64 On 13 May 2004, the applicants' solicitors sent a fax and an email to Mr Smith requesting that he cease communication with any of the applicants' witnesses including Ms Monroe.
65 Late in the afternoon of 13 May 2004, Mr Smith sent the following email reply to Ms Sophia Finter, the solicitor who had the day to day conduct of the proceedings for the applicants:-
"Dear Ms Faucker [sic] (emphasis added)
re: directions
have have [sic] today recieved [sic] your proposed Directions from Wednesday 20th may 2003 [sic]
we do not consent to your timetable and we will be seeking alternative directions from the Court next Wednesday 20th.
We have also refereed [sic] Ms Munsy and her affidavit to the NSW Police, and I will be asking the Judge to deal with this criminal mis-practice and other abuses of the Courts process by the Applicants in these proceedings, next Wednesday, 20th May.
Yours faithfully
Chris Smith"
66 The proceedings were before me for directions on 20 May 2004 and, on that date, I made orders restraining Mr Smith from communicating directly with the applicants' witnesses concerning the subject matter of the proceedings.
Threats to non-parties
67 The applicants relied on an affidavit of Ms Emma Herkes of Meerbusch, Germany. In September 2002 Ms Herkes was the co-owner of a German company which specialized in the production of recordings for the dance music genre.
68 Ms Herkes said in her affidavit that in September 2002 Tower requested a licence from her company to use a recording which is not the subject of these proceedings. Ms Herkes' company refused to grant the licence and notified Tower accordingly.
69 Shortly afterward, in mid- September 2002, Ms Herkes found two messages on her company's telephone answering machine. The person who left the messages did not identify himself but he did say he came from Australia. The affidavit states that Ms Herkes was "aware that it was Mr Smith".
70 On 14 October 2004, I made directions that the respondents notify any objections to the applicants' affidavits by 1 February 2005. No objections were notified. However, at the hearing, the respondents' counsel objected on the ground that the affidavit did not establish in admissible form that Mr Smith left the messages. Counsel for the applicants informed me that if he had received prior notification of the objection, he may have been able to adduce additional evidence to establish in admissible form the facts which would enable me to infer that Mr Smith left the messages.
71 In view of the lateness of the objection, it seemed to me to be appropriate to admit the evidence of the messages but to defer consideration of whether the evidence enables me to infer that Mr Smith left the messages until handing down my reasons for judgment. There is power to proceed in this manner under s 57(1) of the Evidence Act 1995 (Cth) ("Evidence Act") and, to the extent necessary, s 190(3)(b) of the Evidence Act.
72 The evidence of the messages was as follows:-
"Thank you for the track 'Searching for the light'. This is from Australia. All we've got to say to you is, fuck you! Fuck you, we use what we want here. Go fuck yourself, you fucking loser cunt."
"Hi, we use your track already on the compilation. So what you gonna do? You wanna come fly on a plane to fucking Australia, come out and get it? Come on, we love to meet you too. Get on a plane, you fucking fat cunt."
73 The evidence of Ms Herkes is that Mr Smith had previously sought to obtain a license for Tower to use the track "Searching for the Light" to which reference is made in the first telephone message. Accordingly, I can infer that someone from Tower left the messages, even if it was not Mr Smith himself.
74 It seemed to me, when I admitted the evidence, that, assuming the messages were left by Mr Smith or by an employee of Tower, they were relevant to the question of "the need to deter similar infringements of copyright"; see s 115(4)(b)(ia) of the Act.
The allegedly vexatious proceedings brought by Mr Smith and Tower against Central Station and Mr Williams
75 On 16 March 2004, Mr Smith filed proceedings in the Federal Court purportedly on behalf of Tower and another recording company. Mr Smith is not a solicitor and was not entitled to bring the proceedings on behalf of the two companies; see Order 4 rule 14(2). Tower and the other company claimed that certain sound recordings made by the respondents to those proceedings, which included Central Station Records (the 3rd applicant in the current proceedings), were produced in breach of copyright.
76 At the first directions hearing there was no appearance on behalf of Tower or the other company after the matter was called outside the Court. Lindgren J dismissed the proceedings under Order 10 rule 3 for want of appearance.
77 The applicants contend that the proceedings against Central Station Records were vexatious. They say that this is a matter I am entitled to take into account in the assessment of additional damages under s 115(4). However, in my opinion the court process and the transcript of the hearing before Lingren J are insufficient to make good the applicant's contentions.
A brief history of the proceedings
78 As I have already said, the proceedings were commenced on 12 September 2002. An amended application and amended statement of claim was filed on 27 September 2002. The amendments added a number of sound recordings to those previously claimed to be produced in breach of copyright.
79 On 10 December 2002, Mr Smith, Tower, Mr Ferris, and Mr Fish (who was then the 4th respondent) filed a defence. The defence put in issue the copyright claims made by the applicants and put them to proof of the necessary elements of the claims.
80 Moreover, in [32] and following of the defence, Mr Smith, Tower and Mr Ferris pleaded that valid licences to reproduce the relevant sound recordings had been granted to them by the holders of the copyright.
81 The respondents changed legal representatives five times during the course of the proceedings. This resulted in substantial delay to the progress of the proceedings.
82 Commencing in October 2003, the applicants began to file a large number of affidavits to prove each of the necessary elements in the claim for copyright infringement and in support of the claims for damages and additional damages.
83 On 20 May 2004, I listed the proceedings for hearing on 21 September 2004. I made substantial pre-trial directions on that day to enable the hearing to take place. The applicants complied with the pre-trial directions but the respondents did not.
84 The respondents made two unsuccessful applications to adjourn the hearing on the issue of liability. I dismissed each of the applications, made on 16 September 2004 and 21 September 2004. The respondents made no attempt, either at the hearing of the adjournment applications or at the present hearing to explain the reasons for their failure to comply with the Court's pre-trial directions.
85 On 14 October 2004, I made pre-trial directions for the hearing of the damages claim. The respondents did not comply with the directions and have not attempted to explain the reasons for their default.
86 Nor have the respondents complied with orders which I made on 14 October 2004, when giving judgment on the issue of liability, for delivery up of the infringing compact discs. No explanation has been given by Mr Smith or Tower. Mr Ferris said in cross-examination that he did not have any remaining compact discs in his possession.
The respondents' evidence
87 The respondents did not file evidence for the damages hearing in accordance with my directions made on 14 October 2004.
88 At the hearing, counsel for the respondents sought leave to rely upon an affidavit of Mr Smith sworn on 28 January 2005 and served on the applicants' solicitors on 4 February 2005, which was taken by the applicants' solicitors to be an indication of the respondent's intention to rely upon the affidavit.
89 I gave leave to the respondents' counsel to read the affidavit provided that Mr Smith was available for cross-examination. I did so because counsel for the applicants indicated that he would wish to cross-examine Mr Smith should leave be granted to read the affidavit.
90 Mr Smith was not present in Court. However, his counsel contacted him by telephone during a short adjournment. I was then informed by counsel that Mr Smith would not attend Court. Accordingly, I rejected the affidavit.
91 After the respondents closed their case, counsel sought leave to reopen in order to read an affidavit of Mr Ferris which he said he had inadvertently failed to rely upon. The affidavit was sworn and filed on 15 April 2004. The respondents' solicitors gave notice to the applicants' solicitors on 4 February 2005 that they intended to rely on the affidavit.
92 I gave leave to the respondents' counsel to read Mr Ferris' affidavit. Mr Ferris was present in Court at 2:15 pm and was available for cross-examination.
93 Mr Ferris' affidavit describes his impressive qualifications and experience in the music industry. He has been a disc jockey in the dance music field, both nationally and internationally, for about 18 years. He says that he is recognized as Australia' leading disc jockey. He is a song writer, composer and producer and has received awards from the Australian Record Industry Association ("ARIA") for his work. He says he composed the music for the Sydney 2000 Olympic Games Opening and Closing Ceremonies.
94 During his long years in the music industry, Mr Ferris has compiled and mixed sound recordings for most of Australia's major recording companies including Sony, Universal and EMI.
95 According to his affidavit, Mr Ferris' ordinary practice when he is asked by a record company to produce a compilation compact disc is to obtain written confirmation from that record company that the company has "been able to obtain the necessary copyright".
96 In October 2001, Mr Ferris was approached by Mr Smith on behalf of Tower to produce the compilation CD which became known as Peeweeferris.com. He said that since he had not previously dealt with Tower, he inspected the copyright licence documents for the sound recordings which he intended to reproduce and formed the view that all necessary licenses and approvals had been obtained.
97 Mr Ferris entered into a contract with Tower on or about 19 March 2002. The contract provided for Tower to pay Mr Ferris royalties of $4 per CD sold up to 2,500 units and $5 per CD for sales in excess of that number. Mr Ferris was to be paid $1,000 by Tower on delivery of the finished compilation.
98 The contract provided for Tower to meet all production costs including royalties. Tower accepted "all unforeseen claims that may arise from this compilation" and agreed to "meet all requirement as to licensing for all musical reproductions that appear on the CD".
99 Mr Ferris' evidence is that he mixed the album and handed the finished master recordings to Tower in March 2002.
100 Mr Ferris supplemented his affidavit evidence with additional evidence in chief in the witness box.
101 He said that he arrived in Sydney about 1 o'clock and came straight to Court. He did not explain why he was not present when the hearing commenced at 10:15 am.
102 Mr Ferris was asked in chief some further questions about his inspection of the copyright licences.
103 He said he saw the documents and they looked "above board" to him. He said they looked the same as every other document he had seen in his long experience in the music industry.
104 Mr Ferris was also asked in chief about enquiries he had made, after the commencement of the proceedings, about the licence of the copyright in the Reloop sound recording. He said he spoke to Mr Klitzing of Headline Records in February 2003, that is about six months after the commencement of these proceedings. Mr Klitzing was apparently the person who produced the Reloop track.
105 The effect of Mr Ferris' evidence was that Mr Klitzing told him that he had mistakenly given multiple licences to parties including Tracid Tracks (the 7th Applicant), without informing Central Station, which was in fact the exclusive licensee of the copyright.
106 At the conclusion of his evidence in chief, Mr Ferris was asked whether he wanted to say anything to the Court about his copyright infringements. The evidence was as follows:-
"MR ELLIOTT: Sir, is there anything you would like to say to the court
about your breaches and your attitude in the future to dealing with accepting
assurances in respect of licences? --- Well, I did everything I could to - in my
position because all of the record companies won't give copies of their
documents so within my powers I did as much as I could do to protect my
interests as I am not part of the company so as far as - from now on at least
I have learned that I have to do a lot more that would not normally be
considered industry standard. Now I have to go beyond what is considered
normal to protect my interests.
When you say protect your interests what do you mean by that? --- Well, for
this case, that's what I mean.
So that you don't wind up infringing? --- Right. According to everything I
was told and saw I was non-infringing.
But you understand you've been adjudged to have infringed? --- Yes, I
understand that.
To avoid this situation in the future what are you going to do? --- I don't
think I'll work with him again and whether I work with other major
companies is another question too and I haven't had any work since then
from either of them neither."
107 In cross-examination Mr Ferris acknowledged that he had mixed two further compact discs for Tower after the commencement of these proceedings. He said that the last of these works was produced in June 2004. Mr Ferris then revealed that his decision not to do further work for Tower or Mr Smith was only made "(t)oday, because he [Mr Smith] did not turn up" at Court.
108 Mr Ferris' evidence in cross-examination was that he found out about the date of the damages hearing two weeks before 8 February 2005.
109 This seems surprising in light of the fact that the hearing date was appointed on 14 October 2004. Nevertheless, even if he had only two weeks notice, as I have said, no explanation was given for why Mr Ferris was not in Court at 10:15 am.
110 Mr Ferris acknowledged that he was not in Court for hearing on the liability issues in September 2004. He said he was not available at that time but he could not recall the reason for his unavailability.
111 Mr Ferris conceded that he was annoyed, or at least disappointed, with the applicants for bringing these proceedings, and he regarded the respondents' conduct in the proceedings to be Tower's responsibility.
112 The only explanations apparently put forward for his lack of previous involvement in the defence of the proceedings were twofold. First, he said that Tower was responsible for the proceedings under his contract. Second, he said that he was involved in a custody battle over his daughter which took up a lot of time in the Family Court.
Damages for conversion
113 As Burchett J observed in Autodesk v Yee (1996) 139 ALR 735 ("Autodesk") at 739-40, the modern form of the copyright owner's right to bring an action for conversion under
s 116(1) of the Act has been the subject of considerable criticism; see also Polygram Pty Limited v Golden Editions Pty Limited (1997) 38 IPR 451 ("Polygram") at 454-5
(Lockhart J).
114 However, as was pointed out by Burchett J in Autodesk at 740 and by Lockhart J in Polygram at 455, in 1990 the Copyright Law Review Committee ("the CLRC"), chaired by Sheppard J, refrained from recommending its repeal, notwithstanding the harshness with which the section operates. Nevertheless, the CLRC considered that a discretion should be conferred on the Court to determine whether conversion damages may be appropriate.
115 Amendments to the Act introduced in 1998 have now conferred on the Court a discretion which ameliorates the harshness of the law as it stood when Autodesk was decided. I will refer to these amendments later.
116 In Autodesk at 738-40, Burchett J traced the history of s 116 of the Act. His Honour observed that an element of penalty is an accepted feature of copyright legislation, the infringer being treated as a "pirate". The effect of s 116(1) is to create a statutory fiction under which the copyright owner is treated as the owner of the infringing article with the consequent entitlement to sue for conversion or detinue; see Autodesk at 740-741 and Polygram at 454.
117 As Lockhart J said in Polygram at 454, the measure of damages in conversion is generally the value of the infringing copy at the date of conversion. Provision is made in
s 116(1D) of the Act for the value to be assessed having regard to, inter alia, the expenses of the infringer in manufacturing the infringing copy.
118 Under s 116(1C) of the Act, the Court is not to grant relief in damages for conversion if the relief it has granted or proposes to grant under s 115 is, in the opinion of the Court, a sufficient remedy.
119 In the present case, I do not consider that relief under s 115(2) is sufficient. There are two reasons for this. The first is that the applicants' evidence establishes that the respondents have failed to give proper discovery of their records. It is plain that the respondents have not produced documents which contain details of the number of compact discs pressed or sold by them. The records that were produced by Tower showed the pressing of a much smaller number of discs than was revealed in documents obtained by the applicants from Technicolor.
120 It follows in my view that the respondents have not put before the Court the necessary documents to enable me to calculate the quantum of pecuniary relief under s 115(2) of the Act.
121 The second reason is that I am satisfied on the evidence before me that it is unlikely that the relevant applicants would have granted licences to any of the respondents to reproduce the copyright sound recordings or compilation CDs. It is true that Mr Kearney gave preliminary and informal approval for a few tracks. But the overall effect of the evidence is that the respondents would not have met the applicants' detailed requirements for the grant of licences. It is therefore inappropriate to assess damages under s 115(2) on the basis of assumed licences; see Universal Music Australia Pty Limited v Miyamoto [2004] FCA 982 ("Miyamoto") (Wilcox J).
Whether damages for conversion ought to be apportioned
122 The authorities recognize that where any part of an article consists of infringing material, the calculation of damages becomes difficult; see S Ricketson and C Cresswell, The Law of Intellectual Property, 2nd ed, 2002, LBC Information Services, Sydney, p28 [13.90].
123 In Infabrics Limited v Jaytex Shirt Co Limited [1982] AC 1 ("Infabrics"), the House of Lords rejected an argument that an award of damages for conversion should be apportioned where a copyright artistic work had been applied by an infringer to shirts which it manufactured. Their Lordships, while recognizing that in some cases a failure to apportion may produce an exorbitant award of damages, considered that the shirts were the "infringing copies" and the value of the shirts was the measure of damages; see at 18 (Lord Wilberforce) and 26 (Lord Scarman).
124 Lord Scarman encapsulated the problem and the answer given to it in s 18(1) of the Copyright Act 1956 (UK), the equivalent of s 116(1) of the Act, in the following passage (at 26):-
"But damages for conversion can be very great. If the industrial application of the infringing copy is a success, damages are recoverable as if the owner of the copyright was the owner of every infringing copy sold: see 18(1). And what if the infringing copy be engraved on a silver chalice or a gold medallion? The language of the subsection is, I think, clear: it bestows on the owner of the copyright the rights and remedies to which at common law an owner of goods is entitled for their conversion, It treats the owner of the copyright as if he were the owner of the infringing copies. Since at common law the damages for conversion are ordinarily measured by reference to the value of the goods converted, I would not think it legitimate to construe the subsection otherwise, though the result will be injustice in some cases. If the possibility of excessive damages is to be eliminated, legislation will be needed, for the language of the subsection permits of no other construction."
125 The problem and the answer which is given by the statute were explained in similar terms in the Court of Appeal's decision in Infabrics; see [1980] 2 All ER 669 at 679. Buckley LJ stated that the problem must be solved in each case having regard to its own facts. He continued as follows:-
"However, it is I think worth noting that s 18(1) relates to notional conversion of infringing copies. The definition of 'infringing copy' imports that an infringing copy must be recognizable as an article."
126 The definition of "infringing copy" in the UK Act was the same as the definition of the same term in the Act which I have set out at [14] above.
127 Infabrics was followed by Fox J in WH Brine v Whitton (1981) 37 ALR 190 ("WH Brine").
128 In WH Brine, the respondent sold soccer balls which were marked with various marks and devices some of which constituted the intellectual property of the applicant. Damages for conversion were claimed under s 116(1) of the Act.
129 Fox J was of the view that the case was indistinguishable from Infabrics. He said, at 199, that the infringing material was substantial and could not be conveniently separated from the rest. Accordingly, the balls as a whole, were the infringing copies, the action under s 116 being "intended to acknowledge the copyright owners complete domain over the infringing copies".
130 Infabrics and WH Brine were followed by Lockhart J in Polygram but his Honour found that it was possible in that case to sever the goods into infringing and non-infringing components.
131 Polygram was concerned with the sale of a package of two CDs sold together as a single package. One of the CDs embodied the works of a performer then known as Cat Stevens. The other embodied the works of an artist, Donovan. The Cat Stevens' works were reproduced in breach of copyright. The Donovan works were not; see at 455.
132 Lockhart J said at 457 that where the Court is presented with goods that comprise infringing and non-infringing matter, it is necessary to decide whether they can be separated into infringing and non-infringing components. He referred, at 458, to authority for the proposition that where the parts are practically inseverable, the order goes to the whole work. His Honour found that the two compact discs, though sold in one package, were made separately and were physically severable; at 458.
133 Accordingly, Lockhart J apportioned damages between the two compact discs while recognizing that the question depends on the facts of each case; at 458. Thus, his Honour indicated that if there had been evidence that the Cat Stevens works were more popular than Donovan's, it may have been appropriate to award conversion damages for the full wholesale price of the package.
134 In 1998, after the decisions in Polygram, and most notably after the decision in WH Brine, the Act was amended to confer on the Court a discretion as to whether to make available the remedy of damages in conversion. Importantly, the Court was also given a discretion as to the extent of the damages which may be awarded for conversion.
135 The discretion whether to make the remedy of conversion available is found in s 116(1C). I referred to this earlier. Section 116(1C) denies the copyright owner a remedy in conversion if the Court is of the opinion that relief under s 115 is sufficient.
136 Section 116(1E) states three factors to which the Court may have regard in deciding whether to grant relief "and in assessing the amount of damages payable". I refer to the factors below. Thus, s 116(1E) relates both to the discretion to award damages for conversion and the quantum of any award.
137 Reference to the Explanatory Memorandum to the Copyright Amendment Bill 1997 ("the Explanatory Memorandum") makes plain that the purpose of the amendment was to give effect to the recommendation of the CLRC in 1990 that there should be a discretion in the Court as to the availability and extent of the remedy of conversion damages; see the Explanatory Memorandum at [137].
138 Moreover, it is clear from the following paragraph at [140] of the Explanatory Memorandum that a purpose of the amendments was to overcome the harshness of the operation of the previous law as applied in WH Brine. The paragraph is as follows:-
"Presently, it makes no difference that the infringing copy is an insubstantial part of an article, eg, a badge on a soccer ball, or a few pages of a book. The whole article must be either delivered to the copyright owner or the value of the goods paid by way of damages. Implementation of the CLRC recommendations will avoid possible abuse by copyright owners and unfairness to defendants."
139 Thus it seems to me that the effect of s 116(1E) is to give the Court a discretion to award an amount of damages in conversion which, having regard to the stated factors, provides a fair measure of damages in the particular case. The sub-section is directed at an assessment which strikes a fair balance between the compensatory aspect of the remedy and the acknowledgment of the copyright owner's domain over infringing copies.
140 It must be a matter for the exercise of the discretion of the Court in each case to determine where the proper balance lies.
141 There was no evidence as to the first factor stated in s 116(1E), that is, the importance to the market value of the compact discs, as a whole, of the infringing material. In the absence of evidence, I would assume, as Lockhart J did in Polygram, that the works of all of the artists are of equal value.
142 There was evidence of the second factor, namely the proportion of the infringing material to the whole of the article. With the exception of the sixth CD, Happy Valley, each of the CDs was sold as a double album. Happy Valley consisted of three compact discs but the third was a bonus disc which contained only video footage.
143 The applicants produced a table showing the total number of tracks on each album and the number of infringing tracks as a proportion of the tracks on each disc. The table is as follows:-
Name Tracks Disc 1 Disc 2
1 nikfish.com.au digital domain 29 2/15 0/14
2 Hard Trance Nik Fish 29 1/14 4/15
3 downunderground 007 nikfish 29 1/15 1/14
4 peeweeferris.com digital domination 23 1/12 3/11
5 downunderground 006 katemonroe 19 1/9 0/10
6 happy valley 1991 - 2001 a decade of dance 23 1/12 0/11
7 downunderground 011 captainkirk 22 1/11 0/11
8 fishmix 1 nik fish 28 1/15 0/13