to question 6. The question is limited to whether "the giving of the written warranties ... is as a matter of law capable of constituting misleading conduct under s52 of the Trade Practices Act". This led to a limitation, apparently, on the evidence relevant to wider issues as to the conduct of AS2000 leading up to the Copyright Assignment agreement. Hence the issue raised on this aspect of the appeal is limited as explained earlier in these reasons. The Full Court cannot draw inferences going beyond the confines of question 6. This is very similar to restrictions arising with respect to special verdicts. The interesting history of the development of special verdicts is given in Otis Elevators Pty Ltd v Zitis (1985-1986) 5 NSWLR 171 per Kirby P at pp178-180 and McHugh JA at pp197-202. At p198 McHugh JA said:

"The nisi prius record was then brought before the Court in banc.

The Court gave judgment for the party who, in point of law, was

entitled to judgment on the findings of fact. No further

inferences of fact could be drawn by the Court from any of the

jury's findings: Hubbard v Johnstone [1810] EngR 418; (1810) 3 Taunt 177 at 209;

[1810] EngR 418; 128 ER 71 at 83. If the special verdict did not find all

necessary facts or the verdict was uncertain or ambiguous, a

venire de novo was awarded upon which a further trial was heard:

Fryer v Roe at 444; 980 per Jevis CJ; Bacon's Abridgement (at 100,

102-103); Brown v Lizars [1905] HCA 24; (1905) 2 CLR 837 at 847. Frequently, the

findings of the jury in a special verdict were extensive and

required a lengthy statement. In Lickbarrow v Mason (1794) 5 TR

683; [1794] EngR 2244; 101 ER 380, the facts constituting the special verdict occupy

three pages of the original report. The better opinion seems to

be that the Court had no power without consent to amend a special

verdict concerning any question of fact: Bacon at (101).

Accordingly, as Lord Blackburn said in Dublin, Wicklow and Wexford

Railway Co v Slattery (1878) 3 App Cas 1155 at 1204-1205, there

was so much technical nicety required in framing a special verdict

that it required some good fortune to be able to raise the real

question in the case."

54. The present appeal illustrates the difficulties and limitations that can arise where specific questions are answered as preliminary issues. Of necessity, the form of the questions limit the future conduct of the hearing of the application and limit the scope of any appeal after final orders have been made. On appeal, the Full Court cannot go beyond the terms of the questions. This is illustrated by what O'Loughlin J said in his second reasons for judgment given on 11 March 1992:

"The (Copyright Assignment agreement) contained in sub-clause 3.1,

a series of warranties, including warranties that AS2000 was "the

sole beneficial owner of the copyright in the Accounting Products"

and that it was "entitled to assign such copyright to (CCH)". It

further warranted that there was no claim or potential claim

against AS2000 or "any person whomsoever for infringement or

breach of copyright in respect of any or all of the Accounting

Products". I found that the giving of such warranties was, as a

matter of law, capable of constituting misleading or deceptive

conduct within the meaning of s52 of the Trade Practices Act.

Subsequent to the publication of my earlier reasons, the

prosecution of the proceedings has been resumed; further evidence

has been led and further submissions have been made. One of the

first issues that has been raised is this: even though the giving

of such warranties was capable of amounting to misleading or

deceptive conduct, it was still necessary to consider whether, in

the particular circumstances of this case, their giving did amount

to such conduct or to conduct that was likely to mislead or

deceive. It was the case for the respondents that the warranties

should not be regarded as representations, that the giving of them

did not constitute an inducement and that the applicants did not,

in any relevant sense, rely on the contents of the warranties."

55. The difficulties inherent in the statement of issues expressed in the latter part of this extract will be considered later in these reasons.

56. The second part of the hearing of the application, therefore, was limited to the issue of whether AS2000, in giving the warranties, had engaged in conduct in contravention of s52 of the Trade Practices Act and, if so, the appropriate remedies to which CCH was entitled. Thus there was no consideration given to the issues of whether there had been any breach of the warranties by AS2000, whether the warranties should have been treated as conditions, or the remedies to which CCH was entitled for breach of the warranties. For the same reason, no evidence was led concerning conduct by AS2000 leading up to the making of the Copyright Assignment agreement, whether that conduct was misleading or deceptive or likely to mislead or deceive and whether CCH relied on that conduct in entering into the agreement. It follows that if the Full Court disagrees with the answer given by O'Loughlin J to question 6, it will not be required to consider the second reasons for judgment but will be required to set aside the orders made and order a new trial. This illustrates the limitations arising from the form of the questions answered in the first judgment and the inability of the Full Court to go beyond the terms, in this case, of question 6 since the subsequent hearing was based on the affirmative answer given to that question.

57. Under sub-section 82(1) of the Trade Practices Act, a person who suffers loss or damage by conduct of another person that was done in contravention of s52 may recover the amount of the loss or damage against that other person. In addition, under s87, the person who has so suffered loss or damage may obtain a wide range of remedies including orders declaring any agreement void ab initio. There is ample authority for the proposition that conduct, whether of commission or omission, engaged in before an agreement is entered into, is capable of constituting conduct in contravention of s52. If the conduct is constituted by representations which are then incorporated as terms of the agreement, these representations, if false, are capable of constituting a contravention of s52. In the present case, there is no evidence of any conduct, whether by representations or otherwise, engaged in by AS2000 before the Copyright Assignment agreement was executed. As counsel for AS2000 contended, the case put on behalf of CCH depended upon the proposition that the written warranties themselves, being executed by AS2000 in favour of CCH, constituted conduct which contravened s52 of the Trade Practices Act. Before O'Loughlin J, AS2000 contended that, as a matter of law, the mere giving of a warranty was not capable of constituting a misrepresentation in contravention of s52.

58. On this issue, O'Loughlin J said in his first judgment:

"Subsection 4(2) of the Trade Practices Act provides that:

" ... a reference to engaging in conduct shall be read as a

reference to doing or refusing to do any act, including the

making of, or the giving effect to a provision of, a

contract or arrangement, the arriving at, or the giving

effect to a provision of, an understanding or the requiring

of the giving of, or the giving of, a covenant."

The breadth of this provision is such that the word "conduct"

would embrace the giving of warranties in an agreement and if

those warranties were inaccurate at the time when they were given

then such conduct could be capable of constituting misleading or

deceptive conduct within the meaning of s52. ...

The conclusion that I have reached is that the giving of the

warranties that were referred to in the statement of claim can, as

a matter of law, be capable of constituting misleading conduct

within the meaning of the Trade Practices Act.

59. On the appeal, counsel for CCH contended that this view was correct. He contended that a contractual warranty is, at least, a statement or promise that something is true and that this is a representation constituting conduct under s52 of the Trade Practices Act. He contended that s52 does not import distinctions as to types of representations or remedies from the general law. Irrespective of the nature of the remedy in the general law of contract and of the distinction between conditions, warranties and intermediate terms, the Trade Practices Act focuses on conduct. He contended that the giving of a warranty is conduct in terms of sub-section 4(2) of the Trade Practices Act whether or not it is a representation.

60. It is apparent, therefore, that it is necessary to determine whether the provisions of sub-section 4(2) of the Trade Practices Act, when referring to the word "conduct" and the phrase "engaging in conduct", apply to the phrase "engage in conduct" appearing in s52. If this is the case, it follows that "engage in conduct" is to be read as a reference to the making of a contract.

61. Reference is made to a number of provisos of the Trade Practices Act as originally enacted in 1974. Part IV, comprising sections 45 to 51, was headed "Restrictive Trade Practices". One of the important sections in that Part was s45 which related to the making of contracts or arrangements or entering into understandings in restraint of trade or commerce. Sub-section 4(1) was the normal definition provision. It commenced in the traditional form "In this Act, unless the contrary instruction appears - ". Included in this sub-section were the following:

""conduct", when used as a noun, includes doing, refusing to do,

or refraining from doing, any act, including making a contract or

arrangement or entering into an understanding;"

"engage in conduct" includes do, refuse to do, or refrain from

doing, any act, including the making of a contract or arrangement

or the entering into an understanding, and "engaging in conduct"

has a corresponding meaning;"

62. It is noted that neither of these definitions is definitive. Each is inclusive. In fact each contains a double inclusion. In each definition, the second inclusion contained the expressions used in s45 namely "making a contract or arrangement or entering into an understanding" in restraint of trade or commerce. This made it clear that the provisions of the Act proscribed conduct of a particular kind being acts of the kind described in s45. The Trade Practices Act imposed penalties on persons who engaged in conduct of that kind and conferred remedies on third parties who suffered loss or damage as a result of that conduct.

63. Part V, comprising sections 52 to 75, was headed "Consumer Protection". Division 1 of Part V was headed "Unfair Practices". At that time, s52 did not include the words "or is likely to mislead or deceive".

64. Part VI, comprising sections 76 to 87, was headed "Enforcement and Remedies". Sub-section 82(1) provided:

"82(1) A person who suffers loss or damage by an act of

another person that was done in contravention of a provision of

Part IV or V may recover the amount of the loss or damage by

action against that other person."

65. Note that sub-section 82(1) did not contain the word "conduct" despite the definition of that word in sub-section 4(1) and the first inclusion of that definition. But that definition applied to the word "conduct" and "engage in conduct" appearing in s52.

66. Section 87 conferred ancillary remedies including a power enabling the Court to declare a contract to have been void ab initio.

67. The Trade Practices Amendment Act 1977 (the Amendment Act) came into operation on 1 July 1977. It followed and adopted most of the recommendations of the Swanson Committee Report of 1976. It made major amendments to the Trade Practices Act, particularly to Part IV. It also made amendments to other Parts of the Trade Practices Act. It deleted the definitions of "conduct" and "engage in conduct" in sub-section 4(1). It inserted a definition of "covenant" designed to overcome the decision of Quadramain Pty Ltd v Sevastopol Investments Pty Ltd [1976] HCA 10; (1976) 133 CLR 390. It rescinded sub-sections 4(2),(3) and (4) but re-enacted the substance of those provisions in a different form together with other special provisions, in sections 4A, 4B, 4C, 4D, 4F, 4H, 4J, 4K, 4L and 4M. It inserted new sub-sections 4(2), (3) and (4). For present purposes, the new sub-section 4(2) is of importance. That sub-section is set out in full:

"(2) In this Act -

(a) a reference to engaging in conduct shall be read as a

reference to doing or refusing to do any act, including the

making of, or the giving effect to a provision of, a

contract or arrangement, the arriving at, or the giving

effect to a provision of, an understanding or the requiring

of the giving of, or the giving of, a covenant;

(b) a reference to conduct, when that expression is used as a

noun otherwise than as mentioned in paragraph (a), shall be

read as a reference to the doing of or the refusing to do

any act, including the making of, or the giving effect to a

provision of, a contract or arrangement, the arriving at, or

the giving effect to a provision of, an understanding or the

requiring of the giving of, or the giving of, a covenant;

(c) a reference to do an act includes a reference to -

(i) refraining (otherwise than inadvertently) from doing

that act; or

(ii) making it known that that act will not be done; and

(d) a reference to a person offering to do an act, or to do an

act on a particular condition, includes a reference to the

person making it known that the person will accept

applications, offers or proposals for the person to do that

act or to do that act on that condition, as the case may

be."

These provisions will be considered further later in these reasons.

68. The Amendment Act virtually rewrote Part IV of the Trade Practices Act. This followed the main thrust of the Swanson Committee recommendations. Sub-section 45(2) provided that a corporation shall not make a contract or arrangement or arrive at an understanding if the proposed contract arrangement or understanding contains an exclusionary provision or if a provision of the proposed contract, arrangement or understanding has the purpose or would have or be likely to have the effect of substantially lessening competition, or give effect to such a provision. It is not necessary, for present purposes, to refer to the other provisions inserted into Part IV of the Trade Practices Act nor to the provisions which enable a corporation to engage in conduct which would contravene sections 45, 45B, 47 and 50 where an authorization is in force by reason of s93.

69. The Amendment Act also inserted the words "or is likely to mislead or deceive" at the end of s52 of the Trade Practices Act. This was done to assist in proving a contravention of s52. Section 55A was inserted, but this section is to be contrasted with the existing s55 which, apparently, is based on the external affairs powers. Sub-section 82(1) was amended to read:

"82(1) A person who suffers loss or damage by conduct of

another person that was done in contravention of a provision of

Part IV or V may recover the amount of the loss or damage by

action against that other person or against any person involved in

the contravention."

70. Section 87 was substantially amended, but the ancillary remedies referred to in sub-sections 87(1), 1(A) (2) and (3) were related to "conduct of another person that was engaged in" in contravention of a provision of Part IV or Part V as the case may be.

71. It is necessary to come back to sub-section 4(2). It is noted that this sub-section does not include the words "unless the contrary intention appears". In each of paragraphs 4(2)(a) and (b) the opening words are "In this Act a reference to engaging in conduct shall be read as a reference to ... " and "In this Act, a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a) shall be used as a reference to ... " respectively. To this extent, the meanings are absolute. In each case the reference is to "doing or refusing to do any act" and "the doing of or the refusing to do any act". By way of comment it is noted that these provisions are very similar to the opening provisions of the definitions of "engage in conduct" and "conduct" as originally contained in sub-section 4(1) and which were repealed by the Amendment Act. There can be no doubt that these parts of the definition have and have been given a very broad meaning by decisions of the Federal Court and High Court.

72. Paragraphs 4(2)(a) and (b) contain the words of inclusion being "including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of a covenant;".

73. The issue to be decided by this appeal is whether those words of inclusion are, on the proper construction of the paragraphs, to be limited to the making of a contract or arrangement or arriving at an understanding of the kind referred to in Part IV of the Trade Practices Act and other provisions related thereto, or whether they are to be given an unrestricted meaning so as to include within the word conduct the making of any contract, the giving effect to a provision of any contract, the making of an arrangement, the giving effect to a provision of any arrangement, the arriving at any understanding, the giving effect to a provision of any understanding, the requiring of the giving of any covenant or the giving effect to any covenant.

74. In my opinion, the words are to be given the limited meaning.

75. The words concerned form a strange collocation of words. They are used in the same way both in Part IV of the Trade Practices Act as originally enacted and as amended by the Amendment Act. It follows that when they are used in the same way in paragraphs 4(2)(a) and (b) they are to be taken to have the same limited meaning, namely to that applying in Part IV; a contract or arrangement or understanding of the kind proscribed by Part IV. Thus, the making of a contract is limited to the making of a contract proscribed by Part IV. It is the making of a contract of that type which is included in the definition as engaging in conduct, the conduct being the doing of an act. This conclusion is consistent with the perceived application of sub-section 52(1) of the Trade Practices Act.

76. The authorities show that a very wide meaning has been given to the words "engage in conduct that is misleading or deceptive or is likely to mislead or deceive" in s52. Conduct has been held to include a representation, but a representation is not an essential element. Conduct is the doing of or the refusing to do any act. The act may be an act of commission or an act of omission. It is not necessary that the person mislead or deceived or likely to be mislead or deceived in fact entered into a contract as a result of the conduct of the corporation. The conduct proscribed by s52 is absolute. The remedy conferred by s82 arises where a person suffers loss or damage "by conduct of another person that was done in contravention of a provision of Part IV or V". The normal case under s52 is where a person enters into a contract as a result of conduct of another person that was done in contravention of that section. The loss or damage is to be determined in conformity with tortious liability, not for breach of contract. The liability of the other person arises from conduct in contravention of s52, not from breach of contract entered into as a result of that conduct. But the injured person may sue for breach of contract if the representation is a term of the contract. In many cases, loss or damage may be recovered even if no contract is entered into.

77. The conclusion that the words of inclusion contained in paragraphs 4(2)(a) and (b) of the Trade Practices Act are limited to the activities described by the same words when used in Part IV, and in particular s45, is supported by looking at each type of activity. Conduct is to be read as a reference to doing or refusing to do any act. The words of inclusion then appear. The activities mentioned include not only the making of a contract but extend to the giving effect to a provision of a contract, the making of an arrangement, the giving effect to a provision of an arrangement, the arriving at an understanding or the giving effect of a provision of an understanding. These activities are not appropriate to describe conduct or the engaging in conduct in contravention of s52. They are appropriate to describe the activities described in s45. Those activities, if having the consequences described in s45, are proscribed by s45. It is natural to describe those activities as acts constituting conduct under the Trade Practices Act with all the consequences flowing therefrom. Persons who are not a party to such a contract, arrangement or undertaking have remedies conferred upon them by s82 and s87. There is no warrant for taking part of this composite phase, namely, the making of a contract, and to conclude that the making of a contract of any type is conduct within the meaning of s52. Neither the second reading speech nor the explanatory memorandum with respect to the Amendment Act suggest this was the intention of the Legislature. The submission made on behalf of CCH on this issue are rejected.

78. In the present case, counsel for CCH contended that the warranties numbered 3.1(b) and (c) of the Copyright Assignment agreement were representations which were contained in the contract and that AS2000, in making the contract which contained those representations, which were not true, had, by definition, engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s52 of the Trade Practice Act. The conduct was the making of the contract itself, not any act of commission or omission which occurred before the contract was made.

79. Counsel referred to authorities which, he contended, supported this view, namely that a warranty may constitute the making of a representation. In Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, the High Court considered a fraudulent representation in relation to a contract for the purchase of a business. The purchaser successfully sued the vendor in the Supreme Court of Queensland. The vendor, as appellant, appealed to the High Court. The contract for the sale of the business was on a printed form with typewritten additions. The clause relevant for present purposes was Clause 21. As appears at p221, Clause 21 was headed in print "21. Special Clause", and it proceeded in typewriting: "Vendor states that the average takings are pounds 100 per week". The takings proved immediately to be much less than pounds 100 per week. A question arose concerning the remedies available to the purchaser. Three possibilities were available: sue for damages for breach of warranty, but if he did this he could not rescind the contract, sue for damages for fraud, but this involved affirming the purchase, or rescind the contract. The main issue before the High Court was whether rescission was available.

80. At p219, Dixon CJ, Webb, Kitto and Taylor JJ, in a joint judgment, referred to the purchaser's allegations that he had been induced to enter into the contract of purchase by three fraudulent representations as to the takings of the business made respectively by three separate persons including the appellant personally. Their Honours continued:

"At the trial the respondent proved the making of all three

misrepresentations, but he failed to satisfy the learned judge

that in entering into the contract he had relied upon those made

by Yenco and B.F. Canniffe Pty Ltd. As against Yenco, therefore,

the action failed. His Honour found, however, that the respondent

did rely upon the representation which had been made by the

appellant himself. This was in the form of a statement contained

in the contract itself that the average takings were pounds 100 per

week. The learned judge held that this statement was a

representation made by the appellant to the respondent, made, that

is, at the time when the form of contract containing it was

presented to the respondent for signature; and his Honour further

found that the statement was false in fact, and that the plaintiff

made it either knowing it to be false or recklessly not caring

whether it was true or false. These findings were justified by

the evidence, ... "

"On the footing which must be accepted, that the contract had been

induced by a fraudulent representation made by the appellant to

the respondent, the latter had a choice of courses open to him.

He might sue for damages for breach of the warranty contained in

cl.21, for the statement in that clause clearly formed one of the

terms of the contract and was not only a representation;"

82. In that case, there can be no doubt that the misrepresentation had been proved. In all probability on the same evidence, if the vendor had been a corporation, it would have engaged in conduct in contravention of s52 of the Trade Practices Act. That case is very different from the present.

83. In the present case, the sixth question asked at the first hearing was directed to whether the giving of the written warranties, being identified as paragraphs 3(1)(a), (b) and (c) of the Copyright Assignment agreement, or any of them, is as a matter of law capable of constituting misleading conduct within the meaning of s52 of the Trade Practices Act. The trial Judge held that, having regard to s4(2) of the Trade Practices Act, the word "conduct" would embrace the giving of the warranties in the Copyright Assignment agreement and if those warranties were inaccurate at the time they were given then such conduct could be capable of constituting misleading or deceptive conduct within the meaning of s52.

84. In the present case, the affirmative answer given to question 6 in the first judgment, restricted the evidence called at the hearing of the second part of the trial. The warranties were treated as constituting conduct under s52 because they formed part of the Copyright Assignment agreement, which was a contract, which, by definition, constituted conduct. His Honour said:

"I have also concluded that the facts of this case are such that

the warranties that were contained (in the Copyright Assignment

agreement) constituted representations that were made by (AS2000)

to (CCH). The warranties were written statements that were

misleading or deceptive; the presentation of them to (CCH) (in the

Copyright Assignment agreement) amounted to conduct that offended

against s52 of the TPA. Although innocently made, it remains a

fact that the representations as to the existence of and ownership

of copyright struck at the root of the bargain. I accept Mr

Shanahan when he says that (CCH) would not have entered into any

of the contracts if it had know that (CCH) would not be acquiring

copyright in the Accounting Products. I find that written

warranties can - and in this did - constitute the making of

representations. In my opinion the following authorities make

that clear."

85. Difficulties arise from this passage which were foreshadowed in the earlier extract from the second judgment set out earlier in these reasons. It seems to assume conduct, or representations, being engaged in or made by AS2000 before the Copyright Assignment agreement was made. But the relevant pleadings and particulars do not allege this. One of the issues on the second part of the hearing was whether CCH had suffered loss or damage by the conduct of AS2000 that was in contravention of s52 of the Trade Practices Act; see s82. The only conduct alleged was the existence of the warranties contained in paragraphs 3.1(a), (b) and (c) of the Copyright Assignment agreement. The agreement was prepared by the solicitors for CCH. There is no evidence to show how the clauses came to be included in the agreement, whether they were included because of statements made on behalf of AS2000 or whether they were raised for the first time in the agreement prepared by the solicitors for CCH. On the way the appeal was argued, it is to be assumed that the only relevant fact is that the terms were in the agreement and that by entering into that agreement AS2000 engaged in conduct within the meaning of that phrase in s52 of the Trade Practices Act, the meaning of "engaging in conduct" and "conduct" being the inclusion appearing in paragraphs 4(2)(a) and (b). Thus, this was not a case where CCH sought to establish that, as a result of prior conduct of AS2000, CCH was induced to enter into the Copyright Assignment agreement. The facts of Alati were very different.

86. Further, this passage illustrates the difficulties inherent in the submissions made on behalf of CCH. If the making of the contract is itself the engaging in conduct, it follows that any statement, promise or undertaking appearing in the contract made by one of the parties to the contract would, if false, enable the other party to obtain remedies under the Trade Practices Act. Logically, if the making of the contract, arrangement, undertaking or any other of the acts mentioned in the inclusive part of paragraphs 4(2)(a) and (b) is to be treated as conduct, then any person, not being a party to that contract, arrangement or undertaking who suffers loss or damage as a result would be entitled to the benefits of the remedies referred to in sections 82 and 87. This follows from the provisions of s82 if the making of the contract arrangement or undertaking, or any other of the acts mentioned, was done in contravention of a provision of Part IV and in particular s45.

87. The passage which is granted from the judgment of O'Loughlin J is in the traditional form. It is not consistent with the answer given to question 6. Under that answer, the falsity itself of the warranties constitutes the basis of liability.

88. Because of the affirmative answer given to question 6, CCH relied upon the existence of the warranties as being representations. No evidence was led, apparently, as to any conduct by AS2000 prior to the entering into of the Copyright Assignment agreement. Having formed the opinion that the making of the contract itself is not conduct or engaging in conduct under s52 of the Trade Practices Act, there is no ground for supporting the conclusion that the existence of the warranties by themselves constituted conduct in contravention of s52. The findings in Alati v Kruger were expressly based upon the evidence before the trial judge. That authority does not assist CCH in this case where the issue relates to misleading or deceptive conduct, not a separate issue of representations.

89. The other case relied on by counsel for CCH and cited by the trial Judge was Simons v Garlon Investments Pty Ltd (1975) 2 NSWLR 30. There the facts found were that the purchaser, relying upon a statement in a leaflet relating to the existence of a lock up garage, entered into a contract to purchase a home unit. The contract contained a term to the same effect as in the leaflet. The Supreme Court of New South Wales held the statement in the leaflet was designed to entice people to purchase home units and constituted a representation. The fact that the same representation was a term of the contract did not mean there was no representation. This proposition is not disputed, but it has no application here.

90. Having concluded that the mere making of a contract cannot constitute conduct engaging in conduct within the meaning of s52 of the Trade Practices Act, the answer to question 6 must be in the negative. It follows that the whole of the second part of the hearing before the trial Judge proceeded on a wrong basis. In these circumstances the final orders appealed from cannot stand. On this appeal, it is not necessary to consider the question of what remedies should be granted to CCH. They would depend upon evidence given having regard to the correct answers to the questions answered in the first judgment. Remedies could be based upon breach of contract, but the relief ordered would depend upon the evidence led at the further trial. The way the pleadings stand, CCH should not be permitted to allege, and seek to prove, misleading or deceptive conduct by AS2000 based on acts leading up to the making of the Copyright Assignment agreement.

91. In all the circumstances, I would allow the appeal with costs. I would set aside the orders made on 10 July 1992. I would order that the questions asked in the reasons for judgment by the Honourable Mr Justice O'Loughlin on 27 March 1991 be answered as follows:

1. (a) Yes

(b) No

(c) No

(d) Not necessary to answer

2. Yes

3. No

4. No

5. (a) Yes

(b) Yes

(c) Yes

(d) Yes

6. No

7. Yes

8. Yes

9. Yes

10. Yes

11. No

12. Not necessary to answer

92. It is possible that in view of the answer given by the trial Judge to question 6, it became unnecessary to answer question 12. In these circumstances, I would grant CCH leave to reopen and reargue question 12.

93. I would order a new trial on the issue of what orders should be made as a consequence of the orders I propose and the publication of these reasons. The parties would be free to lead evidence at the re-trial. I would reserve the costs of the first part of the hearing before O'Loughlin J to the Judge hearing the retrial of the second part of the hearing. I would order CCH Australia Ltd and Castle Douglas Pty Ltd to pay the costs of Accounting Systems 2000 (Developments) Pty Ltd, Accounting Systems 2000 Pty Ltd and Gregory Stokes in respect of the second part of the hearing before The Honourable Mr Justice O'Loughlin. In the circumstances I would allow the cross-appeal but make no order for the costs of that cross-appeal.

LOCKHART, GUMMOW JJ This appeal and cross-appeal are brought from the final orders of a Judge of this Court (O'Loughlin J) made 10 July 1992, in which his Honour disposed of a proceeding which had raised issues of copyright and trade practices law. The final orders were made after delivery of two sets of reasons for judgment, the first on 27 March 1991 (reported (1991) AIPC 90-801) and the second on 11 March 1992. In the first judgment, his Honour dealt with 12 preliminary questions which, on 24 November 1989, the Court had ordered be determined before trial. The parties then led further evidence and made additional submissions before the delivery of the second judgment.

2. The final orders included an order pursuant to s. 87 of the Trade Practices Act 1974 ("the T.P. Act") declaring void ab initio 4 agreements between the parties, and an order under s. 82 that the appellants pay damages to the first respondent ("CCH").

3. The first and second appellants, which we shall call respectively "Developments" and "Systems 2000" were closely related and carried on business as developers of computer software. The third cross-respondent, Mr Stokes, was a director of both appellants. The primary Judge held that Mr Stokes was not liable pursuant to s. 75B of the T.P. Act for contraventions of s. 52 by his companies. The respondents bring a cross-appeal on that issue.

4. The first respondent ("C.C.H.") is a publisher of legal, accounting and other professional works. The second respondent ("Castle Douglas") was jointly acquired by C.C.H. and Developments as a joint venture company but was controlled by C.C.H.

5. We should indicate first the two issues which are raised by the appeal. The primary Judge held that the breadth of the provision in sub-s. 4 (2) of the T.P. Act as to the meaning of the phrase "engaging in conduct" was such that the term "conduct" would embrace the giving of warranties in an agreement without any anterior representation or semble other conduct; if those warranties were inaccurate at the time when given, the giving of them could be capable of constituting misleading or deceptive conduct within the meaning of s. 52, and attract remedies under ss. 82 and 87.

6. It will be recalled that the phrase in sub-s. 52 (1) is "engage in conduct" and that the concluding words, "or is likely to mislead or deceive" were inserted by the Trade Practices Amendment Act 1977 ("the 1977 Act"). The 1977 Act also substituted a new s. 45 and added ss. 45A, 45B, 45C, 45D as well as making other significant changes to the legislation. Paragraph 4 (2) (a) states that:

"4 (2) In this Act -

(a) a reference to engaging in conduct shall be read

as a reference to doing or refusing to do any

act, including the making of, or the giving

effect to a provision of, a contract or

arrangement, the arriving at, or the giving

effect to a provision of, an understanding or

the requiring of the giving of, or the giving

of, a covenant;

. . ."

7. The second issue concerns the application of well settled principles developed in relation to infringement of copyright in that species of literary work being a "computer program" within the meaning of the definition in sub-s. 10 (1) of the Copyright Act 1968 ("the Copyright Act"). The provisions concerning computer programs were inserted in 1984 and have been considered twice by the High Court, in relation to the same litigation, in Autodesk Inc. v Dyason [1992] HCA 2; (1992) 173 CLR 330, and Autodesk Inc. v Dyason (No. 2) [1993] HCA 6; (1993) 111 ALR 385.

8. It is well settled that (a) functionality is not a proper object of copyright protection, and (b) in determining whether there is infringement of a work by the taking of a "substantial part" within the meaning of s. 14 of the Copyright Act, there is involved consideration, in relation to the work as a whole, not only of quantity but also of quality. In the Autodesk litigation it was said that the protection of computer programs, pursuant to the 1984 amendments, is to conform "to the dominant principle of copyright law that protection is given not for ideas, but only for the form of expression", but that "this distinction must not be applied too strictly", because "the object of protection is the computer program, not just the particular form of storage or representation chosen by the author": Autodesk Inc. (No. 2) supra at 388 per Mason CJ.

9. In Nimmer "The Law of Copyright" section 13.03F, it is said, with primary reference to the position as it has developed in the United States:

"The difficulties in applying the traditional

substantial similarity test to computer programs

are exacerbated by the fact that computer

programming is as much a science as an art.

Authors of computer programs do not always have

the broad range of choices of expression

available to authors of traditional literary

works. External factors, such as the computer

on which the program is to run, the other

software with which the program must interact,

and the nature of the problem to be solved

dictate many aspects of a program's design,

structure, or actual code. In addition, an

extensive body of computer science literature,

rather than the individual programmers'

creativity, provides numerous common programming

techniques found in a wide variety of programs.

The nature of the software industry itself also

may contribute to the difficulty of assessing

whether one program infringes another. In many

areas of the computer software market, programs

are intended to compete directly with each other

and perform the same task in much the same way.

Thus, even two programs that have been created

independently may appear similar in many

respects. Accordingly, analyzing the

substantial similarity of computer programs is

especially challenging."

10. To the difficulties identified in the passage extracted from Nimmer above may be added the following two considerations. First, a computer program is a list of instructions to be performed by the computer. Two programs are, from the user's perspective, identical if, for the same "input" they always produce the same "output", assuming time and maintenance considerations are unimportant. To the user, functional similarity may be the only relevant similarity. Secondly, as counsel stressed in submissions to us, in contrast to a literary or artistic work, it may well be a relatively straightforward matter to produce a computer program that appears to perform in the same manner as one already written; this may be why, as the evidence suggests, computer programmers regularly incorporate the work of others within their own. The test, therefore, of whether a substantial part of one program is incorporated within another, presents difficulties in the case of computer programs which are not found with alleged infringement of other species of work.

11. In the present litigation, the primary Judge dealt with the issues of infringement in advance of both the High Court decisions. He held that a case of infringement had been made out against the appellants. On the appeal they submitted, inter alia, that the primary Judge had erred in his treatment of considerations going to quality and function when assessing infringement of one computer program by another.

12. It is appropriate now to consider the facts. In 1987 Mr Stokes had discussions with Focus Business Systems Pty Limited ("Focus") and on 4 December 1987 Developments entered into an agreement with Focus. Put shortly, the facts as found below were that Systems 2000 thereby acquired from Focus a right to the use of, but not an assignment of, copyright in a Focus computer program ("the Focus program"). Using this Focus program, Systems 2000 developed a computer program known as "the A.S. program".

13. Some 12 months after the agreement with Focus, Development, Systems 2000 and Castle Douglas entered into various agreements.

14. The first agreement dated 23 December 1988 ("the Castle Douglas Agreement") was between Developments and Castle Douglas. Developments as "Assignor" purported to assign copyright in various software and associated products, including the A.S. program, to Castle Douglas as "Assignee". The Assignor gave to the Assignee a number of warranties in relation to the assigned subject matter.

15. The primary Judge described the other agreements as follows:

"On the same day, 23 December 1988, a second

agreement ('the Consultancy Agreement' Ex. A7)

was executed; the principal parties were CCH and

(Developments). In that agreement

(Developments) agreed, for a period of two

years, to supply CCH with its services as a

consultant in all fields of software research,

development and design. In a schedule that

tabulated the several services that were to be

performed by (Developments), specific reference

was made to -

'. . . the modification and further

development of the software products known

as "Unitax"' (of which the Principal

"(i.e. CCH)" is the proprietor) and

"Client Accounting System", "Office

Management System" and "Client Management

System" of which the Principal is the

licensee.'

The reference, last mentioned, to CCH being the

licensee of the three Systems derives from a

third agreement dated 3 January 1989, Ex. A9,

pursuant to which Castle Douglas granted a

non-exclusive licence in the 'Accounting Products'

(as earlier defined) to CCH. For the sake of

completeness it should be mentioned that there

were three further agreements that were executed

by the parties on 3 January 1989: (Exs. A10, A11

and A12). These documents need not be

considered in detail for the purposes of these

proceedings; it is sufficient to state, as a

generalization, that they placed a value of

$750,000 on the copyright in the Accounting

Software Products known as the 'Client

Accounting System' the 'Office Management

System' and the 'Client Management System'.

They also spelt out in detail the operation and

duration of the intended joint venture between

the CCH group and AS 2000."

The primary Judge used the term "AS2000" to identify, without distinction between them, Developments and Systems 2000.

16. The parties to the 3 agreements (Exs A10, A11 and A12) referred to by his Honour as being executed on 3 January 1989 were, as to the first CCH and Developments, the second CCH, Castle Douglas and Developments, and as to the third CCH, Developments and Systems 2000.

17. The orders made under s. 87 declared void ab initio these three agreements and, most significantly, the Castle Douglas Agreement. The primary Judge also declared that CCH was not obliged to make any further payments to Developments or Systems 2000 pursuant to the Consultancy Agreement. He ordered that Developments and Systems 2000 pay damages to CCH of $95,033.11 with interest to judgment of $51,330.77. The damages were awarded under s. 82 of the TP Act.

18. By the time of the present litigation, Focus had gone into liquidation and such rights as it had in the Focus program had vested in Adept Business Systems Pty Limited ("Adept"). Adept was not joined as a party in the proceeding, but Systems 2000 submits that the evidence should have satisfied the primary Judge that Adept asserted no title to the A.S. program and had released Systems 2000 from any claim which it might have had for any past actions of Systems 2000 relating to the marketing and sale of the A.S. program.

19. The primary Judge held, as a foundation for relief under the T.P. Act, that the A.S. program was a reproduction, and if not a reproduction then an adaptation, of the Focus program. His Honour continued:

"Hence, A.S. 2000 did not own and was not able

to assign copyright to the C.C.H. group without

the assistance of Focus, or more likely, Adept."

Upon the appeal, it was accepted by both sides that the use of the word "Hence" concealed what, in law, was a non sequitur. The parties were agreed, correctly, that it is possible for an author to create an original literary work even though there are elements within it which amount to a substantial reproduction of the work of a third party, so that the reproduction of a new work would infringe the earlier work. Nevertheless, a work which infringes the copyright in its predecessor may, if not a slavish copy, still attract its own copyright. The practical result is that licensee, for example, of the new work, may escape the risk of suit only if a licence is given by the owners of both copyrights.

20. It should also be noted that by its further amended application, C.C.H. and Castle Douglas sought not only orders under s. 87 of the T.P. Act and damages under s. 82 thereof, but also "damages for breach of contract". It was accepted before us on the appeal that the trial had been so conducted that C.C.H. and Castle Douglas had pursued their claims to relief under T.P. Act exclusively and to the abandonment of any claim in the accrued jurisdiction to damages for breach of contract. That circumstance will be of great significance if C.C.H. and Castle Douglas lose the appeal on the trade practices issues.

21. We turn now to the agreement of 4 December 1987 between Focus and Developments ("the Focus Agreement"). It states as follows:

"It is agreed between (Focus) and (Developments) to

undertake the following:

(1) Purchase of sourcecode for Focus Business Software to

include General Ledger and Accounts Receivable for a

consideration of $9,000 paid to Focus by

(Developments).

(2) The consideration paid to Focus by (Developments)

entitles (Developments) to modify, resell and

represent the purchased software as the property of

(Developments) to the Public Accounting and Tax Agent

market without the payment of royalties or licence

fees to Focus.

(3) The resale of Focus Business Software to markets other

than the Public Accounting and Tax Agent markets will

attract licence fees under the normal terms and

conditions defined in the Focus Agent Agreement and

provides the option for marketing said software under

the Accounting Systems 2000 logo or brandname.

(4) The purchased software will not be made available to

other organisations targeting the Public Accounting

and Tax Agent markets as a significant part of their

operations.

(5) Other modules of Focus Business Software will be

available for the Public Accounting and Tax Agent

markets under the terms and conditions stated above."

22. Of the Focus Agreement the primary Judge held:

"Although this agreement referred, in paragraph

1 to the 'purchase of source code for Focus

Business Software' and although paragraph 2

authorised (Developments) to 'represent the

purchased software as the property of

(Developments) to the Public Accounting and Tax

Agent Market', it is clear that the arrangement

that was made between these parties in December

1987 did not pass - and was not intended to pass

- copyright in any program or in any sourcecode

from Focus to (Developments). On the contrary,

the right of use given to (Developments) was

directed primarily to resales by it to the

'Public Accounting and Tax Agent Market'; the

agreement expressly provided for the payment to

Focus of a licence fee in the event of the

'resale (by Developments) of Focus Business

Software to markets other than the Public

Accounting and Tax Agent Markets'. In my

opinion, the payment to Focus of such a licence

fee was wholly incompatible with the proposition

that there was an absolute assignment of any

proprietary or other rights. Clause 4,

inartistically expressed as it is, supports this

conclusion. Its terms relate, by necessary

implication, to an undertaking from Focus in

favour of (Developments):-

The purchased software will not be

made available to other

organisations targeting the Public

Accounting and Tax Agent markets as

a significant part of their

operations.

The restriction that was thereby imposed on

Focus indicates that Focus could continue to

sell the Focus Business Software to markets

other than the 'Public Accounting and Tax Agent

markets' and supports the proposition that Focus

retained its proprietary and other rights."

In our view, nothing was put on the appeal which threw any real doubt upon the construction given by the primary Judge to the Focus Agreement.

23. The most significant, for present purposes, of the various agreements between the parties is the Castle Douglas Agreement. Recital A states that the assignor (i.e. Developments) is the proprietor of certain accounting software products known as the "Client Accounting System", the "Office Management System" and the "Client Management System". It is further recited that the assignor has agreed to sell and the assignee (i.e. Castle Douglas) has agreed to purchase the copyright in those products. The term "accounting products" is defined as meaning the Client Accounting, the Office Management System and the Client Management System, being products intended for use by accounting practitioners. Of these three "products", there is no controversy as to infringement by either of two of them of the Focus program. The controversy concerns only the third, that entitled "Client Management System".

24. By cl. 2 of the Castle Douglas Agreement, the assignor assigns to the assignee absolutely all right, title and interest in and to the copyright in the accounting products in consideration of the agreement by the assignee to allot to the assignor 200,000 B class ordinary shares of $1 each in the capital of the assignee.

25. Clause 3 is of crucial importance, particularly having regard to the operation of the Focus Agreement. Clause 3 is headed "Warranties" and provides:

"3.1 The Assignor warrants that:

(a) it is the sole beneficial owner of the copyright in

the Accounting Products, that it has not granted any

licence in respect of any or all of the Accounting

Products to any person except certain licences to use

the object code of the Accounting Products or

mortgaged or otherwise encumbered the same in any way;

(b) it is entitled to assign such copyright to the

Assignee without the consent of any person whomsoever;

(c) there is no claim or potential claim against the

assignor (or) any person whomsoever for infringement

or breach of copyright in respect of any or all of the

Accounting Products.

3.2 The Assignor hereby indemnifies and agrees to keep

indemnified the Assignee from and against all claims,

demands, actions, proceedings, costs, expenses and

liabilities whatsoever and howsoever arising in connection

with or incidental to any actual or alleged infringement of

copyright resulting from the use or exploitation by the

Assignee of the Accounting Products."

26. Upon the appeal, counsel for the respondents did not press any submission that there was a breach by Developments of the warranty in para. (a) of cl. 3.1. This concession followed upon the earlier concession as to the particular holding of the primary Judge as to the relation between the Focus program and the A.S. program, counsel conceding that the A.S. program might attract copyright even if there was infringement of the Focus program.

27. Accordingly, attention centred upon the warranties in paras. (b) and (c). If there was infringement of the Focus program by the A.S. program, then the purported assignment by Developments in favour of Castle Douglas would itself be an infringement of the copyright in the Focus system, unless there was consent by Focus to such assignment. Counsel accepted that this followed by sub-s. 13 (2) of the Copyright Act, and the decisions discussed in WEA International Inc. v Hanimex Corporation Ltd (1987) 17 FCR 274 at 285-6.

28. By December 1988, Focus had sold its business and assets to Adept. This had occurred in April. Focus itself had been wound up and a liquidator was appointed on 18 October 1988. Whilst at the time of the entering into the Castle Douglas Agreement, on 23 December 1988, there was no claim against Developments for infringement in respect of the A.S. system, within the meaning of para. (c) of cl. 3.1, nevertheless there was, on a fair reading of that provision, at least a "potential claim", if the A.S. system infringed the Focus system.

29. Before the primary Judge, there was evidence of various steps taken after the dispute had broken out between A.S. 2000 and C.C.H. concerning the relationship between the Focus program and the A.S. program. Two deeds were in evidence, one dated 29 September 1989, and the other 17 July 1990, in which Adept stated its position. In the second deed, between Adept and Developments, it was recited:

"As at December 1988 (Developments) had

modified, developed and re-written the General

Ledger and Systems Administration programs into

a program which it described as Client

Accounting System Version 2.1e . . . which

was totally different from the original General

Ledger programs."

30. In the second deed of 17 July 1990, Adept "unreservedly acknowledges and undertakes" that it:

"will not take any legal proceedings alleging

any breach of copyright by (Developments) in

relation to the A.S. 2000 program whether

against A.S. 2000 whether against (Developments)

or against any person or corporation to whom

(Developments) may have sold or may in the

future sell the A.S. 2000 program based on

matters set out in the Recitals."

The fact that these assurances have been received since 23 December 1988 does not mean that at that date there was not a "potential claim" against Developments for infringement. Whether such claim remained a live threat at the time the primary Judge came to exercise his discretion as to the grant of relief under s. 87, and, if not, the significance of that circumstance for the exercise of that discretion, are other questions.

31. What is clear is that there was a breach by Developments of both warranties (b) and (c) of cl. 3.1 at the date they were given on 23 December 1988, if the A.S. system infringed the Focus system. The primary Judge held that the claim of infringement was made out and that finding is subject to a detailed challenge on the appeal. Having found that there was infringement, the primary Judge then held that the giving of the warranties was, as a matter of law, capable of constituting misleading conduct within the meaning of s. 52 and that "the presentation of them" in the Castle Douglas Agreement "amounted to conduct that offended against s. 52 . . ." The primary Judge continued:

"Although innocently made, it remains a fact

that the representations as to the existence of

and ownership of copyright struck at the root of

the bargain . . . I find that written

warranties can - and in this case did -

constitute the making of representations."

Further, although not itself a party to the Castle Douglas Agreement, CCH was entitled to recover damages under s. 82. This was because, in the belief that copyright had been assigned to Castle Douglas, it took a licence from Castle Douglas, so that the conduct of Developments was a direct cause of CCH's expenditure under its licence.

32. As we have indicated, the Castle Douglas Agreement is dated 23 December 1988. In para. 6 of the third further amended statement of claim, the representations relied upon were pleaded as follows:

"6 Prior to 23 December 1988, in trade or commerce,

(Developments) and (Systems 2000) made the following

representations to (C.C.H.) and to (Castle Douglas)

(a) that (Developments) was the proprietor of certain

accounting software products being computer programs

known as the 'Client Accounting System', the 'Office

Management System' and the 'Client Management System'

('the Accounting Products' and 'the computer programs'

respectively);

(b) that (Developments) was the sole beneficial owner of

the copyright in the Accounting Products;

(c) that (Developments) was entitled to assign the

copyright in the Accounting Products without the

consent of any person whomsoever;

(d) there was no claim or potential claim against

(Developments) of any person whatsoever for

infringement or breach of copyright in respect in any

or all of the Accounting Products;

(da) in the alternative to (d), there was no claim or

potential claim against (Developments) or any person

whatsoever for infringement or breach of copyright in

respect of any or all of the Accounting Products.

PARTICULARS

6.1 Representations (a) to (d) or in the alternative, (a), (b),

(c) and (da) were made in the (Castle Douglas Agreement)."

The distinction between sub-para. (d) and (da) is found in the form of the warranties in cl. 3 of the Castle Douglas Agreement. As signed, the documents spoke of claims "against the Assignor of any person whomsoever". In the course of the litigation below, an order for rectification was made substituting "or" for "of". That meant that the live issue was presented by sub-para. 6 (da), rather than (d) of the third further amended statement of claim. Sub-paragraphs (c) and (da) were so drawn as to reflect the terms respectively of paras. (b) and (c) of cl. 3.1 containing the warranties in the Castle Douglas Agreement.

33. In our view, there was a breach of both those warranties on the date they were given on 23 December 1988 if there was infringement of the Focus System by the A.S. System. It will be noted from the terms of para. 6 of the pleading that the representations relied upon are said to have been made "prior to 23 December 1988", and to have been made not only to Castle Douglas, the party to the Castle Douglas Agreement, but also to C.C.H. However, the Particulars indicate that the representations were said to have been made in the agreement itself.

34. We should add that para. 6G did allege that prior to entering into, inter alia, the Castle Douglas Agreement, the respective appellants refrained from informing the respondents or either of them of certain matters. However, counsel for the respondents frankly conceded before us that para. 6G and a case of "omissions" was not argued at the trial. In those circumstances it is not surprising that the primary Judge formulated the finding as to contravention of s. 52 in the manner that he did.

35. We will deal first with the trade practices issue, and then with the copyright issue, and finally with the cross-appeal concerning Mr Stokes.

36. In our view, the primary Judge reached the correct result on this issue. We reach this conclusion by the following steps:

(1) As is the case with Part IV of the T.P. Act, the evident purpose

and policy underlying Part V, which includes s. 52, recommends a

broad construction of its constituent provisions, the legislation

being of a remedial character so that it should be construed so as

to give the fullest relief which the fair meaning of its language

will allow; see the discussion of the authorities by Mason CJ in

Devenish v Jewel Food Stores Pty Ltd [1991] HCA 7; (1991) 172 CLR 32 at 44.

The precise boundaries of the territory within which s. 52

operates remain undetermined: Concrete Constructions (N.S.W.) Pty

Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at 601.

(2) Section 52 should be construed against the background of the

general law, but the Court should not be inhibited from giving

effect to what on its proper construction is provided for in the

legislation by the consideration that to do so may result in the

imposition of liabilities and the administration of remedies which

differ from those supplied by the general law: World Series

Cricket Pty Ltd v Parish (1977) 16 ALR 181 at 198-9 per Brennan

J; Bill Acceptance Corporation Ltd v GWA Limited (1983) 78 FLR

171 at 175 per Lockhart J; Henjo Investments Pty Ltd v Collins

Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83 at 102 per Lockhart J,

109 per Foster J; Demagogue Pty Ltd v Ramensky (1992) 110 ALR

(3) Whilst s. 52 speaks of "conduct", many of the decided cases have

dealt with that species of conduct which involves what at general

law would be classified as "representations" as to a present state

of affairs. But it is necessary to keep steadily in mind when

dealing with the statute that "representation" is not co-extensive

with "conduct".

(4) Various provisions of Div. 2 of Part V imply conditions and

warranties in certain consumer transactions and the application

thereof may be excluded or modified; see ss. 68, 69, 70, 71, 72.

Where these implied conditions are breached, a special right of

rescission is given by s. 75A: Australian Guarantee Corporation

Ltd v Jennings (1981) 1 NSWLR 50. Here, the complaint

concerns an express not an implied "warranty" and Div. 1 of Part V

and the remedies in Part VI are relied upon.

(5) There is a particular risk in the present case with the immediate

transfer of common law concepts to the construction of the

statute. It arises from a misconception as to the nature of the

general law. Representations are generally perceived as

extra-contractual, that is to say if fraudulent, as tortious, and

whether innocent or fraudulent, as providing a ground in equity of

rescission of the transaction entered into as a consequence

thereof. There has been debate as to whether the equity

jurisdiction is lost if the representations become contractual

terms, whether conditions or warranties; see Academy of Health and

Fitness Pty Ltd v Power [1973] VicRp 25; (1973) VR 254; Simons v Zartom

Investments Pty Ltd (1975) 2 NSWLR 30. On the other hand,

the term "warranty" generally is perceived as identifying (i) a

species of contractual affirmation of fact or promise or,

alternatively, (ii) not as a promise but as a representation of

fact, the truth of which is a condition precedent to the

obligation of the other party to perform the contract. (As to

this latter use of "warranty", see McRae v Commonwealth Disposals

Commission [1951] HCA 79; (1951) 84 CLR 377 at 407-410; Corbin on Contracts,

1963, para. 14.) As to the former use of "warranty", Williston

points out, after giving several definitions:

"It should be observed that under these

definitions, a warranty is not necessarily a

promise or contract. The law of warranty is

older by a century than special assumpsit, and

the action on the case on a warranty was in part

the foundation of the action of assumpsit. An

action on a warranty was regarded for centuries

as an action of deceit, and it was not until the

second half of the eighteenth century that the

first reported decision occurs of an action in

assumpsit on a warranty. And it is still

generally possible where a distinction of

procedure is observed between actions of tort

and of contract to frame the declaration for

breach of warranty in tort.

It is probable that most persons instinctively

think of a warranty as necessarily a contract or

promise, but though frequently warranties are

true promises and contracts, in other cases they

are merely representations which induce a sale .

. ."

(Williston on Contracts, 3rd ed., 1964, section 970)

(6) We have set out the terms of cl. 3.1 of the Castle Douglas

Agreement which in paras. (b) and (c) contains what are therein

described as two warranties by Developments in favour of Castle

Douglas. Each warranty speaks as to a present state of affairs.

It follows from what has been said above that the Court should

resist the temptation to reason that (i) s. 52 is concerned with

representations (rather than the larger concept of "conduct"), and

(ii) cl. 3.1 of the Castle Douglas Agreement is concerned with

what are therein identified as "warranties" and "warranty" is a

concept distinct from "representation", so as to take cl. 3.1

outside s. 52.

(7) The text of para. 4 (2) (a) of the T.P. Act, which was inserted by

the 1977 Act, has been set out. In terms, the paragraph includes,

within the sense of conduct "in this Act", the making of or giving

effect to of a provision of a contract. The 1977 Act is to be

construed with the T.P. Act and as part thereof, in the absence of

a contrary intention: Acts Interpretation Act 1901, s. 15. The

word "conduct" appears elsewhere than in s. 52, in particular in

various provisions of Part IV which were added or amended by the

1977 Act. Examples are found in sub-s. 45 (6), sub-s. 45B (2) and

s. 45D. The 1977 Act also introduced into Part V s. 55A. This is

a provision proscribing certain "conduct". Paragraph 4 (2) (a)

should not be read as confined in its application to Part IV.

Other provisions of Part V, for example ss. 52 and 55, already

operated by reference to certain "conduct". And, as we have

indicated, s. 52 was in another respect (the addition of the words

"or is likely to mislead or deceive") amended by the 1977 Act.

Essential provisions of Part VI, dealing with remedies, ss. 80 and

87, have been from the introduction of the legislation so drawn as

to refer to "conduct". Section 82 in dealing with contraventions

of Part IV and Part V, originally spoke of persons suffering loss

or damage "by an act of another person". The 1977 Act introduced

a new s. 82 which gave an action for damages for persons suffering

loss or damage "by conduct . . .".

(8) The result of this examination of the provisions of the

legislation before and after the 1977 Act is that para. 4 (2) (a),

in dealing with "conduct" operates generally, in its terms, so

that the T.P. Act after the 1977 Act, was to be read as "one

connected and combined statement of the will of Parliament . ..":

Sweeney v Fitzhardinge [1906] HCA 73; (1906) 4 CLR 716 at 735. So understood,

para. 4 (2) (a) provides significant support for the conclusion

reached in this case by the primary Judge, and for the general

proposition that the making of a statement as to a presently

existing state of affairs, if false, may be the engaging in

misleading or deceptive conduct, where the statement is embodied

as a provision of a contract. In many cases, there will have been

pre-contractual conduct which itself contravenes s. 52. The

present case is a striking one because it was presented on a

narrower basis, and concerned the giving of the warranties in the

contract itself.

(9) Where the conduct relied upon involves not a statement as to a

presently existing state of affairs, but a representation with

respect to a future matter, which is contained purely in a

contractual promise, then a case for contravention of s. 52 will

involve consideration of the extra steps spelled out in s. 51A of

the T.P. Act. Some of the issues that would arise in such a case

are discussed by Ormiston J in Futuretronics International Pty

Ltd v Gadzhis [1992] VicRp 63; (1992) 2 VR 217 at 233-241, where reference is

made to the relevant authorities in this Court. But this is not a

case concerning representations as to future conduct.

(10) In the present litigation, the significance of the contravention

of s. 52 was to enliven the powers of the Court under ss. 82 and

87. This emphasises that s. 52 does not purport to create

liability, nor to vest in any party any cause of action in the

ordinary sense of that term; rather, it establishes a norm of

conduct and failure by those to whom it is addressed, in its

various operations, to observe that norm has the consequences

provided for in the remedial provisions which found primarily in

Part VI: Tobacco Institute of Australia Ltd v Australian

Federation of Consumer Organisations Inc. (1988) 19 FCR 469 at

473-4.

(11) Where contravention of s. 52 is linked with a claim for damages

under s. 82 and the representation complained of was a contractual

warranty, it may be necessary to consider whether the measure of

damages that would be recoverable under s. 82 would differ from

that available at common law for breach of the warranty. The

point was not ventilated in the present case. However, this

situation does serve as a reminder of the danger of automatically

translating into s. 82 as the appropriate measure of damages, that

recoverable in an action for the tort of deceit; cf Gates v City

Mutual Life Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

(12) It also needs to be borne in mind that, in a case such as the

present, standing to seek remedies under Part VI, such as those

provided for in ss. 82 and 87, is not limited to parties in

contractual relations with the party which contravened s. 52.

See, with particular reference to s. 82, Janssen Cilag Pty Ltd v

Pfizer Pty Ltd [1992] FCA 437; (1992) 109 ALR 638. It is no objection to

relief under these provisions that the misleading conduct is found

in the making of a contractual provision, and the complainant does

not have contractual privity with the defendant. This may be

contrasted with the uncertain (and perhaps unsatisfactory) state

of the general law disclosed in Trident General Insurance Co. Ltd

v McNiece Bros Proprietary Limited [1988] HCA 44; (1988) 165 CLR 107; there

the plaintiff did not plead any count alleging contravention of s.

(13) The orders made by the primary Judge in this case proceeded upon

the footing described above. Consistently with what has been

said, the applicants for the relief included not only Castle

Douglas, the party to the Castle Douglas Agreement, but also

C.C.H., which controlled Castle Douglas, and the relief under ss.

82 and 87 was obtained not only against Developments but its

confederate, Systems 2000.

37. For these reasons, we conclude that the primary Judge correctly decided the trade practices issue in favour of the respondents.

38. The question then is whether his Honour is correct in deciding the copyright infringement in such a way as to involve breaches of paras. (b) and (c) of cl. 3.1 of the Castle Douglas Agreement.

39. On the issue of infringement, the primary Judge held that whilst it was clear that System 2000 spent much time and effort in 1988 in developing and improving the Focus program, that circumstance alone would not prevent infringement. His Honour came to the conclusion that there had been infringement for two reasons. First:

"I am overwhelmed by the extent of the exact

copying (that is not a quantitative statement;

the extent is so great that it takes on a

qualitative mantle). And if to that, there is

added some part only of the close copying, the

case for the applicants is the stronger."

"No amount of new or additional work will

compensate for the retention of a substantial

and material part of the Focus program."

The second proposition is plainly correct. The first will require further consideration.

40. The Focus program comprised a total of 99 "files". The primary Judge rejected the submission, which was faintly renewed by the respondents on the appeal, that each of the 99 files was a separate "set of instructions" within the meaning of the definition of "computer program" in sub-s. 10 (1) of the Copyright Act. The definition is as follows:

"'computer program' means an expression, in any

language, code or notation, of a set of

instructions (whether with or without related

information) intended, either directly or after

either or both of the following:

(a) conversion into another language, code or

notation;

(b) reproduction in a different material form,

to cause a device having digital information

processing capabilities to perform a particular

function."

41. His Honour was impressed by the apparent contrary understanding of the expert witnesses who had worked in the computer industry. On the appeal, counsel for the respondents conceded that the subsequent interpretation of the legislation by the High Court in the Autodesk litigation supported the proposition that the Focus program should be viewed as the one computer program and thus as the one "literary work" within the meaning of the Copyright Act. The definition of "literary work" is as follows:

"'literary work' includes:

(a) a table, or compilation, expressed in

words, figures or symbols (whether or not

in a visible form); and

(b) a computer program or compilation of

computer programs."

42. The question then becomes whether the A.S. program reproduces "a substantial part" of the Focus program within the meaning of s. 14 of the Copyright Act, so as to amount to a reproduction of the work in invasion of the exclusive right given by sub-para. 31 (1) (a) (i) of the Copyright Act.

43. The Focus program comprises 15,686 lines. The evidence showed an examination of 6,917 of those lines. The 6,917 lines examined represented 29 of the 99 files from the Focus program. Of the lines examined, 952 were close copies, and 3,907 were exact copies of lines in the A.S. program. 3,907 lines is some 25% of the whole. The result was that the evidence indicated that, even assuming that the unexamined files contained no lines from the Focus program, the A.S. software reproduced some 25% of the Focus program. The comparison was conducted by an expert witness for the respondents, Mr P.J. Grouse, and apart from a trivial number of errors, no doubt was cast upon the accuracy of his comparison by the experts for the appellants, Miss Finlayson and Mr De Ferranti.

44. The A.S. program contained 40,013 lines of sourcecode. The primary Judge held that Developments had spent much time and effort in developing and improving the Focus program. Counsel for the appellants submitted that the difference in length between the two sourcecodes reflected this fact. But the fundamental issue remains whether a substantial part of the first work was reproduced in the second.

45. There was no suggestion that the passages of the Focus program which were copied were of less utility or had required less skill and labour in formulation than the balance. The appellants' witnesses, Mr Stokes and Mr G.J. Smith, support the respondents' contention that the programmers for Developments chose to continue with those passages which were taken because they remained useful. Time and labour were saved by continuing in this way.

46. In the course of his cross-examination, Mr De Ferranti said that the "whole art of programming" was

"to use the sequences that one has found useful

but to use them in an intelligent and logically

compact way."

"And to the extent that one programme takes

those sequences expressed in . . . (an)

intelligent and logically compact way, that is

using the skill and labour of the first work? -

What do you mean by the first work?

It would be one programmer taking from here and

it would be one programmer taking from something

he himself has written previously, the first in

time. If one takes those sequences of

statements, expressed in an intelligent and

logically compact way from work to the other,

you are using the skill and labour of the first

programmer? - The skill and labour of the second

programmer is choosing what it is that is going

to be relevant in his work.

Certainly, but in part, he is choosing which

parts of the skill and labour of the first

programmer he will take with him? - You mean

like quoting from some other piece of work.

Not just quoting, using some of the earlier work

to save himself the necessity of writing it out

and expressing it himself? - Certainly, to save

that labour."

In the cross-examination of Mr Smith, the following passage appears:

"And can one assume from that that some of the

Focus sourcecode remained, some intact, some

rewritten in part? - Yes, but the function, the

purpose for which that code existed had altered.

And because it is doing a different job you made

certain changes, but you were able to use the

Focus sourcecode to do part of a job? - As

easily as I could have rewritten it to do the

same job.

But in fact you did not rewrite it and you used

the Focus code to save yourself the necessity of

rewriting it. - Yes."

Mr Smith also agreed in cross-examination that it was highly likely that an examination of the balance of the 99 files from the Focus program with a comparison of the A.S. program would show that other lines of the A.S. program had as their genesis the Focus program.

47. His Honour said that the extent of the copying was so great "that it takes on a qualitative mantle". We take this to mean that, in a given case, so large a portion of the work may be taken that it is fair to infer that this was of a qualitative in addition to quantitative significance. But, in our view, it would be an unusual case where it was not necessary to have some further regard to the evidence before determining the question of quality in favour of the applicant for relief. In the present case, the evidence, some of which has been discussed above, shows that the respondents had made out their case. The A.S. program might in some cases perform a different function, from the point of view of the user, to the Focus program. But the lines of code which were taken would continue to do their work in performing the desired function.

48. Accordingly, in our view, the appeal on the copyright issue also fails.

Section 87 - Discretion

49. The appellants submitted that the primary Judge fell into error in the exercise of his discretion in favour of granting relief under s. 87. It was said that the respondents had not demonstrated that they had suffered damage in consequence of the falsity of the warranties contained in paras. (b) and (c) of cl. 3.1 of the Castle Douglas Agreement. In particular, it was submitted that the evidence indicated that the only entity with a possible claim to restrict the activities of CCH pursuant to the arrangements with Developments and Systems 2000 was Adept and that the deeds between Adept and Developments, which were in evidence, made it plain that no action would be brought by Adept in respect of infringement by the A.S. program or the Focus program.

50. But the first deed, that dated 29 September 1989, proceeds upon the recited basis that Developments had modified, developed and rewritten the Focus program, and that the programs were "totally different". The second deed, that dated 12 July 1990, still did not license or assign copyright in the Focus program to CCH, so that CCH or its associated companies might assign or license others.

51. Further, both deeds came late in the day, the second during the course of the trial.

52. On the position of CCH, the primary Judge held:

"There was delay on the part of CCH in this

matter; there is evidence that suggests that the

integrity of (Developments') copyright was

questioned within CCH as early as January 1989

and certainly by February; yet CCH did not

purport to rescind until the following June. I

have summarised Mr Shanahan's evidence on the

subject of delay and I have concluded that his

explanations show that CCH acted reasonably and

responsibly. If the contracts that deal with

the subject matter of copyright in the

Accounting Products are not rescinded, it would

mean, arguably, that CCH could be forced to pay

out over $1M - supposedly to purchase a

copyright for which it could not obtain good

title."

Mr M.J. Shanahan was the principal witness for CCH.

53. The reference by his Honour in this and another passage of the second judgment to the obtaining of a "good title" was criticised by the appellants as reflecting the error, referred to earlier in these reasons, in treating the A.S. program as itself not attracting copyright, the true position being that a licensee from CCH of the A.S. program would escape the risk of suit only with a licence given by the owner of the copyright in that program and also of copyright in the Focus program. Nevertheless, his Honour plainly was correct in approaching the question of rescission on the footing that the representations as to copyright "struck at the root of the bargain" and that looking at the totality of the matter, the "base arrangement" which was made between CCH and Developments called for CCH to pay out in excess of $1m for a clear right deal with the Accounting Products. Hence his Honour's conclusion that "the only sensible answer is unravel all contractual commitments presently subsisting between the parties to this litigation".

54. The "loss or damage" which is required for s. 87 is not made out only by the party or parties seeking relief thereunder making out a case for recovery of damages in the sense understood at general law in contract or tort. The written submissions for the appellant appear to proceed on this basis. However, as was, as we understand it, conceded in argument, the recent decision of the Full Court in Demagogue Pty Ltd v Ramensky supra demonstrates that the concept involved is a more flexible one and encompasses a case such as the present.

55. In our view, it has not been shown that his Honour erred in the exercise of his discretion in making the orders that he did under s. 87.

56. Before the primary Judge, the respondents contended that Mr Stokes had aided, abetted, counselled or procured the contravention of s. 52 (para. 75B (1) (a) of the T.P. Act) and that he had been, directly or indirectly, knowingly concerned in, or a party to, that contravention (para. 75B (1) (c)). After consideration of Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, his Honour concluded that neither of those propositions should be accepted. In the joint judgment in that case, it had been said, at 670:

"In our view, the proper construction of par.

(c) requires a party to a contravention to be

an intentional participant, the necessary intent

being based upon knowledge of the essential

elements of the contravention."

In the present case, it had not been asserted that when his company, Developments, gave the warranties in question to Castle Douglas, he knew that the warranties were false. Nor was it contended that he was recklessly indifferent to their truth or falsity; see Goroka Pty Ltd v Montgomery Jordon and Stevenson Pty Ltd (1986) ATPR 40-722, Crocodile Marketing v Griffith Vintners (1992) 28 NSWLR 539. In short, it was not a case of fraud. The primary Judge held that Mr Stokes did not have "the requisite knowledge or intention" which is required for a case under s. 75B. His Honour said:

"In fact he had a belief - honestly held but

nevertheless mistaken - that (Developments) had

acquired copyright in the Accounting Products

and was competent to assign it to Castle

Douglas."

The primary Judge thus approached the issue in the same fashion as had Mason ACJ, Wilson, Deane and Dawson JJ in York v Lucas. Their Honours had said (at 667-8):

"Upon the findings of the trial judge, however,

Lucas lacked the knowledge necessary to form the

required intent. A contravention of s. 52

involves conduct which is misleading or

deceptive or is likely to mislead or deceive and

the conduct relied upon in this case consisted

of the making of false representations. Whilst

Lucas was aware of the representations - indeed

they were made by him - he had no knowledge of

their falsity and could not for that reason be

said to have intentionally participated in the

contravention."

Their Honours went on to decide that s. 75B, in speaking of aiding, abetting, counselling or procuring, makes use of an existing concept drawn from the criminal law and was intended to carry with it the settled meaning of that concept. They considered para. (c), and reached the conclusion which was reproduced by the primary Judge in the passage we have quoted above.

57. On the cross-appeal against the dismissal of their case against Mr Stokes, the respondents submitted that it was sufficient that he knew of the "essential facts" and that it was not necessary that he know "the legal consequences". That submission contradicts his Honour's finding that Mr Stokes had the honest but mistaken belief that Developments had acquired the copyright in the Accounting Products, and that it was competent to assign it to Castle Douglas. This finding carried with it the necessary corollary that Mr Stokes had no knowledge of the falsity of the warranties given by Developments in cl. 3.1 of the Castle Douglas Agreement.

59. The appeal should be dismissed with costs. The appellants should pay the costs of the respondents. The cross-appeal should be dismissed. The respondents should pay the costs of the appellants on the cross-appeal, which should be set off against the costs payable under the earlier costs order.