REASONS FOR JUDGMENT
Introduction
1 This case is principally a copyright infringement action. The applicant, TS & B Retail Systems Pty Ltd (TS&B Retail), alleges that the corporate respondent, 3Fold Resources Pty Ltd (3Fold), copied 234 manufacturing drawings and 5 tables of data in which TS&B Retail holds copyright. TS&B Retail says 3Fold used the drawings and data to manufacture, supply and install shop fittings (including interior fittings, displays, stock presentations and shelves) for retailers who would otherwise have purchased those products and services from TS&B Retail. The main case, however, is against the individual respondents. They are the directors of 3Fold and the only ones likely to have assets to satisfy any award of damages TS&B Retail is able to recover. The case against them is that they procured 3Fold to breach the copyright.
2 In addition to the copyright infringement claim, there are claims for breach of confidence and subsidiary claims in misleading or deceptive conduct, misleading or false representations and unconscionable conduct in contravention respectively of ss 52, 53 and 51AA of the Trade Practices Act 1974 (Cth). The Trade Practices Act claims were not seriously pressed at trial. TS&B Retail accepts in the event it succeeds in its copyright action, the other claims will become redundant.
3 It became common ground during the course of the proceeding that the 234 drawings and the 5 tables were copied. The action is defended on the basis that TS&B Retail does not own copyright in the drawings and that the tables are not protected by copyright. There is an additional defence to the copyright claim in relation to the drawings, namely that 3Fold sold products manufactured from the drawings to Kmart, which 3Fold says was licensed by the copyright owner to reproduce the drawings. In relation to the breach of confidence claim, the respondents deny that the drawings and tables were confidential and assert, if they were confidential, that any right to sue for breach of that confidence does not lie with TS&B Retail.
Background
4 The facts, for the most part, are clear. In 1930, Silverwood & Beck Pty Ltd (S&B) was established to design, manufacture and construct interior fittings, displays and stock presentation shelving for Coles variety stores throughout Australia. In 1985 the plant and equipment, stock, goodwill, and "business records, documents and other information" of S&B were purchased by Trollope (Australia) Pty Ltd for $6.9 million. The combined business (by change of name or amalgamation) was called Trollope Silverwood and Beck Pty Ltd (TS&B). TS&B continued to design and manufacture shop fittings and related products. Its customers were major retail outlets such as Coles Myer Ltd (including Coles supermarkets and Kmart) (CML), Big W, Optus, Dick Smith Electronics, Shell and Woolworths. TS&B was owned and run by Barry Trollope (who had established Trollope Australia in 1969) and his son, Grant Trollope.
5 Within a few years TS&B grew to be a sizable operation. At the height of its business TS&B had around 500 employees. In the year ended 30 June 1999, it earned net profits of approximately $2.4m before tax. But its success did not last. Just two years later, TS&B's profitability had declined so significantly that the company was finding it difficult to pay its suppliers and continue operating. In the year ended 30 June 2001 it suffered a net loss of around $110,000. In the following year the net loss exceeded $4m. This was too much for the company's creditors. On 28 October 2002 a debenture holder, the National Australia Bank Limited, appointed John Lindholm and James Stewart, both of Ferrier Hodgson, Chartered Accountants, to be the receivers and managers of the company's assets and undertaking. On the same day the directors appointed Ian Carson and David Crosbie of Carson & McLellan PPB to be the administrators of the company.
6 Despite the receivers moving in, there was talk that TS&B might be able to trade out of its financial difficulties. It soon became apparent, however, at least to some of the employees, that the company would be wound up and their jobs would be lost. Among those concerned for their future were the individual respondents, Peter Vanderzaag, Francis D'Mello and Gary Smith.
7 Vanderzaag was the Operations Manager for TS&B's Business Unit. He had been in the shop-fitting industry for more than 25 years and had been employed by TS&B in various capacities including factory manager, warehouse manager and finally Operations Manager for the retail division. In that capacity, in which he had served for around 15 years, Vanderzaag was responsible for the delivery of services and projects to TS&B's major customers, including Kmart.
8 D'Mello, who was the Information Technology Manager for TS&B, had been with the company for over 15 years. He joined TS&B in 1986 to convert the company's then manual systems to computer based systems. Over the years D'Mello had assumed other responsibilities including the management of various computer systems upgrades and TS&B's "year 2000" compliance program.
9 Smith, who was the Constructions Manager (Retail Projects) for TS&B, had been with the company for about 5 years following a career in the army. He was initially responsible for reviewing the internal processes of TS&B and making recommendations to design and improve efficiencies. As Construction Manager, Smith focused on redesigning the installation procedures for TS&B's retail division. This included the procedures for the preparation of quotations, labour allocation, contract management, site control procedures and safety issues.
10 In view of their age (each was in his 40s or 50s), obtaining new employment was not going to be easy for the three men, despite their experience. Something had to be done to find work. So they decided to set up their own business to operate in the one area they knew well, namely the provision and installation of shop-fittings to retail organisations.
11 It may be that when the idea of setting up their own business was first mooted, the individual respondents thought they would face little by way of competition for old TS&B's clients once the TS&B business closed down. They may also have believed, at least for a time, that with TS&B's closure they were entitled to make use of TS&B's designs, drawings and data or, if not entitled, at least that they could use the drawings and data with impunity. If this is what they had in mind, they were seriously mistaken as they were soon to discover.
12 The individual respondents took little time to put their plan into action. By the beginning of November 2002 they had prepared a submission describing the services their new business would perform and provided that submission to Kmart, TS&B's largest client. They then met Peter Healy, the National Store Development Manager at Kmart, to discuss the submission.
13 It was around this time that 3Fold was incorporated. The shares in the company were held in equal number by Vanderzaag, D'Mello and Smith, each of whom was appointed a director of the company. The work each would perform for the company had been agreed: Vanderzaag was to be responsible for operations and business development; D'Mello for finance, administration and systems; and Smith for logistics and resources (including managing all installation works and project management). The idea was that 3Fold would offer shop fitting services, including project management, stock maintenance and installation and equipment supply to retail outlets. It was not intended that 3Fold manufacture shop fittings itself; rather that it would procure fittings from other manufacturers for supply to its customers. In effect, 3Fold's manufacturing operation was to be outsourced. The individual respondents hoped 3Fold would obtain business from at least Kmart and Big W.
14 3Fold did not begin operations immediately upon its incorporation as it had yet to obtain office and warehouse premises. It did, however, begin to seek out business. While this was taking place the individual respondents continued to work at TS&B, the business of which was beginning to be wound down by the receivers. As a consequence, most of TS&B's staff were, or were in the process of, being laid off. Among them was Smith who was told his employment would terminate on 11 December 2002. Only key staff that were required to finalise projects, wind down the business and maintain core operations that might attract a buyer, were retained. Vanderzaag and D'Mello were among the employees kept on.
15 As well as winding down the business the receivers were taking steps to sell TS&B's assets. Those assets had to be preserved in the meantime. To this end, the receivers put TS&B's employees on notice that when they left they should not take with them any of TS&B's property. For example, on 13 November 2002, Lindholm wrote to all employees reminding them of their obligations. Relevantly, the letter stated:
"Whilst I appreciate the difficult circumstances all employees are facing, I felt it was important to remind you of your obligations in respect of your employment at TS&B, as follows:
· Copyright in all designs, drawings, calculations, models, disks, tapes, electronic data provided or prepared by you during the term of your employment remain the property of TS&B.
· Upon termination you are not entitled to take material, which is the property of TS&B. This includes any material on your computer system.
· You must return to TS&B any of the company's property and any of its documents, papers or electronic data and [stet] which may reflect, comment on, or are connected with any information which is confidential to TS&B or its clients. You are not permitted to keep any copies of any such material.
· Any property belonging to TS&B including Mobile Phones/Keys issued to you, as part of your employment must be returned to TS&B.
You will be required to sign a statement to this effect prior to your final payments being made."
Lindholm said, and I accept, that he made similar comments at weekly meetings of employees. Vanderzaag and D'Mello attended at least some of those meetings. Two others who play important roles in this case, Graeme Butler (a contract draftsman) and Lisa Oakes (who worked in administration and was responsible for data entry) also attended.
The Drawings
16 The assets of TS&B included a set of manufacturing drawings of each part (unit or assembly) manufactured and supplied by TS&B. Each manufacturing drawing illustrated a unit or assembly from various perspectives (plan, elevation, end view, section). Each drawing contained sufficient detail to allow TS&B (or another manufacturer) to manufacture the unit without having to view the unit itself. It depicted the overall presentation of the finished unit, including the presentation of each of its individual components, all dimensions for the unit and its individual components, along with details of each unit (such as materials used to produce it, part numbers and the method of manufacture or assembly).
17 TS&B also had isometric and design drawings for parts. Each isometric drawing depicted two sides of the part and either the top or bottom. According to Herbert Moffatt, the former Engineering Services Manager at TS&B, with the advent of the computer it was easier for a draftsman to produce an isometric drawing by first drawing the plan and elevation views of a part and then extending these to create the isometric drawing. Unlike a manufacturing drawing, not all aspects of the part, its individual components, dimensions or manufacturing details, are represented in an isometric drawing. For this reason, a part could not be manufactured directly from an isometric drawing.
18 In total, TS&B had between 15,000 and 25,000 drawings (including design, isometric and manufacturing drawings) of which 8,000 to 10,000 were current. Of these, 234 have been shown to have been copied.
The Data
19 The data which had been used by TS&B included detailed customer and product information that had been developed over many years. The customer and product information was stored, in electronic form, in tables within TS&B's database management system (a licensed version of Microsoft's SQL Server relational database management system). The critical data for the business was stored in five master tables ("tarcustomer", "tciaddress", "timkitcomplist", "timitemdescription" and "timitem"). The data was inputted, edited and accessed using TS&B's enterprise resource planning system, ACUITY.
20 For the most part, each fitting supplied by TS&B was made up of a number of component parts. The fitting and its component parts were each given unique identification numbers (called kit numbers and item numbers respectively). The timkitcomplist table stored the kit numbers for each unit, along with the item numbers of the parts which made up each unit. The table also listed the number of parts in each unit (sequence number) and the quantity of each part required (quantity number). The timitem table contained the item number for each part, the TS&B part number along with the cost and pricing of each part. A long description of each part and a short description (including a reference number for the manufacturing drawing associated with each part) were stored in the timitemdescription table. The remaining two master tables (tarcustomer and tciaddress) contained (among other things) a list of all TS&B's customer names and addresses as well as TS&B's suppliers.
21 The data was critical to TS&B's business as it allowed TS&B to efficiently break down customer orders into their constituent components and to determine what parts would be needed and in what quantities, where they could be sourced from and what the prices would be. TS&B could then use the ACUITY system to prepare a quotation or submit a tender expeditiously.
22 An example of the way in which this system worked is as follows. A Footwear Display (Gondola) Unit was given a kit number. This number was linked in the database with the item numbers of each of the parts used to manufacture the Footwear Display (Gondola) Unit. The cost and sale price of each component part, along with references to manufacturing specifications and drawings used by TS&B to manufacture each part and the details of external suppliers from whom the components could be purchased, would be linked with each part. If a customer placed an order for a Footwear Display (Gondola) Unit, TS&B could immediately break down that order and determine what parts would be needed, in what quantities, from whom they could be sourced and what the total cost and sale price of the unit would be.
23 Orders received by TS&B were typically for the refurbishment or fit-out of an entire store, rather than for a single unit or assembly. The process for the fit-out of an entire store or a refurbishment was similar. First, a customer would issue a floor or merchandise plan. The plan would identify each unit to be provided. Each unit was identified on the plan by a merchandise unit number. This number was determined by the customer. Next, "quantity surveyors" from TS&B would perform a "take-off" from the plan. This involved manually recording on a "master / take off sheet" the customer's merchandise unit number, the corresponding TS&B master numbers and the quantity of each unit on the plan. The master numbers and quantities were then keyed into the ACUITY system which would generate a "checking copy" that was used to verify the estimated quantity of each unit. The system then produced a "quotation breakdown" that listed the price of equipment used to make each unit. The next step was the production of a "quote consolidation" that listed the quantities of each component part required. The labour charges associated with the refit were calculated separately on a Microsoft Excel spreadsheet, based on the cost of labour and transport and the complexity of the job. All this information was used to prepare a final quotation for the fit-out which was sent to the customer.
24 If a quotation was accepted the customer would place a purchase order with TS&B. The system would then generate a "sales order", which was an internal document that listed each component part and the quantity that needed to be supplied to the customer for the specific job. The sales order also identified the drawing numbers for each component and the price of each part. If parts were to be supplied by another manufacturer the drawings would be provided to that manufacturer. This was only necessary where the manufacturer had not previously supplied the part to TS&B. For parts manufactured by TS&B, the system generated an inventory list which was used to check what parts were in stock. Employees in the manufacturing area used the purchase order to determine the raw material required to manufacture the required parts. The system would then generate a "despatch packing list" or pick list which identified the parts to be delivered for the job, the quantities required and the delivery date. Finally a "fixers file" was generated listing the customer's merchandise unit number, the corresponding TS&B master numbers and the component parts of each unit to be installed. This was issued to TS&B's on-site installers as a cross-check for the equipment delivered to the site. Other reports, such as lists of suppliers and invoices, could also be produced using the data in the database.
25 The use of the data created an efficient operation. TS&B could quickly and accurately gather the necessary information for it to respond to a complicated tender and, if a contract ensued, arrange for the manufacture and supply of the necessary parts.
Confidentiality
26 Critical to the claim for breach of confidence is the assertion that the drawings and the tables were confidential. In Ansell Rubber Co Pty Ltd v Allies Rubber Industries Pty Ltd [1967] VR 37Gowans J identified the factors relevant to establishing confidentiality to be: the extent to which the information is known outside the business; the extent to which it is known by employees and others involved in the business; the extent of measures taken to guard the secrecy of the information; the value of the information to the employer and to his competitors; the amount of effort or money expended in developing the information and the ease or difficulty with which the information could properly be acquired or duplicated by others. I would add to this the inherent nature of the information in issue and its purpose or function.
27 Information in the public domain is not confidential. For this reason the respondents claimed that the extent to which TS&B's manufacturing drawings had been made available to customers and suppliers required the conclusion that they were in the public domain. Vanderzaag said that drawings were frequently provided to some customers as a part of the design, research and development process. He referred to a shop-fitting brochure provided to Kmart as an example. However, the brochure contained only photographs and isometric drawings, not manufacturing drawings. Smith gave evidence that his dealings with Kmart involved constant use of plans and drawings and that the contents of TS&B's site document folders, which contained drawings relevant to a particular job, were shared with or provided to customers. Smith also said he was permitted to provide drawings to a client as and when required.
28 Barry Trollope denied most of these assertions. He did, however, concede that TS&B had provided manufacturing drawings to a small number of manufacturing contractors who were engaged to manufacture parts that were not manufactured by TS&B itself. He said the drawings were provided subject to them being kept confidential. TS&B did not always have these drawings returned.
29 Richard Cue, the former Design Manager at TS&B, said it was not TS&B's policy to distribute drawings "freely". He acknowledged that TS&B did provide isometric drawings to clients sometimes as part of a brochure, but said that TS&B did not distribute production drawings to clients. Both Trollope and Cue said that TS&B never made its drawings register or database available to customers or suppliers. According to Cue, the site files, which contained drawings, were not distributed to clients. When drawings were distributed to clients, Cue said the majority, apart from the initial sketches, bore TS&B's title block and a copyright notice. There were some minor exceptions, such as when Cue instructed one of the draftsmen to send an electronic drawing to Kmart in response to a request for assistance from Kmart in preparing a merchandising plan.
30 I considered the question whether TS&B issued manufacturing drawings to its customers for the purpose of an interlocutory decision: TS & B Retail Systems Pty Ltd v 3fold Resources Pty Ltd (2003) 57 IPR 530. In that decision, what persuaded me to lean in favour of TS&B Retail's argument that TS&B did not issue manufacturing drawings to its customers was that Kmart had been subpoenaed to produce, among other documents, "product drawings or design specifications prepared, compiled or otherwise supplied by 3fold or any 3fold subordinate related to or connected in any way with the Tender [for works to fit out Kmart stores]". In response, Kmart produced only isometric drawings that originated from TS&B. If the respondents' account were correct, and TS&B did provide customers with manufacturing drawings, one would expect other drawings to have been produced. I am satisfied my tentative view was correct, a view that is confirmed by what Trollope and Cue have said.
31 The drawings were available to employees as and when required, although access to the electronic drawings register was restricted. Cue said all electronic drawings (produced on AutoCAD, a computer aided drafting software package to produce drawings) were stored on a separate network and access was restricted to certain personnel, presumably those who needed to use the drawings to carry out their work. The draftsmen had access to the drawings register. Other personnel also had access. A hard copy of the latest version of all drawings was kept in a library to be used for reference purposes. Other sets were kept in the drawing office, the metals factory and the joinery factory. Vanderzaag said there were no restrictions on who could enter the metals office; although, of course, someone might ask questions if a person entered an area they had no reason to be in.
32 There is no doubt the drawings were important to the business and would have been of some value to competitors. Vanderzaag admitted as much. Despite their importance to the business and their value, there is nothing inherently "secret" about the drawings; they do not contain any information that cannot readily be obtained by other means, such as by viewing the final product. While TS&B did secure the drawings and restrict access to them, this most likely reflects the realities of any modern workplace, where personnel have access only to what they need to perform their jobs, rather than any particular desire to keep the drawings secret. Moreover, there was a belief that the drawings were protected by copyright, so there was no particular need for them to be kept secret. All in all, I do not think the drawings are confidential in the required sense.
33 As regards the tables, the respondents claim that TS&B's system was an ordinary business system, the component parts of which were not kept confidential, but were known to and made available to customers and suppliers. This was denied by Trollope and Cue. Cue said that the complete part number database and drawings register were not made available to customers or suppliers. Trollope said that the entire listing of part numbers was never disseminated, nor were the links between data in the tables.
34 On the other hand, there is evidence that some of the information contained in the tables was provided to customers and suppliers. D'Mello said that part numbers and descriptions (contained in the "timitem" and "timitemdescription" tables) went "forward and backwards" between Kmart and TS&B on a regular basis. Vanderzaag claimed that part numbers were used regularly by customers and manufacturers. He produced a product catalogue for "Silbeck Shelving" sent to customers in December 1993 as evidence of this. The catalogue did not contain information in exactly the same form as the "timitemdescription" table as it contained "generic descriptions" which differed from the "short description" in the table, notably because the generic description excluded any reference to the manufacturing drawing for each part. Part numbers had been provided to customers such as Kmart in the form of stock lists. Indeed the receivers provided Kmart with part numbers to assist them with the management of excess stock. Cue noted that, if required, some part numbers had been made available to customers and suppliers through the request and order process. For example, manufacturing drawings that contained references to the relevant part numbers were provided to certain suppliers. But the dissemination of part numbers was not wide-spread. Cue said that, with the exception of shelving orders placed by Kmart, he was not aware of any customer having referred to TS&B part numbers when issuing purchase orders for major refits. If the dissemination was significant, the part numbers would have been used by other customers.
35 TS&B's computer system, including the ACUITY software, was protected by passwords. Users' rights to access the system varied. While all employees had access to the information in the database, they were not generally able to view the information in the 5 master tables in tabular form. Instead, information was obtained by searching the database. Only certain employees, such as D'Mello and Oakes, could view the database in tabular form.
36 Oakes said that some of the information contained in the tables could readily have been obtained from other sources. For example, the customer information in the "tarcustomer" and "tciaddress" tables, including customer name, store name and store address could easily have been obtained from a customer or from the White Pages phone directory. Vanderzaag said that information contained in the "timitem" and "timitemdescription" tables was also readily available.
37 I accept that the tables were critical to business, that TS&B could not have operated without the information and that the company operated far more efficiently with the information compiled as it was in the tables within the database. Use of the data would save a competitor that was looking to manage inventory, manufacture or supply products, many hours of cataloguing, organising and setting up. With access to the information, set up costs would be lower and the competitor would be in a position to accept orders and begin manufacturing and supplying more quickly.
38 Nonetheless, it is inherently unlikely that all the information stored in the tables including all part numbers and descriptions were confidential. Thus, the price at which TS&B offered its parts for sale is not likely to be confidential. Conversely, information such as the cost (to TS&B of acquiring a part from another supplier) and the sale price of each part could easily be publicly available (if TS&B and its suppliers sold their parts to other customers). Other information, such as kit numbers, item numbers, sequence numbers and quantities of parts in a unit, along with references to TS&B's drawing numbers, was not publicly available and should be treated as confidential.
Setting Up 3Fold
39 I mentioned previously that the individual respondents began to promote their new business in November 2002. On 13 November 2002, the same day that the receivers wrote to employees reminding them of their obligation not to misuse TS&B property, Vanderzaag and Smith met with representatives of Big W, one of TS&B's largest customers, to introduce their new business. In the following week Vanderzaag approached Kmart with a proposal that 3Fold be awarded a contract to supply material for Kmart's 2003 refurbishment program.
40 Between November 2002 and February 2003, Vanderzaag contacted various manufacturers to obtain quotes for parts that 3Fold intended to supply. Among them were manufacturers who had previously supplied products to TS&B. He sought from them quotes for the supply of the same products to 3Fold. Vanderzaag also approached suppliers who had not previously produced parts for TS&B. In their case Vanderzaag provided the supplier with the TS&B manufacturing drawing of the relevant part to enable a quotation to be prepared. He did not obtain the receivers' permission to use the drawings. He simply obtained a copy of the drawing from TS&B's office and passed it on.
41 The receivers soon discovered that Smith and Vanderzaag met with Big W. On 22 November 2002, following a discussion with Lindholm, Trollope advised Smith that he was not required to remain with TS&B until 11 December 2002 as previously agreed but that he should leave immediately. On the same day Lindholm sent the following email to employees:
"I wish to advise that Gary Smith has left TS&B today. We received advice from one of TS&B's major clients that he had approached them to carry out work on his own behalf utilising TS&B Intellectual Property. When confronted with the matter this morning Gary acknowledged that the events had taken place and agreed to depart TS&B.
As you can appreciate, as the appointed Receiver, we believe that such actions severely jeopardize the TS&B business going forward and the sale of business process. We would be grateful for your ongoing support in this matter."
Smith's early departure enabled him to focus on logistics planning for 3Fold, including finding suitable office and warehouse premises from which to operate the 3Fold business.
42 When Vanderzaag was told that Smith had been dismissed he tendered his resignation. Following a discussion with Trollope, Vanderzaag agreed to stay on until 20 December 2002. There is disagreement about whether Vanderzaag's resignation had been accepted by Trollope, or whether Vanderzaag in fact resigned in December 2002, but nothing turns on this. D'Mello was made redundant on the same day Vanderzaag's resignation took effect.
43 Late in the year the receivers realised they required more time to dispose of the assets than previously expected. Key personnel were still needed. Accordingly, the receivers retained (through 3Fold) Vanderzaag and D'Mello to stay on as consultants from 8 January 2003. At the time, the receivers were aware that the individual respondents were setting up a business and for that purpose had established 3Fold. The receivers did not, however, know that the individual respondents or, for that matter, 3Fold, were using TS&B's documents to operate their business.
44 Before he finally left TS&B, Vanderzaag approached other employees and offered them employment with 3Fold. D'Mello did likewise. One of the first TS&B employees to be recruited by D'Mello was Oakes. She was an Office Assistant at TS&B but was offered the position of IT Manager at 3Fold with responsibility for designing and setting up 3Fold's IT system. She was also to be in charge of office administration. The offer was too good to refuse. Oakes was being offered a far more senior position than she had ever held in the past. She quickly accepted the position.
45 In her last few days with TS&B Oakes copied the 5 master tables (tarcustomer, tciadress, timitem, timitemdescription, timkitcomplist) from TS&B's SAGE database onto a compact disk and took the disk home. Oakes said that she took the data to make her job easier when she got to 3Fold. No doubt she knew that 3Fold intended to use the data in the same way it had been used at TS&B. Most likely she was told this by D'Mello.
46 By early January, other TS&B employees had agreed to join 3Fold including Kellie Richardson, who was responsible for administration and data entry, and Joseph Morganti and David Chote, who performed takeoffs. Vanderzaag also approached Graham Butler, a Contract Draftsman with TS&B whom Vanderzaag believed possessed a copy of all of TS&B's manufacturing drawings. Vanderzaag offered Butler work as a contractor with 3Fold.
47 From early January 2003, Vanderzaag and others who were to become 3Fold employees used TS&B's systems to generate sales quotations for work to be done by 3Fold. By way of example, a quotation was prepared for fit-out of seven Kmart stores, namely West Lakes, Kotara, Wynnum West, Forrest Hill, Cannon Hill, Bundaberg and Burnie. Other quotations were prepared for the refurbishment of Kmart stores that was to be undertaken as part of its 2003 Phoenix roll-out project, a project that involved the refurbishment of approximately 30 Kmart stores throughout Australia.
48 Vanderzaag initially denied using TS&B's systems to prepare quotations but when faced with clear evidence to the contrary admitted they had been used to help establish the 3Fold business. Specifically, Vanderzaag conceded that under his instruction Chote or Morganti had performed takeoffs for 3Fold and then Richardson or Oakes had keyed the information into TS&B's systems to produce sales quotations for a tender relating to work resulting from the closure of a number of Holly's Restaurants at Kmart stores (the so-called Holly's Restaurant tender) and some of the projects on the Phoenix roll-out.
49 The respondents contend that they could have prepared the quotations without the use of the TS&B data. In this regard, Vanderzaag referred to a practice at TS&B of preparing "speed quotes" when urgent quotations were needed to obtain an advance payment from Kmart for parts already manufactured. According to Vanderzaag "speed quotes" were prepared without use of the TS&B system, and were always within 5% of the figure obtained when a full takeoff was performed. On the other side, Cue said that speed quotes were generally for minor projects and were not as reliable as takeoffs. I am inclined to agree with Cue. If Vanderzaag was right, and it was as efficient to prepare quotations without the use of the data, it is difficult to see why TS&B would have invested so much in developing their system or why the respondents would have bothered copying it.
50 The receivers, who were winding down the TS&B business, had decided that TS&B would not take on any new work after 28 October 2002. Nonetheless 3Fold's actions were quickly noticed by TS&B's management. The receivers also discovered 3Fold had been misusing the company's data and drawings. The receivers' solicitors, Mallesons Stephen Jaques, wrote to each individual respondent on 31 January 2003 detailing numerous alleged breaches by them of their contractual, equitable and statutory obligations. The allegations included that the individual respondents violated TS&B's intellectual property rights (in particular, copyright in numerous documents) and that the respondents had misappropriated TS&B's intellectual property. Specifically, the letter referred to the respondents having handed TS&B's drawings to a representative of Big W and to suppliers of equipment. The letter also referred to the respondents' use of TS&B part numbers and prices in an offer provided to Healy of Kmart. Reference was also made to the alleged "misuse of confidential information" concerning, among other things, TS&B's clients, TS&B's pricing and TS&B's intellectual property (in particular, drawings).
51 Mallesons claimed that the breaches, particularly in relation to Kmart, severely compromised TS&B's ability to trade out of its financial difficulties and jeopardised the receivers' chance of securing a sale of TS&B's business and assets. Mallesons sought various undertakings from the respondents, including that the respondents immediately return to the receivers all TS&B documentation (whether hard copy or in electronic form) and that they honour their obligations as to confidentiality with respect to TS&B's know how and trade secrets.
52 Business to Business Lawyers (B2B Lawyers), acting for the respondents, replied to the Mallesons letter on 4 February 2003. In their reply, B2B stated that 3Fold was establishing its business by relying on the personal knowledge and expertise of its directors only. The solicitors went on to say that there had been no misappropriation by the respondents and no use of TS&B's intellectual property. The respondents did, however, offer to return material in their possession if they received confirmation that no further action would be taken. The solicitors asserted that some documentation had been received when 3Fold had been appointed consultants to TS&B. During the trial Vanderzaag admitted that most of these statements were false.
53 On 12 February 2003, less than two weeks after Vanderzaag and D'Mello's consultancy had come to an end, 3Fold took possession of premises at 126-134 Fairbank Road, Clayton South. The individual respondents, along with Chote, Morganti, Oakes and Hak Seng immediately moved into the new premises. Richardson followed shortly afterward.
54 Oakes saved her copy of TS&B's data onto 3Fold's computer the day she began work at the Clayton South premises. Oakes knew which tables to copy as they were the main tables she had used to create reports while at TS&B. She then began creating 3Fold's own database based on the copied tables. This involved downloading the tables into her temporary directory and renaming them. Oakes then removed unwanted data from the "tarcustomer" table, linked the "tarcustomer" table with the "tciaddress" table (to link the store name with the store address), combined the "timitem" and "timitemdescription" tables, modified the part numbers, combined the "timkitcomplist" table with the "timitem" table and linked the kit number to the parts that make up each kit.
55 In the early stages of this proceeding the respondents claimed that the tables were only used on Oakes' personal computer. This claim was abandoned when it became apparent that it could not be supported. Still, Oakes attempted to distance her conduct from the others. For example, she said at one point that she never specifically discussed setting up the database with D'Mello. Later she said that she probably told Vanderzaag or D'Mello what she was doing. I think the true position is this. D'Mello knew that when Oakes left TS&B she took with her the disk containing the five tables. Indeed, it is likely that he suggested that Oakes take the data so it could be used by 3Fold. However that may be, D'Mello knew that Oakes had loaded the five tables onto the 3Fold server. I have no doubt that Vanderzaag knew as well. After all, he was responsible for attracting business to 3Fold and would, from the outset, have made use of the information on 3Fold's database for the purpose of obtaining work.
56 A few weeks after moving into 3Fold's new premises, Vanderzaag instructed Oakes to change the part numbers in the tables. Up to this point, each part number had followed TS&B's part numbering system in which each part number consisted of a customer code, a product code, a source code, a serial number and a finish code. For example, a typical TS&B part number might be 1-01M412-B3. In this case, the first digit "1" was the TS&B customer code for Kmart. The next two digits "01" represent the category of equipment, in this case a vertical upright. The next letter represented the material used to make the product; "M" stood for metal. The next three digits were a random serial number to differentiate different products within the same category. The final two digit code "B3" represents the finish, in this case a black powder coat.
57 The part numbers were not changed significantly so they could still be referable to Kmart's part numbers. Oakes said she changed "the first letter, the middle letter and the end - the end little bit which is the colour code". The 3Fold part number after the change, for the vertical upright with TS&B part number 1-01M412-B3 became K101S412-B. That is, K was inserted into the customer code; a reference to Kmart; the letter "M" was replaced with the letter "S"; presumably a reference to steel rather than metal, the 3 was removed from the code B3. Similar changes were made to other part numbers, for example the source code "J" (for joinery) was replaced with a "T" presumably for timber.
58 In Autocaps (Aust) Pty Ltd v Pro-Kit Pty Ltd (1999) 46 IPR 339, 350, I said:
"A compilation is not a work of art. It is a work that conveys information. When one considers whether the particular information conveyed in the defendant's work is substantially the same as the like information conveyed by the plaintiff's work, the issue is whether the manner in which the defendant has displayed that information, or important aspects of it, is in substance the same as portrayed in the plaintiff's work."
In this case the difference between the amended 3Fold part numbers and the original TS&B part numbers, namely minor alterations to the customer, source and finish codes which preserve their meaning, was not significant. The manner of conveying the information was for practical purposes the same. If copyright, 3Fold's new numbering system could still be a substantial reproduction of the TS&B's original work.
TS&B sells assets to TS&B Retail
59 From the time of their appointment on 28 October 2002, the receivers took steps to sell the TS&B business. They received offers from three prospective purchasers. One offer was from 3Fold. The offer was to purchase the "intellectual property" owned by TS&B for $50,000. The respondents' case is that the purpose of the offer was to determine the scope of the intellectual property and what the receivers considered it to be worth. The respondents suggested that 3Fold did not wish to acquire the asset. Smith said that the individual respondents did not believe the offer would be accepted. Vanderzaag said if there was a chance of it being accepted, the offer would have been withdrawn. D'Mello described the offer as having been made "tongue in cheek". None of this is plausible. I am convinced the offer was made because the respondents believed the intellectual property (which included the drawings and data) was worth at least the amount of the offer and probably more. Why then did they downplay the offer? I think the reason is this. A point regularly made by the respondents throughout the trial was that even if TS&B had copyright in the drawings and data, they were of no value to 3Fold because it had the capacity at short notice to prepare its own drawings and data and would have been able to tender for work in any event. This does not sit well with an offer to purchase the intellectual property for $50,000.
60 The offer the receivers accepted came from TS&B Retail. The company had been incorporated on 4 February 2003 by Trollope. Although TS&B had failed, Trollope was of the view that the business could operate profitably provided it was conducted in a different manner. The difference related to the manufacture of parts. TS&B manufactured most of the parts it needed and maintained a large workforce for that purpose. This was an expense that TS&B Retail could not afford. The Trollopes (Barry and his son) decided that TS&B Retail would procure parts manufactured by others, including overseas manufacturers, or, if they were available, simply purchase them on the open market.
61 The terms of TS&B Retail's offer were set out in a letter dated 19 February 2003. The offer price was $652,250. This was more than the auction value of the assets. The relevant portions of the letter read:
"TS&B Retail offers to purchase the following assets of the Business free from any encumbrances whatever as at and with effect from 3 February 2003 [the Business was defined as the business conducted by the Vendor, being TS&B]:
(a) [plant and equipment specified];
(b) all intellectual property and proprietary rights (whether registered or unregistered owned by the Vendor in the following intellectual property of the Business (including documents recording the intellectual property, whether in soft or hard copy) (Intellectual Property Rights):
(i) [including business names, trade names and trademarks]
(ii) [domain names used in the business]
(iii) copyright and all other intellectual property and
proprietary rights in all drawings regarding production and tooling;
(iv) all customer lists, pricing and costing information and customer and production records; and
(v) patents, drawings, discoveries, inventions, improvements, trade secrets, technical data, formulae, computer programs, databases, know-how, logos, designs, design rights, copyright and similar industrial or intellectual property rights;
(c) all choses in action, claims and rights howsoever arising (to the fullest extent possible at law) that the Vendor may have against any entity or individual in relation to any breach, infringement, misuse or copying of the Intellectual Property Rights as at the Effective Date other than claims based upon alleged contravention of the Corporations Act (Claims);
(d) [telephone, facsimile numbers and email addresses used in the Business];
(e) all rights of the Vendor in all software used by the Business."
The letter stated that the purchase of the assets and payment of the purchase price were subject to certain conditions including:
"1. The Purchase Consideration will be apportioned between the Assets in such a manner as agreed and set out in the Asset Acquisition Agreement.
2. The Purchase Consideration payable for the Assets is $652,250 plus GST to be satisfied by the payment by TS&B Retail to the Vendor on Friday 28th February 2003.
4. Possession of the Assets and risk in them will pass to TS & B Retail at completion of the transaction.
8. The Vendor and TS & B Retail will if either party requires it enter into an agreement for the sale and purchase of the Assets (Asset Acquisition Agreement), to be prepared by TS & B Retail's solicitors, which will reflect the terms and conditions of this offer. Until such time as the parties enter into the Asset Acquisition Agreement, the terms and conditions of the agreement of the parties as set out in this offer will bind the parties, and the parties will do all things (including signing any document) reasonably required to give effect to the terms and conditions of this agreement."
In a section headed 'Effect of Acceptance of the Letter' it was stated that "Acceptance of this offer will represent a binding agreement by the Vendor to sell the Assets to TS & B Retail and for TS & B Retail to purchase the Assets from the Vendor".
62 The letter was received by one of the receivers, Lindholm, on 19 February 2003. He executed the letter and returned it to Trollope on the same day. Settlement was due on 28 February 2003. In the event, completion did not take place until 20 March 2003.
63 Before settlement, 3Fold began to enter into contracts to supply fittings. It was awarded contracts to fit-out two stores (Kotara and Wynnum) that formed part of Kmart's Holly's Restaurant tender. A contract to fit-out a third store, West Lakes, was awarded to 3Fold on 24 March 2003. The remaining four stores under the Holly's Restaurant tender (Forrest Hill, Cannon Hill, Bundaberg and Burnie) were awarded to TS&B Retail.
64 At about the same time, 3Fold was awarded contracts to fit-out thirteen Kmart stores (West Lakes, Kotara, Wynnum West, Morley, Castle Hill, Joondalup, Woy Woy, Gladstone, Innaloo, Goulburn and Armadale) as part of the Phoenix roll-out. 3Fold was awarded contracts to fit-out a further three stores (Mildura Launceston and Kardinya) on 24 March 2003. Three of these projects (Innaloo, Goulburn and Armadale) ultimately did not proceed. TS&B Retail received contracts for four stores (Dandenong, Shepparton, Traralgon and Albury) with the remaining ten stores going to Metro Products and BP Shopfitting (who were awarded nine stores and one store respectively).
65 Between February and March 2003 3Fold also received orders from Kmart to fit-out a further fifteen Kmart stores (Albany, Knoxfield, Ringwood, Cannon Hill, Figtree, Sylvania, Parramatta, Mulgrave, Minto, Warrnambool, Tooronga, Hornsby, Alexandria, Sylvania and Rowville).
66 The respondents maintain that the Phoenix contracts were awarded to 3Fold in November or December of 2002, before Vanderzaag and the others made use of TS&B's data to prepare quotations. That is not what Healy said. According to Healy the Phoenix contracts were not allocated to particular shop-fitting companies until January or February 2003. It is in my view clear that 3Fold used TS&B's data to quote for all the Kmart projects. Moreover, it intended to use TS&B's manufacturing drawings to fulfil any contracts it was awarded.
67 On 20 March 2003 Barry Trollope wrote to the receivers advising that "[TS&B Retail did] not require [the execution of] a formal Asset Acquisition Agreement to proceed to completion of the sale and purchase of the Assets." In the letter TS&B Retail proposed that the sale be made on the terms set out in the letter along with those in the letter of 19 February 2003. In relation to the effective date of the sale, the letter stated:
"The Sale Letter [being the letter of 19 February] stated that purchase of the Assets would take effect from an effective date of 3 February 2003. TSB Retail believes this is an error, and that title, risk and possession in respect of the Assets will pass on Completion."
The letter went on to note that completion would take place at 2:00pm on 20 March 2003. Further details of the sale were set out including that the receivers and TS&B would provide assistance to TS&B Retail in relation to claims by third parties over plant and equipment. In relation to the intellectual property the subject of the sale the letter stated that:
"'For the avoidance of doubt, the 'Intellectual Property Rights' includes, to the extent it may be transferred or assigned at law, any right of the Vendor to have information (including, without limitation, confidential information) kept confidential, and the 'Assets' includes all Claims in connection with any such right other than claims based upon alleged contravention of the Corporations Act."
There was a definition of "Assets". It included
"(a) all computers and hardware used in the conduct of the Business and listed in the appendices to the Sale Letter;
(b) all software installed on the Computers; and
(c) all data and information stored or otherwise able to be retrieved, printed or transmitted from Computers."
Toward the end of the letter there was a statement that the acceptance of the letter would represent an agreement by the parties to proceed to completion without a formal asset acquisition agreement on the terms and conditions set out in the two letters. This was followed by a provision that, for the avoidance of doubt, a failure by the Vendor to accept the letter would not "affect the binding agreement [to sell the assets to TS&B Retail] created [by] the acceptance by the Vendor of the Sale Letter."
68 The letter was signed by Lindholm on the day of its receipt, 20 March 2003. Later that day the transaction was completed by the payment by TS&B Retail of the purchase price and the delivery by the receivers of the assets.
69 It is clear that the parties (the receivers and TS&B Retail) intended the arrangements set forth in the two letters to be binding; to constitute a contract. There is no reason not to give effect to their intention, provided it can be given effect in law.
70 To the extent it matters (and timing may be important) I treat the letter of 19 February 2003 as an offer to purchase the assets therein described and the receivers' signature as the acceptance of that offer, resulting in a binding contract. It is appropriate, I think, to regard the provisions of the second letter as a variation of that contract. At one time it was thought that the result of varying a contract was to produce a new contract: Williams v Moss Empires Limited [1915] 3 KB 242, 247. In United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340, 348, Lord Devlin said the old agreement would only be destroyed if that is what was intended. In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 the distinction between recision and variation was discussed. The High Court accepted that the parties to an agreement may vary some of its terms by subsequent agreement. It was also accepted that the parties may rescind the earlier agreement, and this could be done expressly or by implication. The determining factor is always the intention of the parties as disclosed by their later agreement.
71 Did the agreement (or the agreement as varied) pass copyright in the drawings and data to TS&B Retail? Copyright is a species of property. It is capable of being assigned at law as personal or movable property: Copyright Act 1968 (Cth), s 196. To pass legal title the assignment must be in writing: Copyright Act, s 196(3). If the assignment is not in writing there may be an assignment in equity provided there is an express or implied agreement to assign. Here the parties accept that the receivers purported to assign TS&B's copyright in the drawings and data to TS&B Retail. The dispute is whether copyright subsisted in respect of those works and if it did whether TS&B was the owner of the copyright.
72 A rather more difficult question is whether, as TS&B Retail asserts, it took an assignment of TS&B's confidential information. According to the agreement there was an attempt to assign confidential information to TS&B Retail. The first letter records that "all intellectual property and proprietary rights … including … drawings, trade secrets, technical data formulae … databases, know-how … and similar industrial or intellectual property rights" was the contract's subject matter.
73 In Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 26 Windeyer J said, and Dixon CJ (at 16) agreed that "[a]ssignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. Anything that in the eye of law can be regarded as an existing subject of ownership, whether it be a chose in possession or a chose in action, can today be assigned, unless it be excepted from the general rule on some ground of public policy or by statute." That is to say, the only thing capable of being assigned is property or a right in property.
74 Confidential information, however, is not property "in any normal sense": Boardman v Phipps [1967] 2 AC 46, 128. Indeed it is not property at all. Confidential information is protected by equity by "the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained": Moorgate Tobacco Co Limited v Philip Morris Limited (No 2) (1984) 156 CLR 414, 438. A court of equity will protect information only if it is truly confidential and the confidence is worth preserving.
75 Although confidential information is not property and hence is not capable of being assigned, it now seems to be accepted that confidential information can be passed on by one person to another, and the person to whom it has been imparted can take action to protect the information. In Mustad & Son v Dosen [1964] 1 WLR 109 the liquidator of a company sold to the appellant the company's business including the benefit of trade secrets. One of the former employees took up employment with a competitor, with the intention of passing on trade secrets to his new employer. The appellants obtained an injunction to restrain the disclosure. In Douglas v Hello! Ltd (No 3) [2006] QB 125, 168 it was observed that the decision in Mustad & Son "supports the proposition that a purchaser of confidential information can restrain disclosure of that information in breach of confidence, but again the picture is complicated by the fact that the benefit of [the employee's] contractual obligation not to disclose the information was purchased by Mustad."
76 That may be a good explanation for the decision of the Law Lords but, even if the employment contract had not been assigned, in my opinion, consistent with principle, a "purchaser" of the confidential information is entitled to the court's protection. In the Spycatcher case (Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 281) Lord Goff said: "a duty of confidence arises when confidential information comes to the knowledge of a person (the confidant) in circumstances where he has noticed … that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others."
77 It follows, in my opinion, that TS&B Retail is entitled to whatever protection a court of equity will give in respect of the confidential information it obtained from the receivers. The remedies that are available include an injunction and equitable compensation: Seager v Copydex Ltd (No 2) [1969] RPC 250; Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1990) 17 IPR 545; Aquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299. The Federal Court can grant this relief because it exercises equitable jurisdiction: Federal Court of Australia Act 1976 (Cth), s 5(2) and s 23.
78 The result is that TS&B Retail is entitled to maintain a cause of action for copyright infringement and breach of confidence for any alleged infringement that occurred from the time it became the owner of the copyright or entitled to share in the confidential information (as the case may be). But what of infringements that occurred while TS&B owned the copyright and was the only person entitled to protect the confidential information? TS&B Retail is not able to bring an action for an infringement that occurred prior to it becoming owner of the copyright and entitled to use the confidential information merely because it is the assignee: Taypar Pty Ltd v Santic (1989) 17 IPR 146, 152-153. No doubt for this reason the agreement has the receivers purporting to assign to TS&B Retail any claim TS&B may have had for breach of copyright and breach of its confidential information.
79 I said that the receivers "purported" to assign the causes of action for there is a general rule that a personal right to litigate cannot be assigned either at law or in equity, but an impersonal right in the nature of a proprietary right can be assigned provided the circumstances warrant it. Thus, it has been said that causes of action in tort, which are regarded as personal rights, cannot be assigned: Poulton v Commonwealth (1953) 89 CLR 540, 571, 602. The bar on assignments of personal actions would include actions in equity that are of a personal kind: Glegg v Bromley [1912] 3 KB 474, 489-492. An action for breach of confidential information is a personal action.
80 There is in England an exception to the bar on the assignment of personal rights. In Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 703 Lord Roskill (with the concurrence of the other Law Lords) said: "In English law an assignee who can show that he has a genuine commercial interest in enforcement of the claim of another and to that extent takes a assignment of that claim to himself is entitled to enforce the assignment unless by the terms of the assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance … The Court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that property right or interest, or, if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bear cause of action or as savouring of maintenance."
81 In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 220 ALR 267. It may be that the debate is now over for the High Court in Campbell's Cash and Carry Ltd v Fostif Pty Ltd (2006) 229 ALR 58 seems to have approved Trendtex. In any event, my own view is that the logic of Lord Roskill's view is inescapable. This is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee.
Copyright in the Data
82 The respondents contend that the tables of data are not copyright as compilations of facts and numbers. I do not agree. Since the mid 1980s employees of TS&B were involved in preparing, monitoring, updating and managing the drawings and parts database. As each new item was developed, it was assigned an individual part number, short and long description and cost and sale price. The unique drawing number for the part was included in the short description of the part, for ease of reference. The part number, together with the descriptions, prices and date were recorded in tables. From 1999 these tables were located on TS&B's ACUITY database. Once the information was in the database it could be automatically used in the quotation, manufacturing, warehousing, inventory control, delivery, installation and invoicing processes.
83 The evidence establishes that sufficient effort, skill and judgment was exercised in creating the tables and collecting the data to populate them to justify their protection as a literary work for the purpose of copyright: Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 192 ALR 433; Autocaps (Aust) Pty Ltd v Pro-Kit Pty Ltd (1999) 46 IPR 339; TR Flanagan Smash Repairs Pty Ltd v Jones [2000] FCA 625.
84 There was an argument that copyright could not subsist in the tables as they did not supply intelligible information: Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 119 FCR 491, 532. Alec Peterson, a certified practicing accountant with experience implementing enterprise resource planning software such as ACUITY, gave evidence that while information could be entered into the tables or viewed through enquiries or reports, the tables could not generally be viewed in tabular form. In the alternative, it was put that even if the tables did supply intelligible information they did not do so to anyone other than TS&B. There is really nothing in the argument. While the information may be more difficult to access in tabular form and is more easily understood when obtained from the database via a report that extracts only those pieces of information from the database that are relevant to a particular query, the information in the tables is intelligible. Not only that, the information is meaningful not only to TS&B employees but to others, as can be inferred from 3Fold's copying and use of the data. In any event, even if the information was meaningful only to TS&B's employees, that is not a reason for excluding the compilation as a work capable of copyright.
Copyright in the Drawings
85 The manufacturing drawings for each component were created over the years by or on behalf of TS&B and earlier by or on behalf of its predecessor, S&B. One of the main issues in the case is whether TS&B owned the copyright in the drawings. Although the facts are messy, it has proved to be not too difficult to resolve the matter in TS&B Retail's favour.
86 The problem concerning ownership arises in the following way. First, TS&B "acquired" many drawings (and the copyright) from its predecessor. It may have "acquired" some of the drawings in suit. Second, almost all of the drawings have been revised. Typically with manufacturing drawings, and so it is with the drawings in suit, the changes are noted, but not always in a way that makes it possible, in the absence of the original drawings, to see precisely what has been changed. This is of particular significance. Copyright in each drawing will belong to the original "author", being the person who gives existence to the work: Sands & McDougall Pty Ltd v Robinson (1917) 23 CLR 49, 55. But in the case of changes to a drawing, if the changes are non-trivial, or the author contributes something recognisably his own, there will be, for copyright purposes, a new original work, the author of which will be the person who brought about the changes: University of London Press v University Tutorial Press Ltd [1916] 2 Ch 601; H Blacklock & Co Ltd v C Arthur Pearson Ltd [1915] 2 Ch 376; Interlego AG v Tyco Industries Inc [1989] AC 217; A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 65 FCR 478. Third, while the author of each change is identified on the drawing, some authors were employees of TS&B and others were independent contractors. Where the drawings were prepared or significantly amended by an employee, s 35(6) of the Copyright Act provides that the employer is the owner of the copyright. In the case of a drawing prepared or significantly amended by a contractor, he would be the owner of the copyright unless it had been assigned to his principal.
87 The respondents put TS&B Retail to its proof on ownership. It was therefore required to identify the author of each original manufacturing drawing, the extent of any amendment to the drawing, the identity of the person who made each amendment and establish that through these persons TS&B obtained or was entitled to claim ownership of the copyright.
88 TS&B Retail's task was made difficult by the fact that the practice at TS&B was to update an original drawing with any change however insignificant, as the changes were used for manufacturing and needed to be precise. To ensure that outdated versions of drawings were not mistakenly used in the manufacturing process, TS&B destroyed previous versions of a drawing once an amendment had been made. Further, from some time prior to 1995, most draftsmen at TS&B used AutoCAD. Amendments to drawings in AutoCAD were made to the current electronic copy of a drawing, in effect replacing the previous version of that drawing. This practice made it impossible in some cases to determine the scope of amendments made to a drawing.
89 The problem of establishing ownership of copyright was compounded because many relevant documents, including employment records - necessary to determine whether the authors were employees or contractors - were either still in the possession of the receivers or had been destroyed.
90 The author and, if amended, the amending author of each manufacturing drawing is identified on the latest drawing. The identification is by noting the author or amending author's initials. The date of the amendment also appears. A brief notation of the amendment is given. In many cases, the person who authored the original drawing is the person who amended it.
91 An examination of the drawings in suit shows that in total eighteen employees and contractors were the initial authors or amending authors. Of these, five were employees of TS&B. The employees were Keith Edwards, Adrian Mihovolic (both CAD documentors), Dean Jordan (a project development team leader), Dorota Borthowski and Richard Dalzell. Employment contracts were produced for Edwards, Mihovolic and Jordan. While employment contracts were not produced for the remaining employees, other documentation indicates, and I accept, that they were employees of and not contractors to TS&B. TS&B Retail says that another author, Les Cuccia, was also an employee, however there is insufficient evidence to say one way or the other.
92 The remaining twelve authors that could be identified, Gregor Bogdanski, Greame Butler, Sam Chen, Richard Hordejuk, Keith Gill, Benjamin Long, Shelley Li, Ignacy Roszowski, Pavel Molitoris, William Kline, Simon Minnahan and Andrew Polfreyman were retained by TS&B as independent contractors. Bogdanski, Butler, Chen, Bentley and Roszowski entered into contracts in their trading (business) name. Li contracted with TS&B through a company, Zulea Pty Ltd. Bogdanski, Butler, Chen, Bentley and Roszowski were treated as employees for the purposes of payroll tax, superannuation and Workcover; Li was only treated as an employee for the purposes of payroll tax. All were paid an hourly rate for their work, did not have PAYE (income) tax deducted and were not entitled to sick leave, annual leave or long service leave. They were paid an amount for providing their own computers. Unsigned contracts were produced for Bogdanski, Hordejuk, Li, Roszkowski and Molitoris. These were versions of contracts printed from a TS&B computer. Trollope explained that TS&B Retail was unable to find executed copies of the contracts as the receivers had taken what records they considered to be relevant and the remaining documentation had been removed and destroyed when TS&B's Clayton South premises were vacated. No contracts were produced for Butler, Polfreyman, Kline, Minnahan, Gill or Long.
93 TS&B Retail did argue that, like the employees, those classified as contractors were under a "contract of service" rather than a "contract for services" and were employees as a matter of law. In support of this argument it was put that TS&B exercised control over the manner in which these contractors worked, they generally worked from TS&B's premises, they were engaged on a continuing basis, they were paid periodically, they received superannuation, their hourly rate was adjusted to account for annual and sick leave, they were unable to delegate or subcontract work and were otherwise treated the same as employees. This was contradicted, at least in part, by evidence from Sally Baryla, a former accountant at TS&B responsible for the payroll, who said that the contractors could work for others if they had the time, and by Moffatt, the former Engineering Services Manager who said they could also work from home. On balance, and taking into account the terms of the unexecuted contracts that were produced, I consider it probable that the draftsmen were as their contracts provide, contractors and not employees.
94 In addition to the authors who could be identified, there were seven amending authors whose identities are not known. Their initials are "TI", "ARV", "DV", "EB", "FC", "PHIL" and "DS". It is impossible to determine whether they were employees or contractors.
95 Of the 234 drawings in suit, fifty-seven were "cross-reference drawings". These are electronic drawings of components (such as a levelling foot) that could be incorporated into a number of different parts. When drawing a part that contained one of these components, the cross reference drawing was imported into the drawing of the part. There are no details of the authors or amending authors of any of the cross-reference drawings. The cross-reference drawings were incorporated into twenty-seven manufacturing drawings. Whether this incorporation was sufficient to create a new work for copyright purposes will depend on the scope of each addition. An additional forty drawings were copied from previous drawings, the original author of which is unknown. Eleven others were either drafted by unknown authors or were copied from parts.
96 In total there are 60 drawings the authors and amending authors of which could not be identified. It turns out they are in the main cross reference drawings. Cue said that while a drawing and a cross-reference drawing incorporated into it could have different authors, the same group of draftsmen created both the finished drawing and cross-reference drawing. If all draftsmen who drafted the other drawings were employees or contractors who had assigned their copyright to TS&B, it can be inferred that the authors of the cross-reference drawings fall into those categories as well.
97 There are a number of drawings in respect of which it is impossible to determine who is the author because of the absence of evidence of the extent of each amendment made to the drawings. This category includes drawings prepared by contractors and later amended by employees, drawings prepared by employees and later amended by contractors and drawings prepared by persons unknown and later amended by contractors or employees. There are between eighty-six and one-hundred and one drawings that fall into this category, depending on whether the incorporation of the cross reference drawings into some of the drawings is sufficient to create a new original work.
98 TS&B employees were both the original authors and amending authors of only ten or eleven drawings. The employee owns the copyright. Contractors were the authors and amending authors of between sixty-three and seventy-seven drawings. These contractors owned the copyright unless it had been assigned to TS&B. Even if all amendments by employees resulted in original works, and amendments by contractors were found not to create original works, which is unlikely, TS&B would own the copyright in less than half of the drawings in suit. The remainder are drawings where the author is unknown or drawings were created and amended only by contractors. This shows the importance to TS&B Retail of the need to prove that the draftsmen who were contractors had assigned their copyright to TS&B.
99 The evidence that contractors did assign copyright to TS&B comes from four sources. The first is Baryla, the former accountant, who said that all contractors were sent a contract with the terms of their appointment, although not all signed the contract. TS&B took a contractor's act of invoicing and accepting payment to be acceptance of the terms of the contract, albeit unsigned. TS&B later required each to execute a written contract containing the terms of their services.
100 The second source is Moffatt who in his capacity as Engineering Services Manager was responsible for the draftsmen. Moffatt said that when he took up his position on 1 November 1995, he was instructed by the then Manufacturing Manager, Claude O'Keefe, to amend the form of contract then in use for contractors and have it signed by all contractors retained by TS&B. He said he carried out this instruction. At the time, TS&B only had two contract draftsmen, Li and Bogdanski. Both Li and Bogdanski signed the contract. Moffatt recalls later having contracts signed by Hordejuk, Roszkowski and Molitaris. Based on this evidence I conclude that all contractors signed the contract. The cases say that one means of proving that a thing has been done is to show that there is a general practice that the thing be done. It is sufficient for the evidence to establish (as it does here) a regular practice to do the thing, it is not necessary to prove that the practice was invariable: Connor v Blackstown District Hospital [1971] 1 NSWLR 713, 721; Olga Investments Pty Ltd v Citipower Ltd [1998] 3 VR 485.
101 Neither Moffatt nor Baryla could produce an executed contract. Trollope said the contracts were in files kept by the receivers and can no longer be found. Trollope did produce drafts of contracts with a number of former contractors (Bogdanski, Li, Hordejuk, Roszkowski and Molitaris). The drafts had been located by Cue and another employee, Max Crowe, in files and on a disk at TS&B Retail's Clayton South premises. They were identified by Moffatt as corresponding to the form of contract he had prepared for execution by the contractors. Each draft contained the following clause:
"Intellectual Property
The contractor agrees that all reports, designs, drawings, calculations, models, disks, tapes, electronic data, written information and any other intellectual property including copyright created by the contractor in respect of works or services commissioned by Trollope Silverwood + Beck Pty Ltd both in the past and in the future are vested by their creation in Trollope Silverwood + Beck Pty Ltd and remain the property of Trollope Silverwood + Beck Pty Ltd. All such intellectual property rights are assigned to Trollope Silverwood + Beck in consideration of moneys paid by Trollope Silverwood + Beck Pty Ltd to the contractor."
102 The third source is a document headed "Acknowledgement" that was distributed to all staff of, and those contracted by, TS&B prior their employment or contract (as the case may be) coming to an end. One acknowledgment made by contractors was that they:
"confirm and acknowledge the following in relation to [their] appointment as a contractor at TS&B:
Copyright in all designs, drawings, calculations, models, disks, tapes, electronic data provided or prepared by me during my term of appointment remain the property of TS&B."
TS&B Retail was only able to produce acknowledgements signed by some contractors, namely Bogdanski, Chen and Molitoris. However, Cue said he understood all former employees and contractors had signed the acknowledgment. It is not clear on what basis he arrived at that understanding, so it cannot be given much weight. On the other hand, his evidence was not objected to so it cannot be ignored.
103 Finally, and this is the fourth source, each drawing prepared by a contractor, save for those drawn by Butler prior to him using AutoCAD, included the following notation:
"Copyright. All rights reserved. This drawing is copyright and confidential apart from any fair dealings permitted under copyright and no part may be reproduced by any person without written permission of the above company and is not to be used in any manner prejudicial to the interests of the company. This drawing and attached sheets remain the property of Trollope Silverwood and Beck Pty Ltd."
Moffatt said that all draftsmen used the template with this title block with the exception of Butler who for a period of time was drawing by hand on blank drafting paper. Moffatt said that when he asked Butler to use the template and title block, Butler replied he did not want to use the title block as it took up the margin, which he needed. Butler later used AutoCAD including the title block.
104 The evidence leads to the inescapable conclusion that copyright in the drawings authored by contractors had been assigned to TS&B. The copyright was in turn assigned to TS&B Retail.
Events of March 2003 and later
105 During March 2003 Vanderzaag continued to build relationships with suppliers including Hawkfine Furniture Pty Ltd and Intersteel. In the same month 3Fold was awarded contracts by Kmart to fit-out stores in Launceston, West Lakes, Mildura and Kardinya.
106 Around 21 March 2003, CML (for Kmart) called for tenders in relation to "Gondolas & Associated Metal Products" to be used throughout Australia and New Zealand stores. The drawings for the tender were sent out on about 26 March 2003. A number of the drawings appeared to be manufacturing drawings that had originally been prepared by TS&B and then assigned to TS&B Retail. TS&B Retail raised the matter with their lawyers and a short time later CML withdrew the drawings, later replacing them with others it had prepared.
107 Contracts for the manufacture, supply and installation of metal gondola fixtures for the refurbishment and new store programs were awarded to TS&B Retail and Ausmart (50 per cent each) for a period of two years commencing August 2003. CML believed TS&B Retail and Ausmart could not take any further work and so entered into a contract with 3Fold for the manufacture, supply and installation of gondolas for miscellaneous and stand alone projects to be undertaken in the period April 2004 and August 2005. At the time Kmart decided that it "need[ed] to broaden the current shopfitters supplier base, due to capacity and risk reasons."
108 On 27 March 2003 this action was commenced. In it, TS&B Retail sought interlocutory injunctions restraining the respondents from reproducing the drawings and using the data. The application was heard over four days. Judgment was delivered on 10 April 2003: TS & B Retail Systems Pty Ltd v 3fold Resources Pty Ltd (2003) 57 IPR 530. The following order was made:
"1. The Respondents and each of them, whether by themselves, their servants, agents or otherwise, be restrained until the hearing and final determination of this proceeding or until further order, from:
(a) without the licence or authority of the Applicant:
(i) reproducing or authorising the reproduction in a material form;
(ii) making, authorising or causing the making of an adaptation or derivation;
(iii) publishing or authorising the publication;
of any of the Copyright Materials (or any substantial reproduction of any Copyright Materials).
(b) without the licence or authority of the Applicant:
(i) publishing;
(ii) communicating;
(iii) in any way disclosing;
(iv) causing, procuring or suffering the publication, communication or disclosure in any way to any person;
any of the Confidential Information."
For the purposes of the order 'copyright materials' was defined in a way that included most of the drawings in suit as well as that part of the data that constituted the component part numbers and their corresponding part descriptions.
109 When Oakes was told that the action had begun she destroyed the CD of copied data she had taken from TS&B and deleted from 3Fold's server all information on the tables apart from information that related to Kmart. I assume she did this on the instruction of one of 3Fold's directors, probably D'Mello. Oakes said it was at this time that she first told Vanderzaag and D'Mello how she had created the 3Fold database. As I said earlier, I simply do not believe that D'Mello or Vanderzaag did not from the outset know that the database had been taken from TS&B.
110 The actual fit out of stores under the Phoenix rollout was to take place between 30 April 2003 and 17 October 2003, with groups of projects beginning on 30 April, 19 May, 28 July, 11 August and 1 September 2003. While 3Fold had been awarded the contracts for this work before TS&B Retail became the owner of the drawings and data, it is likely after March 2003 3Fold had manufactured for its use the parts needed to complete these projects. The parts were manufactured from TS&B Retail's drawings.
111 It is not clear how much other work 3Fold obtained from Kmart. 3Fold made discovery of several supply agreements with Kmart. The first dated December 2003 was a "Supply Agreement" for the supply of products for a period of 12 months from 30 April 2003. The products were not itemised, although the agreement contained an estimate of purchases of $3.5m. The second agreement was executed in June 2004 and is entitled "Equipment Supply and Installation Agreement (Standalone and Miscellaneous Shopfitting Works)". It related to products for use in Kmart retail outlets. The agreement ran from 1 April 2004 to 1 August 2005. Finally, there is a "Contractor's Service Agreement" for the storage, assistance and movement of excess Kmart fittings and fixtures. This was to commence on 1 January 2005. The agreement had not been executed and appears to be a draft.
112 In January or February 2004, 3Fold was awarded contracts for three stores as part of Kmart's "Entertainment Expansion" tender. The stores were at Burwood, Belmont and Broadway. The remaining work under this program (for 88 stores in all) was put to tender in May 2004. On 25 June 2004 all were awarded to 3Fold. Kmart did not award any work to TS&B Retail and Ausmart because it considered they were fully committed on other projects and did not have the capacity to take on additional work.
113 There is evidence that between June and December 2003, TS&B Retail was having difficulty carrying out its obligations under contracts with Kmart. Kmart was forced to request 3Fold to supply equipment for contracts that had been awarded to TS&B Retail under the Phoenix rollout program, in particular for the fit out of stores at Wendouree, Wangaratta, Moonopara, Werribee, Shepparton and Rowville). Kmart's internal documents indicate that, in Kmart's view at least, "[TS&B Retail] had a lot of trouble supplying the contracted labour to [a refit project in Brunswick] over the six week fit out." According to the author "[a]ll started out well, but half way through we were experiencing one, two or three men short on the job, due to manpower shortages with other Kmart and CML projects and commitments to our competitor."
114 On 28 June 2004 TS&B Retail applied for orders that the respondents be punished for contempt alleging they had breached the injunctions granted on 10 April 2003. TS&B Retail's complaint concerned the production of a packing list that reproduced several part numbers and a drawing for shop fittings that reproduced other part numbers, the subject of the restraining order. The packing list and drawing were sent to K-Mart's Traralgon store. The motion was heard on 5 August 2004 and judgment was given in TS&B Retail's favour on 25 August 2004: TS & B Retail Systems Pty Ltd v 3fold Resources Pty Ltd (No 2) [2004] FCA 1101.
115 While the contempt motion was being heard, Vanderzaag instructed Oakes and Chote to change the 3Fold part numbering system entirely. Oakes said the part descriptions were 'cleaned up' at the same time. I take this to mean they were not changed significantly. Once the changes were made the part numbers no longer resembled TS&B Retail's part numbers.
Copying
116 The case on copying has an unusual history. For a considerable time copying was denied both in relation to the data (in particular the tables) and the manufacturing drawings. When the application for an interlocutory injunction was heard, the respondents denied taking any information from TS&B. Although they conceded having in their possession drawings that originated from TS&B, they claimed that these had been obtained from Kmart. There was a change in position regarding the tables when the respondents delivered their amended defence on 3 October 2005, some 2 weeks before the trial. There it was conceded that the tables had been copied onto a compact disk by Oakes while still an employee of TS&B but that the compact disk was only used on her own computer and not loaded onto the server of 3Fold. Oakes said the same thing in an affidavit sworn on the day the amended defence was delivered. This story turned out to be false.
117 Ultimately it was also conceded that the drawings had been reproduced by 3Fold for the purpose of manufacturing parts for Kmart. The concession was first made in relation to some of the drawings in the amended defence and, later, in relation to all drawings by counsel at a directions hearing shortly before trial. During the trial Vanderzaag admitted that there had been extensive reproduction of the drawings. It must be said that the concession was not voluntary. Through discovery and the production of documents on subpoena it had become apparent that there had been copying of at least the drawings in suit.
Use of the Data
118 Although the respondents denied making use of the data (including part numbers and descriptions and pricing information) to either obtain or fulfil orders there is little doubt that the data was used in the 3Fold business to generate documents, including quotations, purchase orders, sales orders, and packing lists.
119 First of all, Smith admitted what would in any event be obvious namely, that the information in the database was necessary for 3Fold to do business. I am satisfied it was both necessary and used. Second, while he was at TS&B, Vanderzaag had given instructions to staff to carry out takeoffs and to prepare quotations using TS&B's data. I am in no doubt he did the same at 3Fold. Third, the evidence shows the data was used by estimators as an aid to do takeoffs.
Use of the Drawings
120 Turning to the drawings, almost all of them were provided to 3Fold by Butler. Butler and some other TS&B contractors did much of their drafting work on their own computer, often working from home. The contractors, Butler included, had a portable hard drive on which they could store drawings. They were provided with the drawings for the purposes of the work they were engaged to undertake for TS&B. When his contract was terminated Butler either failed to return the hard drive or kept a copy of the drawings for himself.
121 In early 2003 Butler was retained by 3Fold as a draftsman. He provided 3Fold with all the drawings he had wrongly retained. They were then copied and had added to them the 3Fold logo in place of the TS&B logo. There was a suggestion by the respondents that Butler owned the hard drive and was entitled to retain the drawings. The suggestion was not supported by any evidence and I reject it out of hand.
122 3Fold provided the drawings to suppliers for them to manufacture the components 3Fold needed to fill orders from its customers. The suppliers recorded the information contained in the drawings, probably in computers which controlled the operation of the machinery used to manufacture the components. Once recorded, the supplier had no further use for the drawings. For repeat orders 3Fold was only required to provide the relevant part number.
123 As a result 3Fold was able to supply Kmart (its principal customer) with precisely the same fittings Kmart had previously purchased from TS&B.
Authority to use the Drawings
124 The respondents' other main defence to the copyright claim is authorisation. The argument is that pursuant to the terms of agreements between CML and TS&B, copyright in the drawings was either assigned to CML (Kmart's parent) or, in the alternative, that either CML or Kmart was entitled to obtain, copy and use the drawings and allow others to copy and use the drawings to supply shopfitting components to CML (or Kmart) in kind. 3Fold then says that it was authorised by Kmart to reproduce the drawings.
125 For this part of the case I am required to act on the basis that TS&B Retail has the onus of proving that CML or Kmart, and through them 3Fold, was not licensed to reproduce the drawings for that is an element of the cause of action for copyright infringement TS&B must establish: Avel Pty Ltd v Multicon Amusements Pty Ltd (1990) 171 CLR 88; Acohs Pty Ltd v RA Bashford Consulting Pty Ltd [1997] FCA 352.
126 By way of background, most of the 234 drawings in suit identify the "date drawn" and, if a drawing has been amended, the date(s) of each amendment. The drawings that are dated were created or amended (as the case may be) between November 1993 and November 2002, the majority having being created or amended after 1998. There are many drawings that do not bear a "date drawn". These may be drawings that came into existence before the system of dating came into operation.
127 Several agreements and drafts of agreements between TS&B and CML are in evidence. Only one is executed. Some of the agreements in draft may have been executed; others seem not to have been. Speaking very generally, each agreement (including the drafts) sets out the basis upon which TS&B would manufacture, supply and install shop fittings and fixtures for CML (Kmart). There are provisions dealing with quotations and ordering, price and payment, delivery and installation, risk and title, insurance, confidentiality, warranties, intellectual property, liability and indemnity and termination. In most cases there are also provisions concerning the ownership of the drawings for the parts and the parties' right to use those drawings. It has been assumed, not unfairly, if rights were conferred by those agreements on CML they could be availed of by Kmart.
128 It is convenient to begin the analysis with the agreement for which there is an executed copy. The agreement is entitled "Agreement for the Manufacture, Supply and Installation of Shop Fittings and Fixtures". The agreement outlines the terms and conditions upon which TS&B would manufacture, supply and install shop fittings and fixtures for CML at CML's premises.
129 The agreement is undated. Trollope said that he thought the agreement was executed in 1991. The respondents submit that the agreement is not limited in time and there is no evidence of its termination, therefore it was in effect at all times relevant to this action. This is not correct. Trollope said he believed the agreement was not in force after 1993. He explained that there had been several agreements between TS&B and CML, and their usual duration was two years. Healy, one of the few independent witnesses in this case, also said that agreements between TS&B and CML lasted on average between two and three years. I consider it highly improbable that the executed agreement was in force for longer than two or so years.
130 Whether the agreement operated to assign copyright in the drawings to CML nevertheless requires consideration. The agreement relevantly provided that:
"Intellectual Property Rights and Indemnity
13.1 For the purposes of this clause 13:
(a) 'Intellectual Property' shall mean copyright, registered designs, trade marks, names, patent rights or license in favour of TSB, in design documents, drawings, specifications, samples, models, patters and the like, used in the manufacture supply and installation of the fixtures and fittings, which shall be and remain the property of TSB.
(b) 'Exclusive Use Intellectual Property' shall mean the Intellectual Property arising out of the manufacture, supply, and installation of the fixtures and fittings by TSB for CML from time to time exclusively for the use and benefit of CML being:
(i) Intellectual Property created prior to the date hereof more particularly described in Schedule B hereto, and
(ii) Intellectual Property to be created subsequent to the date hereof as identified by the parties hereto as Exclusive Use Intellectual Property.
[Schedule B refers to 'Past Works' - details and specifications for the fittings and fixtures that have been created prior to the date of this Agreement including sketches, drawings, designs, plans and models for such fixtures and fittings]
13.2 In consideration of CML entering into this Agreement TSB hereby assigns transfers and sets over all its entire right title and interest in the Exclusive Use Intellectual Property throughout the world to CML.
13.3 TSB hereby grants to CML a licence to use the Intellectual Property in the following circumstances:
(a) where for reasons other than a breach by CML of the Contract TSB is unable or unwilling to complete the manufacture, supply and installation of the fixtures and fittings in which case such licence shall extend for a period until CML or third parties engaged by CML complete the manufacture, supply and installation or
(b) where TSB is not contracted by CML for the manufacture supply and installation of the fixtures and fittings and where CML reasonably require the Intellectual Property for use for maintaining consistency of manufacture, supply and installation in its retail outlets or the retail outlets of its related corporations world wide.
13.4 The Intellectual property shall be regarded as confidential and shall not be disclosed to third parties except with prior written consent of TSB or pursuant to the licence granted pursuant to Clause 13.3.
13.5 All fees payable by way of licence, royalty and registration for the Intellectual Property shall be the responsibility of TSB and all fees payable by way of licence, royalty and registration for Exclusive Use Intellectual Property shall be the responsibility of CML."
131 There was only a faint argument for the application of cl 13.3, presumably because there was no evidential foundation to support the argument. Rather for the purposes of this case, the question is whether any of the drawings comprised "Exclusive Use Intellectual Property". I put to one side Schedule B because, except where the date drawn is unknown, none of the drawings in suit were created before the agreement came into force. The issue is whether any of the drawings were "identified by the parties … as Exclusive Use Intellectual Property".
132 On this issue the evidence is in conflict, at least to some extent. Trollope said there was no agreement that any of the drawings produced to satisfy Kmart's orders would be Exclusive Use Intellectual Property. He referred to one discussion with the managing director of Kmart in relation to a see-through shelf in which it was suggested that the product be used exclusively by Kmart. While nothing was formalised, there was it seems an informal agreement that TS&B would not offer this product to any other customer. Moreover, Trollope said that although CML paid for the development of certain drawings, often those drawings were used to make components for other customers. He instanced, by way of example, Shell, Repco and Caltex as customers for whom the drawings were used. Trollope went so far as to say that this was done with CML's knowledge. In other words, Trollope claims that TS&B was free to use all the drawings that had been partly paid for by CML.
133 Trollope's evidence is supported in part by Healy who had been dealing with TS&B since mid 1995 when he was responsible for coordinating Kmart's merchandising plans. Healy said that he did not recall any part or drawing having been identified as "Exclusive Use Intellectual Property". He did say that Kmart had an expectation that TS&B would not sell parts provided to Kmart to other retailers but, of course, an "expectation" does not amount to the identification by the parties of "Exclusive Use" property.
134 There is also the evidence of Cue, TS&B's Kmart Relationship Manager. He said that generally products that were made for Kmart were not supplied to other customers. To the best of his knowledge, no parts made for Kmart were ever used outside the CML Group. According to Cue, if TS&B needed to use the products developed for Kmart for other clients, Cue would ask Kmart for permission. Cue considered this to be a matter of "courtesy" rather than legal obligation. However that may be, his evidence does not support a finding that the parties had agreed that any parts be "Exclusive Use" property.
135 I accept that there need be no formal process for identifying any part as "Exclusive Use Intellectual Property" in order for it to be "identified" for the purpose of clause 13.1(b)(ii). The identification may be implied. So, if a drawing supplied by TS&B to CML or Kmart is recognised or acknowledged by the parties to be for the exclusive use of CML or Kmart that would be sufficient. On the other hand, when examining whether there is such an implication arising out of conduct it is the conduct of both parties that must be considered, for under the agreement there can be no unilateral identification of "Exclusive Use Intellectual Property".
136 In my view it is simply not possible to conclude any drawings or fittings, let alone the drawings in suit or the fittings to which they relate, were identified as "Exclusive Use". To make such a finding would require me to reject Trollope's evidence on this aspect. While his evidence has been troubling in some areas, I accept his statement that there was no designation of "Exclusive Use Intellectual Property". In no small measure his evidence was confirmed by Healy. If there had been an identification of any drawing as "Exclusive Use Intellectual Property", Healy would know. He would have been the person who, on CML's behalf, carried out the identification or he would have been told about it.
137 The second document is a proposal for a supply agreement prepared for Kmart by TS&B. The document is entitled "Kmart Benefits from a 3 Year Preferred Supplier Agreement with Trollope Silverwood and Beck for Supply and Installation of Fixtures and Fittings". The proposal is headed "final draft", is dated 6 January 1995 and is signed by Trollope. The "proposed period" for the agreement is 1 January 1995 to 30 December 1997.
138 The proposal included the terms of a proposed agreement. Aside from two changes and the names of the parties (the proposal was by Kmart rather than CML), the proposed agreement was in the same terms as the 1990-1991 agreement. Of the two changes, one was relatively minor, the other was significant. The minor change was that "Exclusive Use Intellectual Property" only incorporated Intellectual Property created prior to the date of the agreement if that intellectual property had been "agreed by the parties to be exclusive use Intellectual Property". The previous agreement had incorporated all drawings in relation to fixtures created prior to the agreement. The other change was the removal of the clause that assigned all intellectual property rights in "Exclusive Use Intellectual Property" to CML (Kmart). The proposed agreement contained no provision dealing with how "Exclusive Use Intellectual Property" - which remained a defined term - was to be treated. The proposed agreement otherwise provided that Kmart would be licensed to use the intellectual property where TS&B was unable or unwilling to provide the services or where TS&B was not contracted to provide the services and CML reasonably required the use of the intellectual property to maintain consistency throughout its retail outlets.
139 Trollope believes that a copy of this agreement was executed, but was not in force after 1997. An executed agreement was not produced by Kmart or CML on subpoena. Given the draft nature of the proposal, the absence of an executed copy and the obvious gaps in the agreement, I am reluctant to infer the agreement was signed by Kmart, at least in the form produced. Nothing really turns on this because I accept that if executed the agreement would only be in force for two or so years.
140 The third document is a draft agreement entitled "Shop Fittings & Fixtures Supply Agreement". A copy was produced by TS&B Retail and a different version came from Kmart. The agreement contains the terms and conditions upon which TS&B would supply and install shop fittings and fixtures for Kmart. The commencement date of the agreement is 1 March 2000. The term was 2 years. The agreement produced by TS&B was signed by Trollope on 28 February 2000 but does not bear the common seal of TS&B.
141 The relevant provisions of the draft agreement were:
4.1 For the purposes of this clause 4:
(a) "Intellectual Property" shall mean copyright, registered designs, trade marks, names, patent rights or license, in design documents, drawings, specifications, samples, models, patters and the like, used in the manufacture supply and installation of the Goods.
(b) "Exclusive Use Intellectual Property" shall mean the Intellectual Property arising out of the manufacture, supply, and installation of the Goods by TS&B for Kmart from time to time exclusively for the benefit of Kmart.
4.2 TS&B shall provide to Kmart upon request copies of all design documents, drawings, specifications, samples, patterns, plans and the like used in the manufacture, supply and installation of the Goods. Kmart is free to use and incorporate in Kmart's equipment any ideas, suggestions or recommendations provided by TS&B without payment of royalties. In consideration of this, Kmart agrees not to disclose, publish or disseminate any of the information referred to in this paragraph without prior written approval to do so from an authorised representative of TS&B.
[The Goods are defined as meaning the shop fittings and fixtures described in schedule 2. Schedule 2 refers to Ordered Goods which is defined as Goods as ordered by Kmart in accordance with the agreement]."
142 The agreement also contained clauses governing indemnity, warranties and infringement of the intellectual property rights of others. One unusual feature of the agreement was that while there were no provisions dealing with the assignment or transfer of intellectual property to Kmart, cl 4.6 provided that:
"4.6 The parties hereby agree to execute all such further documents and do all such further actions and things to effect the assignment, licence or other transfer of the Exclusive Use Intellectual Property contemplated by this clause 4."
This clause begins to make some sense when regard is had to a draft produced by Kmart. That version is unsigned. It is the same as TS&B Retail's version, save for one important difference. In Kmart's version cl 4.2 does not appear. In its place are the following clauses:
"4.2 In consideration of Kmart entering into this Agreement, TS&B hereby assigns, transfers and sets over all its entire right and title and interest in the Exclusive Use Intellectual Property throughout the world to Kmart.
4.3 TS&B shall provide to Kmart upon request copies of all design documents, drawings, specifications, samples, patterns, plans and the like used in the manufacture, supply and installation of the Goods."
Clause 4.6 fits in with Kmart's version but not TS&B Retail's version.
143 Trollope said he believed the TS&B Retail version of the agreement had been signed by Kmart and governed the relationship of Kmart and TS&B until TS&B was wound up in January 2003. He does not recall ever having seen the Kmart version. Healy has a different recollection. He said that the last written contract in place between Kmart and TS&B terminated in about March 2000. According to Healy, no agreement was signed after that time because the parties could not agree on the terms. One reason Kmart would not agree with proposals that came from TS&B was that Kmart was reconsidering its practice of tendering each shop refit as a whole and wanted separate tenders for each component. Healy also said Kmart and TS&B could not agree on the price of certain parts. I am sure that Healy's version of events is correct.
144 The fourth document is a draft "Shop Fitting and Fixtures Supply Agreement" dated 1 March 2002 produced by TS&B Retail. The draft was provided to Trollope by Healy in May 2002. Trollope says the agreement was never entered into. Another version of the agreement, in what seem to be identical terms, was produced by Kmart. Healy said that the draft was rejected by TS&B.
145 Interestingly, both versions of the agreement had changes from a previous version marked up. The initial version appears to be similar to the Kmart version of the 2000 agreement. The marked up draft contained the following terms:
"10.1 TS&B assigns to Kmart all right, title, and interest to all Developed Intellectual Property effective immediately on the creation of any such Developed Intellectual Property.
10.2 TS&B shall provide to Kmart upon request copies of all design documents, drawings, specifications, samples, patterns, plants and the like used in the manufacture, supply and installation of the Goods. TS&B grants to Kmart an irrevocable, royalty-free, perpetual license to use (including the right to sub-license) the Intellectual Property in all such items and in the Goods (other than Developed Intellectual Property which is assigned under clause 10.1) in order to use, repair, maintain and replace any Goods or to complete or carry out the installation of Goods in a Store. Kmart may incorporate in its equipment any ideas, suggestions or recommendations provided by TS&B without payment of royalties or fees of any kind. In consideration of this, Kmart agrees not to disclose, publish or disseminate any of the information referred to in this paragraph other than:
(a) where Kmart has terminated this Agreement under clauses
16.2, 16.3 or 16.4;
(b) pursuant to the license granted in this paragraph; or
(c) with the prior written approval of an authorised representative of TS&B, which will not be reasonably withheld.
10.6 The parties hereby agree to execute all such further documents and do all such further actions and things to effect the assignment, licence or other transfer of the Developed Intellectual Property or the Intellectual Property licensed to Kmart under clause 10.2 (as the case may be) contemplated by this clause…
'Developed Intellectual Property' means all Intellectual Property created by TS&B in manufacturing and supplying the Ordered Goods and performing the Services."
146 None of the agreements, drafts or proposals support the conclusion that copyright in the manufacturing drawings passed to CML or Kmart, or that they had been licensed to use the manufacturing drawings in the manner contended by the respondents.
Implied Assignment
147 A rather desperate argument by the respondents was that there should be implied into the arrangement between TS&B and Kmart a term that copyright in the drawings passed to Kmart. The term is to be implied by custom. The only evidence of this custom was the agreements and drafts already referred to together with an agreement between Kmart and TS&B Retail for the supply by TS&B Retail of goods and services to Kmart. The agreement is entitled "Supply Agreement". The commencement date is 30 April 2003, although the agreement was executed by Kmart on 22 December 2003 and TS&B Retail on 6 January 2004.
148 By this agreement TS&B Retail assigned to Kmart all intellectual property rights arising from the provision of design services by TS&B Retail to Kmart. Design services include the preparation and drafting of isometric, manufacturing and schematic drawings for fixtures, shop fittings and related parts for use in Kmart's stores (cl 1.1). Specifically, cl 13 of the agreement provides:
"13.1 The Supplier [TS&B Retail] assigns to Kmart all right, title and interest to all intellectual property that may arise as a result or be developed in the course of the Supplier providing the Design Services, effective immediately on the creation of any such intellectual property.
13.2 The assignment under clause 13.1 will not include rights to any intellectual property developed by the Supplier or a third party prior to the provision of the Design Services."
The agreement also provides that:
"The Supplier expressly acknowledges that all plans, drawings, data, descriptions or other specifications (together with any copyright, design rights or any other intellectual property rights in them) are the exclusive property of Kmart."
149 The respondents rely on this agreement not because it confers any right on Kmart in relation to the drawings in suit (it does not purport to deal with those drawings) but as evidence of a custom of assigning copyright in drawings to the person for whose benefit the drawings were prepared.
150 In order to imply into an agreement a term arising by custom it is necessary to show by clear evidence of usage that the particular term is notorious in the sense that it is so well known and acquiesced in the market in which it is alleged to exist that everyone who conducts business in that market is assumed to contract on that basis: Young v Tockassie (1905) 2 CLR 470, 478; Summers v Commonwealth (1918) 25 CLR 144, 148; Thornley v Tilley (1925) 36 CLR 1, 8, 17; Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48, 60; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226. There is no such evidence of usage. On the contrary, when I have regard to the agreements and drafts that have found their way into evidence, the only conclusion available is that there is no custom as alleged, the differences in the terms being so great.
Implied Licence
151 The final potential source of right in CML or Kmart to make use of the drawings in suit is by licence. Healy described the arrangement between Kmart and TS&B in which the license must be found. He said:
"TS&B were contractors, our design prototypers. In other words, we would brief TS&B on a design of a particular item that we wanted for our stores or a particular fleet of items that we needed or a range of suite of items we needed for our store. They went away, did drawings for them, isometric type drawings, they would bring them back for our look and review. If we were happy with what they had drawn up, [we would] then go to the next stage which was called prototyping; we would build a prototype of those units. If Kmart were happy with that with that, we would then look to roll those particular suite of units out. The understanding was - and it wasn't written in any one hard form or another, but the agreement was that if we rolled out that prototype that TS&B did the work on, then we had 50% reduction in our design costs."
152 The existence of an arrangement whereby Kmart contributed to the design costs of new products is also reflected in the January 1995 proposal which stated that "TS&B will continue to provide a full-time design and R&D service to Kmart on the current basis of 50% of costs". A discount of 50% of the total number of hours spent on design, drawing and development is also evident in a number of tax invoices from TS&B for the period 13 April 2000 to 4 December 2002, which were produced by Kmart on subpoena. Attached to each invoice was a 'Progress Review Sheet' that details the hours spent developing each item on which the invoice was based.
153 Cue said that he had been told by Robert Petterwood, the business unit manager of TS&B's retail division, that "there was an agreement between Kmart and TS&B whereby Kmart would contribute 100% of the prototyping costs and 50% of the design, drawing and development costs in relation to new products designed for TS&B by Kmart". Cue also said he was told by Briginshaw - a manager at Kmart - that "this contribution toward costs only extended to costs associated with development and design in relation to drawings up until a 3D isometric design drawing was signed off by Kmart". He went on to say that from his own knowledge from having prepared the Progress Review Sheets on which the invoices were based, the charge was made for hours spent drawing, development and design beyond the isometric stage. Those costs were not passed on to Kmart.
154 Healy seemed to be of the understanding that Kmart could only use isometric drawings. In cross examination the following exchange took place:
"Q: Did you understand that if you had a TS&B drawing, that production drawing, did you personally understand that you could, whenever you felt like it, copy it?
A: We believed we'd paid for it. We believed we could use it for our own means.
Q: What had you paid for? The production drawing or the isometric?
A: We paid for isometric drawings like these from TS&B through the design phase."
The evidence is that, for the most part, the manufacturing drawings were not shown to Kmart. According to Healy, Kmart would occasionally ask for a manufacturing drawing when specific information was needed, for example to coordinate other services such as computer cabling or wiring to run data or electricity to the fittings when installed. But otherwise the manufacturing drawings were not passed on.
155 There is evidence that Kmart was provided with and used isometric drawings. If Kmart wanted a supplier other than TS&B to produce a particular component that was the same as it had purchased from TS&B, Kmart usually provided the supplier with a sample of the product from which to produce manufacturing drawings or required the supplier to go to its stores and measure up the actual items in question. From time to time Kmart copied and used the isometric drawings obtained from TS&B, along with the physical products, to produce their own manufacturing drawings so that the component could be manufactured by other suppliers. These manufacturing drawings were occasionally provided to potential suppliers as a part of Kmart's tender package. These actions are indicative of a belief on the part of Kmart in relation to products designed for Kmart, that Kmart had either been assigned copyright in or had permission to use the isometric drawings.
156 The position in relation to manufacturing drawings is less clear. I have already mentioned that in March 2003, Kmart sent tenderers a CD containing drawings with specifications for a tender. The CD contained at least five manufacturing drawings bearing TS&B's logo and another four manufacturing drawings branded with Kmart's logo but which Trollope said were copies of TS&B's drawings. Trollope provided copies of these drawings to TS&B Retail's solicitors. Shortly afterwards, CML sent an email to tenderers that stated:
"Under separate cover, a CD will be forwarded to you that contains all Kmart drawings. In addition there are drawings attached within this e-mail that should form part of your pricing submission. Kmart drawings forwarded on the 21/03/03 that formed part of the original tender pack are now considered withdrawn and should not be used as the basis of your submission. Please base all quotations pertaining to Kmart on drawings contained within the provided CD."
Healy said the TS&B drawings were withdrawn when Kmart became aware of "the intellectual property issues between 3fold and TS&B". Kmart then went to the effort of hiring another supplier, Metro Shopfitters, to redraw the drawings. Minutes of a meeting of Kmart's Contract Advisory Panel held on 5 March 2003 suggest that it was not clear who owned the intellectual property.
157 It is difficult to know what to make of this as regards the use of the drawings in suit. To the extent that there were agreements in place between TS&B and CML (or Kmart) it is those agreements that are the repository of the rights of CML to use the drawings. On the assumption that there were no written agreements in place, and probably there were none after 2000, all one has to fall back on is the loosely described arrangement as outlined by Healy. It is, I suppose, possible to conclude that having paid for the preparation of the isometric drawings Kmart was entitled to make use of them without infringing copyright. I would not draw the same conclusion in relation to the manufacturing drawings for at least two reasons. First, Kmart did not contribute to the cost of their preparation and the cost involved was not insignificant. No doubt the cost of the drawings was covered, or intended to be covered, by the profit to be made on contracts with Kmart, but that is not the same as a direct contribution toward the cost of their preparation where the payment might give rise to some right to use the drawings. Secondly, Healy did not say specifically that it had been agreed that the particular components that were designed for Kmart could not be used elsewhere by TS&B. If it had been agreed that the components were for the exclusive use of Kmart that might support an argument that Kmart had the right to use the drawings, at least for some purposes, although the better view is that if it had any right at all it was to exclusivity and not to the use of the drawings to enable another manufacturer to make up components on its behalf.
Other Defences
158 The respondents put an argument that during the design process there was significant interaction between product designers and the draftsmen, so much so that it could not be said the draftsmen were the authors of the drawings. There are two answers to this argument. First, the respondents, on whom the onus on this issue falls, did not lead sufficient evidence to support the conclusion the product designers and draftsmen were joint authors. Secondly, even if there were such evidence, so far as I can tell all product designers were employees of TS&B and hence, as employer it would be owner of the copyright in any jointly authored work.
159 There was an attempt to rely on s 77 of the Copyright Act in defence to the claim for copyright infringement of the manufacturing drawings. No such defence had been pleaded in the amended defence. The argument came up during the course of the trial. However, I will not permit the respondents to rely on s 77. For one thing, it is far too late in the day to set up the statute midway through the trial. In any event, the defence had little prospect of success. Several conditions must be satisfied before s 77 applies. Those conditions are: (1) that copyright must subsist in an artistic work; (2) the corresponding design contained in the artistic work, when applied to an article, must result in a reproduction of the artistic work; (3) there is an industrial application of the design contained in the artistic work; (4) articles made to the corresponding design have been sold; and (5) the design has not been registered under the Designs Act. I am prepared to accept that each condition other than the second would be made out. I think, however, that the respondents have little prospect of making out the second condition. The "corresponding design" which must be applied to an article is a design in accordance with the definition in the Designs Act. There the word "design" is defined to mean "features of shape, configuration, pattern or ornamentation applicable to an article, being features that, in the finished article can be judged by the eye, but does not include a method or a principle of construction." I think none of the features of the manufacturing drawings, when judged by the eye, were added for their visual effect. To my mind they are all purely functional.
Liability
160 The result is that 3Fold infringed TS&B Retail's copyright in the drawings and in the 5 tables of data. It is liable in damages for any loss suffered by TS&B Retail in consequence of that infringement. TS&B Retail seeks as well to recover damages from Vanderzaag, D'Mello and Smith. It is alleged that they aided, abetted, counselled, procured, authorised, directed, or were otherwise a party to the infringements making them liable in damages as accessories. Liability of that kind raises difficult questions to which I will now turn.
Accessorial liability - authorisation
161 Secondary infringement by "authorisation" was introduced in Australia by the Copyright Act 1905 and in England by the Copyright Act 1911 (UK). The history is traced by Gummow J in WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274. At first blush one might imagine that "authorisation" is a simple concept and that it is easy to determine in relation to any given set of facts whether or not there has been an authorisation of copyright infringement. As we shall soon see nothing is further from the truth.
162 In Evans v E Hulton & Co Limited (1924) 131 LT 534 it was decided that the word "authorises" in the English equivalent of s 101 should be given its ordinary meaning. See also Monckton v Pathe Freres Pathephone Limited [1914] 1 KB 395. According to the Oxford Dictionary, that meaning is "to sanction, approve, countenance": For a time the leading case was Falcon v Famous Players Film Company [1926] 2 KB 474. There the author of a literary work assigned the performing rights for the United Kingdom to the plaintiff. Later he sold the motion picture rights to a United States company which made a film of the work and sent it, together with copies, to an English company, which made further copies and gave them to another English company which let out a copy to the proprietors of a picture theatre for exhibition. The hire fee of Ł20 was to be paid "on the first day of exhibition of the said film and in any event not later than the final day of such exhibition". The fee was shared by the three companies who were then sued for authorising the infringement of copyright by the proprietors by exhibiting the film. It was conceded ([1926] 2 KB at 485) that the three companies were to be treated on the same footing. The Court of Appeal found each was liable for authorising the breach of copyright. Bankes LJ noted ([1926] 2 KB 474, 491) that the object of introducing the word "authorise" into the definition of copyright was to get rid of the effect of decisions where it had been held that a defendant who for reward gave permission to a third person to present a play in breach of the owner's copyright did not "cause it to be represented" unless the person was the servant or agent of the defendant. Thus "cause" was substituted by "authorise". Bankes LJ followed Evans and Monckton in holding that "authorise" is to be understood in its ordinary dictionary sense of "sanction, approve and countenance". On that basis he said that the trial judge was amply justified in finding authorisation. Scrutton LJ ([1926] 2 KB 474, 495-497) arrived at the same conclusion basing his reasons on the terms of the hire contract. He found an implied term that the proprietors would exhibit the film in order for the hire fee to become payable. By the imposition of a contractual duty to show the film the defendants had in law performed the film themselves and may also have authorised the proprietors to do so. While also purporting to apply Evans and Monckton Atkin LJ's approach was narrower than that of the other judges. He said ([1926] 2 KB 474, 499) that the word "authorise" means "to grant or purport to grant to a third person the right to do the act complained of, whether the intention is that the grantee shall do the act on his own account, or only on account of the grantor." He found there was authorisation within that meaning.
163 Several observations can be made about Falcon. The first is an observation about language. If Bankes LJ intended to quote from the Oxford Dictionary definition of "authorise", he made a minor error. The word "and" does not appear between "approve" and "countenance". In any event, as noted by Whitford J in CBS Inc v Ames Records & Tapes Ltd [1982] Ch 91, 109, the words in the definition are used disjunctively.
164 The second observation relates to the word "authorise" meaning "countenance". "Countenance", too, is a word which has a wide meaning. According to the Oxford Dictionary it means "to favour, patronise, sanction, encourage". It can also mean "condone". In the context with which we are concerned the English courts prefer a narrow construction. In Amstrad Consumer Electronics PLC v The British Phonographic Industry Limited [1986] FSR 159 Lawton LJ said (at 207) that the words "sanction" and "approve" may have a similar meaning to "authorise" but to the extent that "countenance" might mean "condone" that is a wider notion than "authorise", at least as the word is used in the English equivalent of s 101.
165 Third, and this is an important point, the defendants were held liable not merely for supplying the film to the proprietors but because they purported to grant to them the right to show it in opposition to the right of the true owner. Yet there are cases where the mere supply of the means to infringe copyright has resulted in a finding that the supplier had authorised the infringement. In Monckton Buckley LJ said, in relation to a defendant who had manufactured abroad and imported records which it sold without the plaintiff's consent, that "the seller of a record authorizes, I conceive, the use of the record, and such user [sic.] will be a performance of the musical work.": [1914] 1 KB 395, 403. In Evans Tomlin J held that a person who sold the several rights to certain stories with a view to their publication had by that sale authorised the printing and publication of those stories. These cases were approved by Bankes LJ and Atkin LJ in Falcon v Famous Players Film Company [1926] 2 KB 474, 498-499, 491; Atkin LJ expressly stating that they were correctly decided. Moreover, in Amstrad Consumer Electronics PLC v The British Phonographic Industry Limited[1986] FSR 159, 189-190 Whitford J considered that Monckton and Evans establish that there will be authorisation where the defendant intentionally places into the hands of the direct infringer a facility which he knows will inevitably be used for infringement. The object in each of the two cases (the sale of a record in one and a manuscript in the other) was a performance or publication being an act which was bound to infringe.
166 These cases establish two things. First, it is not necessary for the authoriser to impose an obligation on the direct infringer to perform the act which will infringe copyright. Something less will do. Second, in some circumstances there may be authorisation of an infringement although the person authorising has no control over the direct infringer at least at the time the infringement took place. This was a point made by Herring CJ in Winstone v Wurlitzer Automatic Phonograph Company of Australia Proprietary Limited [1946] VLR 338, 347-348.
167 Although control over the direct infringer at the time of infringement was not seen as critical it is now almost an essential element of authorisation. This approach can be traced back to the dance hall cases. Section 2(3) of the Copyright Act 1911 (UK), which was adopted by the Copyright Act 1912 (Cth), provided that a person who "permits" a theatre or other place of entertainment to be used for the performance of a copyright work for profit without the consent of the owner is deemed to infringe the copyright. In Performing Right Society Limited v Ciryl Theatrical Syndicate Limited [1924] 1 KB 1 a syndicate which was the lessee of a theatre engaged a band that played music in breach of copyright. The defendant, the managing director of the syndicate, had power to instruct the band not to perform any piece of music to which he objected and to dismiss the band if his instruction was not obeyed. In other words the defendant had "authority" over the band. The defendant, however, was found not to have authorised the infringement because, as explained by Bankes LJ (at 9), there was no evidence that the defendant "either knew or had reason to anticipate or suspect that the band in his absence were likely to give performances which would be infringements of copyright". Scrutton LJ agreed but for a different reason. He said (at 11) that: "The question is one of the liability for infringement of copyright by persons who do not actually take part in the infringing performance, but are more or less interested in the place of performance and have some control over the performers."
168 The concept of control was taken further in City of Adelaide v The Australasian Performing Right Association Limited (1928) 40 CLR 481, another dance hall case. The question was whether the defendant had "permitted" his theatre to be used for the performance in public of a work without the consent of the copyright owner. In their joint judgment Gavan Duffy and Starke JJ said (at 503): "Permission to do an act involves some power or authority to control the act to be done, and it is now settled that the permission contemplated by this sub-section is a permission relating particularly to the work the performance of which is complained of. Such a permission is not to be inferred from a merely general authority to use a theatre for the performance of musical works." To a similar effect is the judgment of Higgins J, especially at 499-500. See also Performing Right Society Limited v Mitchell and Booker (Palais de Danse) Limited [1924] 1 KB 762, 767, 769; Canadian Performing Right Society Limited v Canadian National Exhibition Association [1938] 2 DLR 621.
169 The early juke box cases also identify control over the direct infringer as an important, if not decisive, factor. The principal case is Vigneux v Canadian Performing Right Society Limited [1945] AC 108, a decision of the Privy Council. The Vigneux brothers supplied coin-operated juke boxes with records to restaurants, cafes and other places attended by the public. The proceeds were divided between the Vigneux brothers and the owner of the establishment. In some instances the Vigneux brothers received a pre-determined share; in others a fixed amount irrespective of the number of plays. The latter was the arrangement in place in the case at bar. In the Supreme Court of Canada ([1943] SCR (Can.) 348) the defendant relied upon certain statutory defences. The judgments concerned themselves with the construction of the relevant sections. In the Privy Council the arguments were similarly confined. But the advice given went beyond the arguments. Lord Russell said (at 122-123):
"In regard to Vigneux, no doubt in law they are the owners of the gramophone. As such they might, if necessary, claim to be protected by the subsection, but in their case no such claim is necessary, because, as their Lordships think, they neither gave the public performance of 'Stardust', nor did they authorize it. They had no control over the use of the machine; they had no voice as to whether at any particular time it was to be available to the restaurant customers or not. The only part which they played in the matter was in the ordinary course of their business, to hire out to Raes one of their machines and supply it with records, at a weekly rental of ten dollars."
One consequence of dealing with a point not argued is that the judge did not refer to the fact that in addition to supplying the juke box, the Vigneux brothers also chose and supplied the records.
170 The decision in Vigneux was considered in Winstone v Wurlitzer Automatic Phonograph Company of Australia Proprietary Limited [1946] VLR 338 a decision of the Supreme Court of Victoria. This is another juke box case in which a different result was reached. Herring CJ distinguished Vigneux on two grounds. First in the Victorian case there was no fixed rental payable for the juke box: each operation added to the defendant's profit. In other words, to adopt the language of Herring CJ (at 353): "The defendant company and the [infringer, a milk bar proprietor] were engaged in a joint venture for profit." Second (and this is the point overlooked by the Privy Council), the defendant selected the records to be placed in the juke box and they included records in respect of which permission not been obtained from the copyright owner. "And so," explained the Chief Justice (at 354): "whenever a customer put his coin in the machine and set it operating, the public performance that took place was necessarily of one or more of the musical compositions that the defendant company had decided upon and no doubt, as it was financially interested in each and every operation of the machine, had selected with due regard to the profits to be derived by it from the user of the machine …[Accordingly the defendant] was privy to and indeed actually participated in the wrongful act that might result from such use." Put another way, the defendant had control over the content of the performances that occurred when the juke box was set in operation, such control deriving from the selection by the defendant of the records that had been placed in the juke box.
171 The modern law is to be found in the High Court in University of New South Wales v Moorhouse (1975) 133 CLR 1, a decision which has not received universal acceptance. The University, with a view to assisting its students, installed coin-operated photocopy machines in the University library. The machines remained under the control of the University, but it took no step to prevent students or staff from photocopying copyright literary works housed in the library. Included among the writings copied was the plaintiff's book of short stories. He sued the University alleging authorisation. The case was heard by a three member bench - McTiernan ACJ, Gibbs and Jacobs JJ. Counsel for Moorhouse based his argument on the fact that the University had the ability to control library users, the library and the machines and it knew of the possibility of copyright infringement. Accordingly, so it was submitted, the University was guilty of authorisation when it fails to exercise that ability and allowed the infringing conduct to occur. This argument was accepted. Gibbs J followed Falcon and Adelaide Corporation (albeit a case concerned with a differently worded section) and said (at 12) that the word "authorise" has its dictionary meaning of "sanction, approve, countenance". He also said it can mean "permit"; the words "authorise" and "permit" being synonymous. He then went on to say (also at 12) that "a person cannot be said to authorise an infringement of copyright unless he has some power to prevent it". He explained that the word "authorise" connotes a mental element and accordingly a person could not be said to authorise something to be done if he neither knew nor had reason to suspect that the act might be done. He concluded (at 13) that "a person who has under his control the means by which an infringement of copyright may be committed - such as a photocopying machine - and who makes it available to other persons, knowing, or having reason to suspect, that it is likely to be used for the purpose of committing an infringement, and omitting to take reasonable steps to limit its use to legitimate purposes, would authorize any infringement that resulted from its use."
172 Jacobs J (with whom McTiernan ACJ agreed) did not take up the notion of control, for it was not necessary for his decision. He said ((1975) 133 CLR 1 at 21), that the word "authorise" had a wide meaning, which encompassed cases of both permission and invitation. So, according to Jacobs J, the question that fell to be decided was whether in the circumstances the University had by implication (for it was certainly not expressed) invited students and staff to make such use of its photocopying facilities as they thought fit. He answered that question in the affirmative.
173 Obviously, Moorhouse must be understood in the light of its facts. It is different from cases such as Vigneux (at least as the Privy Council viewed the facts) for the reason that at all times the University was in a position to control the use of the means by which copyright was infringed. It was distinguished on this basis by the Court of Appeal in Amstrad Consumer Electronics PLC v The British Phonographic Industry Limited [1986] FSR 159, 207 per Lawton LJ and 211 per Slade LJ in a case where it had been argued unsuccessfully that a person who supplied Hi-Fi equipment with facilities for recording on blank tapes had authorised copyright infringement by purchasers who taped records in breach of copyright. See also, on appeal, CBS Songs Ltd v Amstrad Consumer Electronics PLC [1988] 1 AC 1013, 1054 where, following the citation of the passage from the judgment of Gibbs J where he dealt with control, Lord Templeman said "[whatever] may be said about this proposition, Amstrad have no control over the use of their models once they are sold."
174 It is not clear whether Lord Templeman intended only to distinguish Moorhouse or to leave open the question whether the passage cited was a correct statement of the law. Lord Templeman did say ([1988] 1 AC 1013, 1054) that in CBS Inc v Ames Records & Tapes Ltd [1982] Ch 91 Whitford J had correctly stated the law - in the following passage (which may be at odds with Moorhouse):
"[A]n authorisation can only come about from somebody having or purporting to have authority and that an act is not authorised by somebody who merely enables or possibly assists or even encourages another to do that act, but does not purport to have any authority which he can grant to justify the doing of the act. "
On the other hand, Lord Templeman rejected the statement in Laddie, Prescott & Vitoria, The Modern Law of Copyright, (1980) par 12.9 that a person who has no control over another to commit an infringement may nevertheless be said to authorise another to commit an infringement if he is "responsible for placing in the other's hands materials by which their nature almost inevitably is to be used for the purpose of infringement." Lord Templeman said that this proposition was too widely stated. He did not say in what respects it was too wide. I note that the passage from the text had been applied by Kearney J in RCA Corporation v John Fairfax & Sons Ltd [1982] RPC 91, 100, and was cited, seemingly with approval, by Gibbs J.
175 Several of the principles laid down in Moorhouse have been codified by statute. Section 101(1A) of the Copyright Act, which was inserted by s 87 of the Copyright Amendment (Digital Agenda) Act 2000 (Cth), provides that when considering whether a person has authorised a copyright infringement the court is required to take into account (a) the extent (if any) of the person's power to prevent the doing of the act concerned; (b) the nature of any relationship existing between the person and the person who did the act concerned; (c) whether the person took any other reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice. Importantly, subs (1A) does not make any of the factors, or the absence of any of the factors, determinative of the result. For example, a failure to take reasonable steps to avoid a copyright infringement will not necessarily result in a finding of authorisation. Whether the finding is made will depend on all the circumstances. So it is with control. There may be a finding of authorisation even if the defendant has no power to prevent copyright infringement. Again, it will depend upon all of the circumstances.
176 All in all it is as true today as it was in 1946 when Herring CJ said that whether or not there has been authorisation is a question of fact and that "any attempt to proscribe beforehand ready-made tests for determining on which side of the line a particular case will fall, would seem doomed to failure": Winstone v Wurlitzer Automatic Phonograph Company of Australia Proprietary Limited [1946] VLR 338, 345. Nonetheless, there are some guidelines that can be given, albeit with varying degrees of confidence.
Joint Tortfeasors
177 The common law rule is that one tort may be committed by two or more persons: they are usually referred to as joint tortfeasors. Although the term is commonly used, the concept is not well defined. To be joint tortfeasors it is not sufficient that the independent wrongful acts of two persons have caused the same damage. Those persons are several tortfeasors. In Sir John Haydon's Case (1612) 77 ER 1150 at 1151 joint tortfeasors were described as "all coming to do an unlawful act, and of one party, the act of one is the act of all of the same party being present." The rule goes back to when an action in trespass was principally criminal (Sir Charles Stanley's Case (1663) 84 ER 1094) but has been extended. There are three classes of joint tort: where a party is vicariously responsible for the acts of another - as in master and servant, principal and agent and partnership; when there is a breach of a joint duty, be it a statutory or common law duty; and concerted action.
178 As regards the third class (concerted action) to be joint tortfeasors the unlawful act must be for a "joint purpose" (Clark v Newsam and Edwards (1847) 154 ER 55) or "concerted action… towards a common end" (The Koursk [1924] P140, 152). In Thompson v Australian Capital Television Pty Limited (1996) 186 CLR 574 the High Court accepted as a correct description of joint tortfeasors that given by Sargeant LJ in the The Koursk [1924] P140, 159-160, namely that "there must be a concurrence in the act or acts causing damage not merely a coincidence of separate acts which by their conjoined effect cause damage". So, employing the language of criminal lawyers, all persons who aid or counsel direct or join in the commission of a tort are joint tortfeasors: Pratt v British Medical Association [1919] 1 KB 244, 254 citing Petry v Lamont (1841) 174 ER 424, 426. Intent, of course, is not an ingredient of the tort for we are dealing with the civil law, not criminal conduct.
Procuring an Infringement
179 In Lumley v Gye (1853) 118 ER 749 the rule was laid down that to procure or induce the violation of a legal right (eg by the commission of a tort or a breach of contract) is an actionable wrong. Erle J explained the cause of action in terms that are well known but worth repeating. He said (118 ER at 755): "It is clear that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong, as in violations of a right to property, whether real or personal, or to personal security: he who procures the wrong is a joint wrong-doer, may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of."
180 In recent times the existence of the tort has been questioned. It has been suggested that where, as in the present case, there is an allegation of procuring the infringement of a legal right (eg copyright) there is no separate tort of procuring but rather the offender is a joint tortfeasor. The cases are few, and the discussion of the point is brief. The principal authorities are Unilever Plc v Gillette (UK) Limited [1989] RPC 583, 603-608; CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013, 1057, 1058; Credit Lyonnais Bank Nederland NV v Export Credit Guarantee Department [2000] 1 AC 486; MCA Records Inc v Charly Records Ltd [2003] 1 BCLC 93, 107-111.
181 For my own part, I can see no reason in principle why the procurement of a civil wrong should not be a distinct tort. And, further, there seems to be no reason why procuring the commission of a statutory tort should stand on any different footing, unless, of course, the statute itself excludes that kind of claim.
182 This is not an idle point. Although it may be easy to determine whether particular conduct amounts to the procurement or inducement of a tort, breach of contract or other civil wrong, it will often be less easy to show, or it may sometimes be impossible to establish, that the defendant has a common purpose with the direct infringer. Even more important may be the quantification of damages. The basic measure of damage in relation to torts concerning property if the property is destroyed is either the market value of the property or the cost of repair. Consequential losses are also recoverable. But with the so called 'intentional torts', damages are at large; that is damages are not limited to the pecuniary loss that can specifically be proved: Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (No 2) [1991] 2 VR 636, 644-649.
183 Finally on this aspect it should not be forgotten that the tort that might compendiously be described as 'unlawful interference with trade or business' (an individual tort), owes its existence to Lumley v Gye see eg Rookes v Barnard [1964] AC 1129; JT Stratford & Son Ltd v Lindley [1965] AC 269.
184 There is another area in relation to the tort of procuring in which the cases do not present a uniform approach. The difference of opinion relates to the circumstance in which a director or other officer may be held liable for procuring his company to violate a legal right. I had occasion to examine this issue in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231. There I suggested (177 ALR at 268) that for the director to be liable his "conduct must be such that it can be said of him that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable." My approach has not been accepted by other judges, although it was applied by the trial judge. The general tendency is to prefer the test laid down in Performing Right Society Limited v Ciryl Theatrical Syndicate Limited [1924] 1 KB 1 where Atkin LJ articulated the so called "direct or procure" test.
185 I see that the issue has come up in two decisions of the Full Federal Court, Allen Manufacturing Co Pty Ltd v McCallum & Co Pty Ltd (2001) 53 IPR 400 and Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157. In neither of them were the differences resolved. Indeed in Allen Manufacturing Co the Full Court suggested that the difference between the various views "may be more apparent than real". But, with great respect to the Full Court, that comment goes too far. There are several instances where, depending which test is applied, a different result will be reached. Moreover the "direct or procure" approach overlooks several problems that really must be resolved. The first is whether Said v Butt [1920] 3 KB 497 is to be treated as an exception. In Root Quality I said that Said v Butt indicated that it was necessary for there to be a separate rule for company officers. Even if Said v Butt is to be confined in its application to the case where an officer has procured his company to breach a contract, the question still to be resolved is whether that should be a limitation on the "direct or procure" test. The second matter that the supporters of the "direct or procure" test must resolve is the position of a director who does no more than carry out his constitutional role of voting at duly convened board meetings. See as to their position C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317; PLG Research Ltd v Ardon International Ltd [1993] FSR 197; MCA Records Inc v Charly Records Ltd [2003] 1 BCLC 93. In Charly Records Chadwick LJ, with whom Tuckey and Simon-Browne LJJ agreed, said (at para [49]): "[A] director will not be treated as liable if a company is a joint tortfeasor if he does no more than carry out his constitutional role in the governance of a company - that is to say, by voting at board meetings." Chadwick LJ did say at [50] that there was no reason why a person who happened to be a director should not be liable with the company as a joint tortfeasor if he were not exercising control through the constitutional organs of the company and the circumstances were such that he would be liable for his acts if he were not a director. Then, of course, liability would arise from his participation or involvement in ways which go beyond the exercise of constitutional control.
186 I have considered many decisions in Australia and elsewhere that have gone over this topic, as well as the articles which have been written about it and, albeit with some hesitation, I am not persuaded that my approach in Root Quality is in error. If anything, it is at least indirectly confirmed by the reasoning in a recent House of Lord decision, although only by way of analogy. The case concerns the dealing between a director and a third party. The question that arose was whether the director could be made personally liable for a dealing, or whether only the company could be liable. The case is Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. The principle which the Law Lords adopted in the case of negligent advice or the negligent provision of services is that the director will be personally liable only if he had "assumed personal responsibility" for the advice or the provision of the services. If he has not assumed that responsibility an action will only lie against his company. Lord Steyn, who articulated this test, acknowledged at 837 that there were academic critics of the "assumption of responsibility" test. Nevertheless he thought there was no better rationalisation for the appropriate test.
187 That said, I wish to add a word or two to what I said in Root Quality, in particular to indicate what I think are the circumstances in which a director will be found liable for the tort of procuring. I put to one side the case of a company which is set up for the purpose of wrongdoing - where it is the cat's paw or alter ego of the director. A director will be personally liable in relation to a particular infringement if his actions are outside the scope of his official duties, he personally participates in the event and his actions are deliberate, that is they are intentional and with knowledge of the consequences. As regards participation, I would, of course, include a director who specifically commands other officers or employees to carry out the infringing act. On the question of knowledge, I would necessarily include wilful blindness. What one is looking for then is a director who is the conscious moving force behind the infringing act: the knowing aider or abettor.
Conspiracy
188 While not specifically pleaded, the topic under discussion would be incomplete if no mention were made of the tort of conspiracy. Conspiracy is a crime that dates back to several statutes in the reign of Edward 1. The crime was described by Willes J in Mulcahy v The Queen (1868) LR 3 HL 306, 317 as being an "agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means". This statement appeared in an opinion Willes J delivered to the House of Lords in response to questions put by the Lord Chancellor. The House of Lords approved the opinion.
189 The tort of conspiracy is of relatively modern origin, differing from the ancient tort of conspiracy which is the equivalent of malicious prosecution: Holdsworths A History of English Law (2nd ed., 1966 reprint) vol VIII p 392 et sec. The modern tort arose out of the great industrial dispute cases of the late 19th and early 20th centuries, in particular Quinn v Leathem [1901] AC 495; Mogul Steamship Company Limited v McGregor Gow & Co [1892] AC 25 and Crofter Hand Woven Harris Tweed Company Limited v Veitch [1942] AC 435. While the elements of the tort were not worked out until relatively recent times, they are in substantial part based on the crime of conspiracy. In essence there are two types of actionable conspiracy, an unlawful purpose conspiracy and unlawful means conspiracy. The first kind of conspiracy is where the conspirators combine with the predominant purpose of doing injury to the plaintiff, and in fact damage him, even if their action, if done by an individual alone would not have been tortious. In Crofter at 462 Lord Wright said: "In this sense the conspiracy is the gist of the wrong, though damage is necessary to complete the cause of action". It is the concerted action for the illegitimate purpose that makes the action tortious, although this kind of conspiracy is anomalous as was explained by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, 188-189.
190 The second, and more usual, kind of conspiracy is where the conspirators actions are illegal (although not necessarily criminal) and their action causes the plaintiff to suffer damage. In this type of conspiracy it is not necessary to show that the conspirators acted with the predominant intention to injure the plaintiff: Lonrho Plc v Fayed [1992] 1 AC 448, 463-468, McKernan v Fraser (1931) 46 CLR 343, 361-362, 380-381; Williams v Hursey (1959) 103 CLR 30, 105, 122-123. But a necessary element is an intention to injure the plaintiff, but this requirement will usually be satisfied if the conspiracy is aimed or directed at the plaintiff and the damage caused was foreseen or was a foreseeable result of engaging in the conspiracy: Fatimi Pty Ltd v Bryant (2004) 59 NSWLR 678. What must be established is the agreement to commit an unlawful act, the commission of that act pursuant to the agreement and that the act caused the plaintiff's damage: Marrinan v Vibart [1963] 1 QB 234, 238; on appeal [1963] 1 QB 528. The agreement between the conspirators need not be express: it is sufficient if there be a tacit understanding between them, which may be inferred from conduct: R v Associated Northern Collieries (1911) 14 CLR 387.
191 Is there a difference between conspirators and joint tortfeasors? Joint tortfeasors are not necessarily conspirators. In Pratt v British Medical Association [1919] 1 KB 244, 254 McCardie J explained that if a tort be committed "then all who have aided or counselled, directed or joined, in the commission are joint tortfeasors … [the] liability, however, of each is independent of the mere circumstance of combination." On the other hand, when persons are engaged in wrongful conduct in concert, it is difficult to avoid the conclusion that as well as being conspirators they also are joint tortfeasors.
Vanderzaag
192 There can be no doubt but that Vanderzaag is liable as an accessory, probably in each of the pleaded categories. Indeed, he was willing to take full responsibility for what had happened, perhaps because there was no other choice and perhaps also with a view to saving the others from personal liability if that were possible.
193 Vanderzaag's function in 3Fold was to get in orders from clients and arrange for those orders to be filled by, among other things, obtaining the necessary components from 3Fold's suppliers. For these purposes he used, or procured 3Fold's staff and suppliers to use, the drawings and the data. Indeed, Vanderzaag's use of the drawings and data goes back to the time he was working for TS&B. He copied the drawings and used the data to obtain quotes from suppliers. Later he directed staff, including Oakes and Richardson, to do take-offs and to prepare sales quotes using the copied data.
194 Further, Vanderzaag was instrumental in getting Butler to take a position with 3Fold. The purpose was to make use of TS&B's drawings. He arranged for copies of the drawings to be sent to suppliers to manufacture components for 3Fold. On his own admission, Vanderzaag continued to order or arrange for components to be manufactured based on the copied drawings, even after the interlocutory injunction had been obtained to restrain this conduct.
195 I suspect that Vanderzaag did not instruct Oakes to copy TS&B's data. But he must know that 3Fold was using data that had been taken from TS&B. He was sufficiently worried about the possible misuse of the data in February 2003 to instruct Oakes to alter the part numbers. Until August 2004 when the tables were substantially changed Vanderzaag knew that 3Fold was using TS&B's tables and did nothing to stop it. In my view, he gave his blessing to the conduct continuing.
D'Mello
196 D'Mello is, I think, as culpable as is Vanderzaag. He began giving TS&B's data, especially details of master numbers, prices of components and the like to Vanderzaag for use in 3Fold's business while both of them were still with TS&B. He provided information to Vanderzaag whenever Vanderzaag needed any. Although D'Mello said he did not know whether the information was being used for the business of 3Fold or TS&B I have no doubt that when it was needed for 3Fold he knew this to be the case. One should not lose sight of the fact that the success of the 3Fold business was critical to the future of the three men who set it up. Each was a man of modest means and had a family to support. Each borrowed a not insignificant amount ($150,000) to put into the business. The manner in which the business was performing was of vital interest to all of them and I do not accept that Vanderzaag did not inform D'Mello what steps he, Vanderzaag, was taking to further the business's operations.
197 3Fold's use of the data stolen by Oakes was under D'Mello's control. He employed Oakes and put her in charge of IT and gave her instructions to set up the database. Despite his denials, I am of the view that D'Mello knew Oakes had taken the data from TS&B and used it to create 3Fold's database. D'Mello was the director responsible for IT at 3Fold and the suggestion that he did not know what Oakes was doing is fanciful. Then there are the inconsistencies in his evidence. For example at one point D'Mello said he did not appreciate that the tables had been copied until TS&B Retail applied for an interlocutory injunction. At another point he said he knew in February that part numbers, which had been taken from the tables, were being used by 3Fold. No doubt he saw that use. In any event his denials do not square up with the evidence of Oakes. She said that she told D'Mello and Vanderzaag what she was proposing with the tables and was given the "go ahead". She then created a derivative of the TS&B database by copying the five tables. D'Mello knew this had happened. He procured it to happen.
198 I suppose it is faintly possible that for a time D'Mello thought 3Fold could use the tables. Although the receivers had warned staff against making off with TS&B's information D'Mello said that he did not consider the information in the tables to be protected or confidential. But by his own admission he was disabused of that belief when he received Mallesons' letter of demand on 31 January 2003.
199 D'Mello's involvement in the use by 3Fold of the drawings in suit is less clear than his involvement with the data. D'Mello admitted talking to Smith and Vanderzaag about what was required to start 3Fold. It was common ground that the drawings were required by 3Fold. Yet D'Mello denied discussing with Vanderzaag or Smith how the drawings would be obtained. He explained that he believed the drawings were freely available and understood that 3Fold would obtain them from Butler. I do not believe that D'Mello was as disinterested and uninformed about a key aspect of his company's business as he claimed to be. I am sure he was involved in bringing Butler to 3Fold. Even if what he said is to be believed, D'Mello discovered that 3Fold could not use the manufacturing drawings when he received the letter of demand. That 3Fold continued to use the drawings thereafter could only have been the result of a conscious decision by Vanderzaag and D'Mello. Thus D'Mello sanctioned the conduct.
Smith
200 Smith as Logistics and Construction Manager had little if any exposure to either the manufacturing or IT sides of the business. Smith's focus was on setting up the business, including establishing the structure of the organisation and locating suitable premises. He directed all installation work and project management tasks. I believe that Smith had no involvement in getting Oakes to set up the 3Fold database, and using TS&B's data or in obtaining TS&B's drawings from Butler.
201 I am satisfied Smith found out soon enough that 3Fold was making use of TS&B's data. Smith was involved in invoicing and quoting. He said the systems for invoicing and quoting were designed by him and that while they were "identical" with the system at TS&B that was because he designed both systems. We now know that 3Fold copied the TS&B data.
202 Nevertheless what sets Smith apart from others in my view is that for the most part he was one step removed from the information technology and manufacturing processes at 3Fold. Unlike Vanderzaag and D'Mello, Smith did not instruct Oakes to use the TS&B data. He did not instruct Butler to hand over the TS&B drawings. He did not (except when it came to invoicing) use or instruct others to use the drawings or the data. He said of his role: "I was very much sort of the hands-on guy out the back". I think Smith was telling the truth when he said this. He was not, in my view, sufficiently involved to be an accessory. True it is he knew what was going on and, in a sense, may have acquiesced in 3Fold's conduct. But this not enough to street home accessorial liability.
Measure of Damages
203 A successful plaintiff in a copyright action must elect between damages and an account of profits: Copyright Act, s 115(2). If the plaintiff seeks an accounting, the infringer is required to give up his ill-gotten gains. If he seeks damages the infringer is required to compensate the plaintiff for the loss he has suffered: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 32. Here TS&B Retail has elected to take damages. How are those damages to be calculated?
204 It has been said that in a copyright action the measure of damages to which the plaintiff is entitled is the depreciation caused by the infringement to the value of the copyright as a chose in action: Sutherland Publishing Company Ltd v Caxton Publishing Company Ltd [1936] Ch 323, 336. It is clear, however, that this is not the exclusive measure of damages for breach of copyright: Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1977] RPC 137. A better statement of the principle to be applied is that the plaintiff is entitled to such damages as would as far as possible put him in the position he would have been in if there had been no infringement: General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1976] RPC 197, 212. That directs attention to the losses caused by the infringement. This approach is consistent with what Mason CJ described as 'the fundamental principle on which damages are awarded at common law' namely that 'the injured party is to be restored to the position … in which the party would have been had the actionable wrong not taken place': Baltic Shipping Co. v Dillon (1993) 176 CLR 344, 362.
205 It is sometimes said in copyright actions that damages are at large: Fenning Film Service Ltd v Wolverhampton, Walsall & District Cinemas Ltd [1914] 3 KB 1171; Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383, a patent case. What is meant by that statement is not explained. When damages are described as being "at large" judges sometimes mean that the plaintiff need not prove specific or special damage, but that seems to be confined to actions where damage is the gist of the claim. In other cases the reference is to the ability to recover damages not confined to pecuniary loss, for example loss of reputation can be taken into account. In a copyright case, however, the question should simply be one of causation. What has the plaintiff shown to be the loss caused by the infringement and what is the amount of that loss?
206 There are two common methods of assessing damages in copyright cases, dependent upon the nature of the work in suit. The first is the so-called licence fee (or royalty) method where the plaintiff recovers a sum equal to the fee that would fairly be charged for use of the copyright work: Performing Rights Society Ltd v Bradford Corporation [1921] MacG Cop Cas 309; Stovin-Bradford v Volpoint Properties Ltd [1971] Ch 1007.
207 The second occurs when the plaintiff and defendant are in actual or potential competition in relation to the copyright work. Then lost profit is usually the best measure of damage. The plaintiff must show that he has lost sales to the defendant as a result of the infringement and quantify the loss suffered. This requires the court to explore the counterfactual hypothesis of the contracts the plaintiff would have obtained absent the infringement and the costs associated with them. Necessarily the process will involve a degree of speculation, but that is no bar to recovery. The claim is not for loss of revenue but for loss of profits. The profits to be calculated are the lost net profits. By net profits I mean revenue less all costs including variable and indirect costs, but not including income tax. Care must be taken to ensure that costs savings are brought to account. If a plaintiff sells less of his products he will have less costs and that should be treated as a gain to be offset against the lost revenue which forms the basis of the computation of lost profits. The plaintiff is also entitled to recover indirect losses (such as damage to goodwill) as long as the cause is the infringement, the loss is foreseeable and is not unduly speculative. It will often be impossible to be precise in the calculation of lost profit. If needs be, the calculation can be rough and ready, with the benefit of any doubt favouring the plaintiff.
208 There is a question whether the relevant lost profits are those that would have been earned by the plaintiff from use of the copyright work alone or where, as here, the copyright work is employed by the plaintiff as part of a wider profit-making venture. While there was, at one point, doubt about the matter, modern cases permit the recovery of any secondary loss caused by the infringement. Secondary loss would include for example loss of sales of non-copyright work that is sold with the copyright work. Again, the issue is one of causation, and perhaps also of foreseeability: Gerber Garment Technology [1995] RPC 383; on appeal [1997] RPC 443.
209 The same approach is applied when the plaintiff seeks an account of profits. Dart Industries Inc v The Décor Corporation Pty Ltd (1993) 179 CLR 101 was a patent case. The defendant infringed the patent for a press button lid for a container. The profits for which the defendant was required to account were those derived by him on the sale of containers with the infringing lid. The rule that was applied was taken from Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, namely that a person who wrongly uses another man's industrial property - patent, copyright, trade mark - is accountable for any profits which he makes which are attributable to his use of the property which was not his. According to Windeyer J (122 CLR at 43): "If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man's property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple. In such a case the infringer must account of all the profits which he thus made." This language can be applied to a claim for lost profits.
210 In a copyright action s 115(4) permits an award of additional damages that are exemplary, aggravated or even punitive in nature: Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 ALR 677, 683. The power is more substantial than that available in the United Kingdom under an equivalent section of their Copyright Act. There only aggravated damages or their equivalent can be claimed: Beloff v Pressdram Ltd [1973] RPC 765; Redrow Homes Ltd v Betts Brothers Plc [1999] 1 AC 197.
211 Additional damages should only be awarded if the defendant's conduct deserves punishment or there is a need for deterrence: See also the decision on exemplary damages in Lamb v Cotogno (1987) 164 CLR 1, 8; XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448, 471. For example, if the defendant's conduct was vindictive, reprehensible or malicious then an award should be made.
212 I propose to say only a brief word or two about compensation in equity. First, I acknowledge that in England there are some cases which hold that compensation in equity is not available outside Lord Cairns' Act. See for example English v Dedham Vale Properties Ltd [1978] 1 WLR 93; Malone v Commissioner of Police of the Metropolis (No 2) [1979] 2 All ER 620. There is also the problem whether compensation can ever be awarded in the absence of a claim for an injunction although I note that the decision of the House of Lords in Nocton v Lord Ashburton [1914] AC 932 is authority for the proposition that this is not necessary. The principle that I would apply in this case is that stated by McLachlin J (as she then was) in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534. In that case she said:
"In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach; i.e., the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach."
Calculation of Damages
213 TS&B Retail called Jon Kenfield, a forensic accountant, to quantify its damages. Kenfield prepared two reports. In his first (substituted) report, Kenfield put TS&B Retail's loss at between $2,890,315 and $3,332,600 for the period 1 January 2003 to 30 June 2005. He arrived at that sum first by estimating the total value of contract work performed by 3Fold for Kmart during the period, according to 3Fold's accounts. The value of the contract work disclosed in 3Fold's accounts was within 5% of that reflected in Kmart's purchase orders. He found the total value of work performed to be:
1 January 2003 to 30 June 2003: $2,255,817 +
1 July 2003 to 30 June 2004: $4,865,440 +
1 July 2004 to 30 June 2005: $6,322,067
Total: = $13,443,324
He then assessed the damage suffered by TS&B Retail on the assumption that "TS&B would have received the contract work identified in the 3Fold Kmart contracts had 3Fold not received that work". To calculate the loss Kenfield first estimated the range of profit TS&B Retail would likely have earned had it performed work. He did so by reference to the gross profits TS&B achieved for the year ended 30 June 2004 (24.79%) and the gross profits achieved on a sample Kmart job (21.5%). The sample Kmart job used was Kmart's Munno Para Store. In making this calculation Kenfield defined gross profit as "the surplus of sales value over the direct costs involved in obtaining those sales". He contrasted gross profits with net profits which he defined as gross profit less deductions for "all indirect (operating) expenses". Kenfield then multiplied the total sales by the gross profits to calculate the estimated total loss as follows:
$13,443,324 x 21.5% = $2,890,315
$13,443,324 x 24.79% = $3,332,600
In this calculation Kenfield included the entire gross profit TS&B Retail would have earned had it fulfilled the contracts awarded to 3Fold. This assumed that TS&B Retail could service the Kmart work with no additional indirect or operating costs. This may have been based on his assumption that "TS&B [Retail] had spare operating capacity"; there was insufficient evidence of this.
214 I note that Kenfield's report also refers to an "industry standard" rate of net profit of 12%. Were this applied to total sales to Kmart, the estimated loss would have been approximately $1,613,199 for the entire period (1 January 2003 to 30 June 2005).
215 Following receipt of the expert report from the respondents, Kenfield prepared a second report. In his second report, Kenfield confirmed the estimates of 3Fold's sales to Kmart during the relevant periods as reported in his first report. He re-calculated TS&B Retail's loss by reference to extra information obtained. Kenfield said the loss was at least $3,510,341. Kenfield's approach to calculating loss in the second report altered in at least two respects from the approach taken in his first report. First, and most significantly, he took into account what he described as "the total value of all sales TS&B Retail could reasonably have expected to make in the period", being the sum of TS&B Retail's actual sales and 3Fold's total sales to Kmart as follows:
3Fold sales to Kmart
1 January 2003 to 30 June 2003: $2,255,817 +
1 July 2003 to 30 June 2004*: $4,864,595 +
1 July 2004 to 30 June 2005: $6,322,067
Total (A): $13,442,479
*Note: there was a minor adjustment made to the 2003-2004 sales figure.
TS&B Retail actual sales
1 January 2003 to 30 June 2003: $673,432 +
1 July 2003 to 30 June 2004: $14,113,527 +
1 July 2004 to 30 June 2005: $ n/a______
Total (B): $14,786,959
Total Expected Sales (A+B): $28,229,438
TS&B Retail's actual sales had not been considered in the previous report. Secondly, Kenfield calculated TS&B Retail's loss on the basis of a (notional target) net profit figure of 12%, rather than a gross rate of profit. Kenfield calculated the loss to TS&B Retail by multiplying this total expected sales figure by the target net profit figure of 12% to obtain an "anticipated net profit figure":
Anticipated net profit = $28,230,283 x 12% (net profit) = $3,387,533
216 The final step was to subtract from the anticipated profit TS&B Retail's actual adjusted profit to arrive at TS&B Retail's estimated loss.
TS&B Retail actual profit
1 January 2003 to 30 June 2003: (-$542,541) +
1 July 2003 to 30 June 2004: $419,733 +
1 July 2004 to 30 June 2005: $ n/a____
Total actual profit (loss) -($122,808)
Loss = anticipated profit - actual profit
= $3,387,533 + $122,808 = $3,510,341
Note: this excludes lost profits on TS&B Retail actual sales in 2005.
217 There are several problems with this approach. First, I do not understand TS&B Retail to be alleging that, by infringing its copyright, 3Fold has adversely impacted the profitability of its other work (that is, work that TS&B Retail had actually performed). This being the case, TS&B Retail's actual sales over the period and, by extension, its anticipated net profit based on those sales, are not relevant to the calculation of damages. The position might be different if there were evidence, for example, that TS&B Retail had invested in larger plant and equipment than it would otherwise have done to service the Kmart work lost as a result of the respondents' breach of copyright. Then the costs of maintaining or operating the larger plant and equipment could, at lest in theory, reduce the profitability of work TS&B Retail retained. Absent evidence of this kind, the inclusion of anticipated profits based on TS&B Retail's actual sales (as measured against actual profits) has the effect of significantly inflating the amount of damages where TS&B Retail has failed to achieve the target 12% profit on its own sales. By way of illustration, Kenfield's method of calculating damages, were I to accept it, would lead to the result that TS&B Retail would have suffered losses of approximately $1,897,243 (being $623,000 in 2003 and $1,274,000 in 2004) even if 3Fold had made no sales at all to Kmart over the period. The calculations would be as follows:
3Fold sales to Kmart $0 +
TS&B Retail actual sales $14,786,959
Total expected sales $14,786,959
Anticipated net profit = $14,786,959 x 12% (profit) = $1,774,435
TS&B Retail actual profit (loss)-($122,808)
Loss = $1,774,435 + $122,808 = $1,897,243
This cannot be correct. The reason for the discrepancy is TS&B Retail's lower than expected profitability on its own sales over the period. As Kenfield pointed out in his second report, TS&B Retail's results show a large net loss (76.61%) in 2003 and a net profit of just 0.66% in 2004. Kenfield said "I assume that these poor results are a direct consequence of achieving significantly lower revenues than were anticipated during the setting up of the new business". In the circumstances, I see no reason why the costs should, in effect, be attributed to the respondent's breach of copyright. If TS&B Retail's own sales are excluded the loss (at 12% profit) relating to the work 3Fold performed for Kmart during the period would be in the order of $1,613,097 being 12% of the $13,442,479 total sales to Kmart (as previously calculated).
218 The respondents' expert was Geoffrey Sincock from BDO Partners, Chartered Accountants. Sincock prepared three reports. The first report focused on the initial report prepared by Kenfield. I will return to the substance of the first report shortly.
219 Sincock's second report estimated the damages suffered by TS&B Retail on three bases, namely the diminution in the value of the copyright works, the fee TS&B Retail might have charged for the use of the copyright works and the loss of opportunity and potential profit.
220 As regards diminution in value of the copyright material, Sincock concluded that "on the assumption that the copyrighted works were in widespread use, there is no basis to calculate the diminution in value of the copyrighted works". As this conclusion is based on a false premise, namely that the copyright material was in widespread use, it is of little assistance. This same false premise underlies Sincock's conclusion that "there would be no basis for the applicant to charge a fee for the use of the copyrighted works".
221 Sincock then estimated the maximum loss suffered by TS&B Retail to be $17,170 before tax. He calculated this loss by first estimating the cost value of all parts in the copied drawings sold to Kmart between 21 January 2003 and 11 April 2003, being the period in which the respondents say the breaches were alleged to have taken place. He obviously assumed that the infringing conduct came to an end when the interlocutory injunction was granted. Sincock assessed the cost value of Kmart parts to be $645,649. Assuming a profit margin of 24.79%, being the gross profit margin actually achieved by TS&B Retail for the twelve months ending 30 June 2004 (the same margin as used by Kenfield), this implied lost sales of $858,462. The potential gross profit was estimated as follows:
Potential gross profit = $858,462 x 24.79% = $212,813
The estimated profit figure was then adjusted (reduced by 22.79%) as follows, to take into account the variable operating expenses TS&B Retail would likely incur if it were to take on the additional work:
Additional expenses = $858,462 x 22.79% = $195,643
The 22.79% was determined by reference to TS&B Retail's operating expenses (adjusted to exclude fixed and one-off expenses) as a proportion of TS&B Retail's total sales for the year ended 30 June 2004. The potential lost profits were then calculated by deducting the additional expenses from the potential gross profit as follows:
Potential lost profits = $212,813 - $195,643 = $17,170
Sincock performed a second 'lower range' estimate using a gross profit margin of 7.47%, which was the gross profit margin actually achieved by TS&B Retail for the twelve months ending 30 June 2003 (the period in which the infringement was said to take place). For this estimate, Sincock adjusted potential lost profits by 88.16% to reflect TS&B Retail's operating expenses (adjusted to exclude fixed and one-off expenses) as a proportion TS&B Retail's total sales for the year ended 30 June 2003. On this basis he concluded that "if the estimate is based on the reported results for the relevant period, being the period ending 30 June 2003, after considering overhead expenses shows the potential for further losses by TS&B [Retail] for additional Kmart sales rather than potential profits". The extent of the losses was as follows:
Cost value of parts: $645,649
Potential lost sales: $697,773
Potential gross profit (7.47%): $52,124
Additional expenses (88.16%):-$615,157
Potential lost profits: ($563,033)
In other words, TS&B Retail would have been more than $563,000 better off if it did not obtain the additional (loss making) Kmart work than if it did obtain that work. I do not accept that the business was this unprofitable.
222 Sincock's third report estimated what T&B Retail would recover if it had elected to take an account of profits for the breaches that occurred between 1 January 2003 and 30 June 2004 and all sales to Kmart were included not just sales of those parts attributable to the 234 drawings and 5 tables of data. As TS&B Retail elected damages, I need not consider this report. I note, however, that Sincock used Kenfield's estimated total sales figures for this report.
223 Given the substantial differences in approach between Sincock and Kenfield, it is necessary to resolve a few points before determining the appropriate measure of damages.
224 First, for the purposes of his reports, Sincock assumed that all breaches took place between 21 January 2003 and 11 April 2003, when the injunction issued. This was a reasonable assumption to make and no doubt quite a few people were surprised when it turned out to be false. But false it was. The respondents first breached TS&B's confidence and infringed TS&B's copyright in the tables of data as early as 6 January 2003, when Vanderzaag, Oakes and others used TS&B's systems to produce sales quotes for Kmart. The use of the copied data continued from between 12 February 2003, when Oakes saved the copied data onto 3Fold's server, until 3Fold's part numbers were altered for the second time in August 2004.
225 The respondents infringed TS&B's copyright in the drawings from November 2002, when Vanderzaag sent copies of TS&B's drawings to potential suppliers. It is not clear whether drawings were also sent to potential customers. At any rate, from about February 2003, 3Fold used or authorised manufacturers to use (in the sense of use for manufacture) TS&B's drawings to fulfil the refurbishment contracts awarded to it by Kmart. The first contract (for Kmart's Kotara store) was awarded on 10 February 2003 for delivery by 1 April 2003 with smaller contracts awarded on 4 February 2003.
226 It may be that from 10 April 2003 no respondent copied the drawings. However, 3Fold continued to procure a breach of the copyright by having parts manufactured by suppliers who used the drawings. The case was conducted on the basis that this put 3Fold in breach of copyright, no distinction being drawn between primary and accessorial liability. Parts were manufactured to the time of the hearing. So, the relevant period of infringement of copyright is January 2003 to August 2004 in respect of data and November 2002 to at least the trial in respect of the drawings.
Trading Losses
227 It is not sufficient to demonstrate that copyright infringement enabled 3Fold to be awarded Kmart contracts. TS&B Retail must prove that, but for the infringements, TS&B Retail would have obtained the contracts. This requires consideration of the counterfactual, namely the likely state of affairs had 3Fold not infringed TS&B Retail's copyright.
228 Kenfield assumed that, absent any copyright infringement, TS&B Retail would have captured all of the business Kmart had awarded to 3Fold, in effect retaining a market share of around 80-90% of Kmart's work. This is unlikely for several reasons. First, the assumption does not allow for potential competition from 3Fold. I will discuss this shortly. Secondly, there is clear evidence that following the collapse of TS&B, Kmart decided not to pursue exclusive arrangements with any supplier. Instead, its strong preference was to put all work to tender. In an email from Kmart to Trollope dated 9 January 2003 Hani Zayadi, Kmart's Managing Director, said "we hope [TS&B Retail] succeed as we prefer not having all our eggs in one basket as in the past with [TS&B]… I [have] asked our team to expand the sourcing of our store fitouts to your competitors as well as to new overseas suppliers". During his evidence Healy said that Kmart had commissioned an independent study into the shopfitting industry which had concluded that it was not in Kmart's best interests to enter into exclusive arrangements. The review found that "if Kmart continues to rely so heavily on TS&B, then Kmart will continue to face capacity problems each time major new store or refurbishment programs are planned. Simply trying to find ways to justify continuing the status quo would mean Kmart will never have viable alternatives". Healy said "we had already done a bit of an analysis into the marketplace and worked out that we needed to… start seeking other retailers in the marketplace and look at different ways of sourcing product and not having all our risks in one area". Healy also testified that while exclusive relationships had worked well in the past "it didn't make sense to keep doing that, particularly with a lot of manufacturing starting to happen offshore". In addition to TS&B Retail, 3Fold and Metro (until June 2003) who were the main suppliers, Kmart also used Ausmart (from August 2003), BP shop-fitting and were looking for other (including overseas) suppliers.
229 As TS&B Retail would not have been awarded all the Kmart contracts that went to 3Fold, it is necessary to estimate the proportion TS&B Retail would have been awarded but for the infringement. One consideration for the purposes of this counterfactual is whether, and if so when, 3Fold would have obtained its own drawings and data by legitimate means. TS&B Retail claims (and Kenfield assumed) that as a result of the limited resources available to 3Fold when it commenced operations, 3Fold would have been unable to continue operating long enough to develop the necessary data and drawings to obtain or fulfil Kmart work. While I do not doubt that the respondents have benefited from the use of the copyright material, the assumption that 3Fold would never have been able to compete with TS&B Retail without infringing copyright or breaching confidence is, in my view, an overstatement.
230 It seems to have been common ground that drawings could have been prepared from either TS&B's isometric drawings, actual parts (which in some cases were stored in 3Fold's warehouse) or from photographs taken of parts in Kmart stores, without having to be drawn from scratch. There is evidence that Kmart (and competitors of TS&B) were allowed to produce drawings of their own from the final product. Cue gave evidence that: "If successful in a tender or quote, competitors of [TS&B Retail] would have to visit a Kmart store and obtain the crucial production information through measurements of components and/or photographs. The competitor would then prepare their own set of component manufacturing drawings". Likewise, while Trollope was concerned that CML should not continue to use manufacturing drawings that were obtained from TS&B as part of the tender process, no objection was raised when CML subsequently sent out its own drawings of the same parts.
231 To reproduce the 234 drawings from isometric drawings and parts or photographs of parts, according to Vanderzaag, would have taken approximately 2 hours per drawing on average, or 468 hours in total (3 weeks for 4 draftsmen). The cost to 3Fold would have been around $16,848. The cost of purchasing the drawings from another supplier would have been around $28,080 (at $120 per drawing) according to Vanderzaag. Kmart in fact hired another company, Metro Shopfitters, to prepare manufacturing drawings of products on Kmart's behalf. This could not have taken Metro long as the TS&B manufacturing drawings were withdrawn on 14 May 2003 and Metro ceased trading around May or June the same year. Thus the drawings were completed in less than 2 months. Cue also gave evidence on this topic. He said that to prepare a drawing from scratch would take between 30 minutes and 2 days, with an average of 8 hours per drawing. I take Cue to be referring to the time it would take to create a manufacturing drawing once a design had been approved and a prototype developed. On this basis, it would take 4 draftsmen 12 weeks to prepare the drawings.
232 This discussion assumes, as the parties appear to have assumed, that preparing manufacturing drawings from the finished product or from photographs of the final product is legitimate. It is not legitimate. It is just an alternative means of infringing copyright. To avoid infringing copyright the respondents would need to both design and draw equivalent products and parts from scratch.
233 To the extent that estimating the time to design and prepare a manufacturing drawing for a product may involve some degree of conjecture, I am inclined to err in TS&B Retail's favour. While not relevant to the question of infringement, as TS&B Retail is only pressing its case in respect of the 234 drawings, there is evidence that in order to fulfil orders from Kmart 3Fold needed more than the 234 drawings in suit. To fit out Kmart's West Lakes, Kotara and Wynnum, for example, Cue said that 3Fold needed 213 additional drawings. I suspect that to compete for other contracts other additional drawings would have been needed. Some allowance must be made for this in estimating the time it would take 3Fold to be in a position to compete for Kmart work.
234 The issue is how long would it take to develop the necessary manufacturing drawings without direct or direct copying. I consider eight to twelve months to be a reasonable estimate of the time required.
235 The question then arises whether 3Fold would have been able to survive long enough for the drawings to be developed. There are two reasons why I think 3Fold eventually would have produced its own drawings. First, the drawings were critical to running the business and the individual respondents would have done everything possible to make sure the business survived: They had little choice. They were facing long term unemployment and they and their families depended on the business succeeding. Secondly, Kmart's arrangements with 3Fold, at least for 2003, would have provided the bulk of the funding it needed to keep going. Kmart agreed to pay a 25% deposit upon receipt of the purchase order, along with payment in five equal instalments of 15% of the contract price throughout the course of each project. This was probably designed to minimise potential cash flow shortages for 3Fold. It may also be indicative of Kmart's desire to support more than one viable supplier.
236 As regards the data, Vanderzaag said that a non-infringing database could be created and populated with data in around 52 hours (less than a week for two people) at a cost of approximately $2,080. While the true cost is probably much higher, it is unlikely to be so prohibitive as to make competition impossible. The time taken to create the database and tables would not be significant (probably no more than a few months).
237 In light of the foregoing, for the purpose of determining the extent to which 3Fold's infringement diverted sales from TS&B Retail, I propose to act on the following assumptions. Had 3Fold not infringed copyright it would have competed with TS&B Retail for a small amount of the Kmart work from the outset, albeit at a competitive disadvantage. Over time, perhaps eight to twelve months, allowing for possible cash flow constraints, 3Fold would have developed its own manufacturing drawings which it could have used to fulfil Kmart contracts. Even if 3Fold had not itself developed the drawings by about February 2004, it is possible that Kmart would have developed its own manufacturing drawings for supply to shopfitters. However, Kmart did not want to be restricted to using one supplier. This is evident from a submission dated 30 January 2003 by Healy which states:
"Kmart is currently going through the process of drawing up all shopfixturing and shopfitting equipment which will assist us with going to market for tender situations and also improve the timelines to bring on new suppliers. It is Kmart's intentions to keep and store its intellectual property in house in the future. Future design updates will be paid for in order for Kmart to retain the intellectual property."
238 On the basis of these assumptions TS&B Retail is not entitled to recover trading losses due to the acts of 3Fold that occurred after February 2004. In my estimation by that time 3Fold would have been in a position to use its own or Kmart's drawings to legitimately compete with TS&B Retail for work.
239 Another factor to consider in assessing its losses is whether TS&B Retail would have been able to take on the work that had been awarded to 3Fold. Kenfield's calculations assumed that TS&B Retail had the capacity to take on all that work. His assumption is supported by Trollope who said that "the [TS&B Retail] business had unlimited capacity because it was manufacturing 85 to 90 per cent of its product overseas". But this is unlikely to be correct. Trollope himself said when the business started up it "had to be very, very, very skinny, evidenced by [the fact that it] didn't have any sales for three or four months". Moreover, by 2003, TS&B Retail was already experiencing difficulty with supplying equipment on time, which resulted in Kmart sourcing products from 3Fold and others. The value of work provided by 3Fold in relation to TS&B Retail projects in 2003 was approximately $250,000. Healy said there were "some instances where [TS&B Retail] couldn't supply all the equipment as per the contracted works". In his view "[TS&B Retail] could have supplied [the equipment] at the end, but [Kmart] didn't want to wait a month, two months, six weeks to get the equipment". He said "sometimes there [were] three, sometimes there [were] four, sometimes five, sometimes there [were] six week delays in some of the equipment". While denying that TS&B Retail lacked sufficient resources to perform the contracts awarded to it, Trollope did admit that he was aware that 3Fold had provided Kmart with some stock for jobs TS&B Retail had been awarded. Likewise, Cue said that certain additional parts had on occasion been supplied when TS&B Retail did not have them "immediately to hand". He said that "because the majority of [TS&B Retail's] supply is out-sourced from overseas suppliers … delivery lead times of 3 to 5 months are not uncommon. This enables [TS&B Retail] to order on a job specific basis and avoid excessive costs associated with a large stock holding". It is worth noting also, that many Kmart jobs had delivery dates within 2 months of the date the purchase order was issued.
240 Even if I am wrong about TS&B Retail's capacity to do the work it would still have needed additional staff to fit and install the fixtures and fittings in order to take on further Kmart contracts. The evidence suggests that between 2003 and 2004, TS&B Retail experienced difficulties with supplying contract labour to its projects. For example, TS&B Retail had difficulty supplying the labour to several Kmart fit-out projects. According to one Kmart document "all started well, but half way through we were experiencing one, two or three men short on the job, due to manpower shortages with other Kmart & CML projects and commitments to our competitor". Healy confirmed this saying TS&B Retail were "trying their men between a number of different projects, not only for Kmart but a couple of other businesses as well."
241 Moreover, regardless of TS&B Retail's capacity, Kmart was reluctant to provide TS&B Retail with significant amounts of work, at least initially. For example, Minutes of a meeting of Kmart's Contract Advisory Panel, which included Healy, of 5 March 2003 state that "Kmart will only use TS&B where there was no feasible alternative". TS&B Retail was awarded a substantial contract in August 2003, being 50 per cent of the contract to supply gondola and metal products to Kmart. Following this, Kmart considered TS&B Retail to be fully committed. When a tender for an entertainment expansion project came up in June 2004, Kmart's Contract Advisory Panel stated that TS&B was "fully committed to Kmart's new and Refit program" and that TS&B Retail and Ausmart were "not resourced to support any other project outside the new and refit program, and currently are experiencing resource challenges to meet their current commitments". Accordingly, Healy would not for a time offer the company any additional work. When asked in re-examination who Kmart would have retained to do the work if 3Fold was not available Healy said: "There's no guarantee we would've done the full amount of work anyway, given the capacity issues that we already had some concerns about."
242 In determining how the contracts awarded to 3Fold would have been allocated if the infringing conduct had not taken place, it is important to note Kmart's strategy was to "select 2-3 shopfitters who have the capacity and can service Kmart's needs without major impacts on other CML brands" and its desire to "steer clear of another TS&B scenario where [it] placed [all its] eggs in one basket". Other than 3Fold, the suppliers who could have competed for the contracts were Metro Products, BP Shopfittings as well as TS&B Retail. Metro ceased trading around June 2003. Another shopfitter, Ausmart, began taking Kmart work around August 2003.
243 Absent copyright infringement, it is likely that, until about June 2003 when Metro ceased trading, the Kmart contracts awarded to 3Fold would have been allocated to TS&B Retail, Metro and BP Shopfittings in the same or similar proportions as under the 2003 refurbishment tender. Under that tender, Metro Products was awarded 9 stores, BP Shopfittings was awarded 1 store (as they had done no work for Kmart in the past) and TS&B Retail was awarded 4 stores but on the basis that "Kmart [was] watching the progress of [TS&B retail] closely [and] should [they] get wind of any issues which effects TS&B [Retail's] ability to deliver … [Kmart would] re-allot their stores between 3Fold, Metro and BP depending on each of those businesses capacity to pick up extra works". In other words, Metro would have been awarded around 65% of the 3Fold work, TS&B Retail would have been awarded roughly 30% of the work and the remaining 5% would have gone to BP Shopfittings.
244 From June 2003 until February 2004, when 3Fold would probably have been in a position legitimately to enter the market, the work would likely have been divided between TS&B Retail and Ausmart, as happened with the August 2003 tender for the gondola work. Thus each might be expected to obtain 45% of the Kmart work with a small proportion, perhaps 10%, going to BP Shopfittings or other suppliers.
245 Yet another difference between the experts is that Sincock calculates damages based on only those sales of parts included in the copied drawings, whereas Kenfield took account of all 3Fold's sales to Kmart. Sincock's approach is consistent with the respondents' argument that I should have regard only to that portion of the value of contracts that is attributable to the infringing conduct, and ignore income derived from other non-infringing sources such as installation, outsourcing and the provision of other products. I have already explained why this argument should be rejected.
246 In the general discussion on damages I said that the lost profit that is recoverable is the net profit. The facts of this case highlight the reason for the rule. Consider whether TS&B Retail is required to bring to account the additional variable and operating costs that would be incurred by taking on additional work. In his calculations Sincock did adjust profit for operating expenses. That is, he approached the calculation of damages on the basis of net rather than gross profit. He did so because he considered there would likely be an incremental increase in TS&B's expenses were it to take on a significant amount of new work. The alternative would be to assume that TS&B Retail could take on significant extra work at no additional cost. This is both unrealistic and inconsistent with the evidence, at least for the twelve month periods ending June 2003 and 2004, which suggests that as TS&B Retail's operating expenses increased, albeit not proportionally, as its total sales increased.
247 In his second report, partly in recognition of the need to determine net profit, Kenfield based his assessment on what Trollope described as the "industry standard" or "target" rate of net profit being 12%. That rate is close to the average (adjusted) net rate of profit achieved by 3Fold in the years ending 30 June 2003 and 30 June 2004. The rate, however, is materially higher than the rate achieved by TS&B Retail during the same years (-76.61% and 0.66% respectively). Kenfield's calculations suggest that TS&B Retail's net profit over the period would have risen to between 6 and 6.85% if it obtained all the Kmart business but at no additional cost. I am inclined to use a 9% figure as the applicable rate of net profit, as this takes into account (although perhaps not fully) the reality of TS&B Retail's operations at the time. This is broadly comparable to 3Fold's gross profit percentage on Kmart sales of 29.47% and the overhead factor of 20.95% proposed by Sincock based on 3Fold's management accounts for the twelve months ending 30 June 2003.
248 A calculation of damages based on any hypothetical counterfactual cannot be precise. A 'best case' scenario for the respondents would have 3Fold entering the market in June 2003, after only four months. The applicable net profit margin might be 6%. On this basis the loss to TS&B Retail would be around $25,500 (excluding additional damages), calculated as follows. The total price of all Kmart purchase orders (excluding GST) between January and June 2003 was $2,255,761. The total value of purchase orders placed before 20 March 2003, when TS&B Retail acquired the intellectual property, totalling $1,032,756, must be subtracted from this. The reason is that TS&B Retail cannot claim losses incurred before it became the owner of the copyright. I would add back $193,656 for purchase orders placed within two weeks of 20 March, on the basis that 3Fold would likely have ordered parts to service these contracts after TS&B Retail had acquired the drawings and data. This leaves the total sales lost to TS&B Retail in the relevant period as being approximately $1,400,000:
Total Kmart Sales (Jan to June 2003): $2,255,761 -
Less Sales pre-20 March 2003 (no loss): $1,032,756 +
Plus Sales between 6 and 20 March 2003: $193,656
Total sales in relevant period: $1,416,661
Based on a net profit of 6.0%, TS&B Retail's profit on its proportion (30%) of these sales would have been around $25,500 as below:
Lost profit in relevant period (6.0% net): $85,000
TS&B Retail proportion (30%): $25,500
249 A 'worst case' scenario for the respondents would have 3Fold being unable to enter the market at all. The applicable net profit margin might be 12%. Here the total sales lost to 3Fold between 6 March 2003 and 30 June 2005 would be around $12,600,000 of which $5,400,000 would have gone to TS&B Retail, calculated as follows:
Sales (1 Jan 03 to 30 Jun 03 - as above): $1,416,661
Sales (1 Jul 03 to 30 Jun 04): $4,864,595
Sales (1 Jul 04 to 30 Jun 05): $6,322,067
TS&B proportion of sales:
($1,416,661 x 30%) + ($4,864,595 x 45%) + ($6,322,067 x 45%) =
$424,988 + $2,189,068 + $2,844,930 = $5,458,996
Based on a net profit of 12.0%, TS&B Retail's profit on its proportion of sales would have been around $655,000 as below:
Lost profit ($5,458,996 x 12.0% net): $655,080
250 A more realistic situation is that 3Fold would have entered the market some time between 8 to 12 months of being established. On this basis the loss to TS&B Retail between 6 March 2003 and October 2003 or February 2004, based on an 9% net profit, would be roughly between $150,000 and $200,000, calculated as follows:
Sales (Jan to Jun 03 - as above): $1,416,661
Sales (Jul to Oct 03): $3,112,096
Sales (Nov 03 to Feb 04): $921,320
TS&B proportion of sales to October 2003:
($1,416,661 x 30%) + ($3,112,096 x 45%) = $1,825,442
TS&B proportion of sales to February 2004:
$1,825,442 + ($921,320 x 45%) = $2,240,036
Based on a net profit of 9%, TS&B Retail's profit on its proportion of these sales would have been between $155,000 and $190,000 as below:
Lost profit to October 2003 ($1,825,442 x 9% net): $164,290
Lost profit to February 2004 ($2,240,036 x 9% net): $201,603
251 I am now in a position where I can determine the damages to be awarded to TS&B Retail. I should emphasise, if it is not already acutely obvious, that the assessment is necessarily imprecise. The various calculations the experts have performed and I have commented on may lead the way. But the process is not in the least a scientific one. To be frank, the task is much like an exercise of judicial discretion. The amount to be awarded is $200,000.
252 I will not give any damages on the assigned causes of action. For one thing, TS&B suffered no trading loss that it could pass on to TS&B Retail because the receivers had decided to close down the business. For another, I am not in a position to determine a deemed licence fee for there is simply no evidence upon which to base any assessment. In any event, the deemed licence would run for only a few months so the amount involved would, on any view, be insignificant.
Additional Damages
253 I think they should be awarded. This is an extraordinary case. The respondents (other than Smith) set upon a course of using copyright and confidential material for their own gain, knowing what they were doing was wrong. This was despite warnings by the receivers, letters of demand from TS&B's lawyers and even an order of the court requiring them to desist. It is hard to think of a more powerful case for additional damages. The only point at which I hesitate, is in determining the quantum of additional damages. I have assessed the general damages for which the respondents (other than Smith) are liable to be $200,000. I think additional damages in the sum of $50,000 should be added to this amount.
Costs
254 The usual rule is that costs follow the event, and that the costs are taxed on a party and party basis. The usual rule as to the method of taxation should not, I think, be followed. This is a case where TS&B Retail can rightly ask for its costs to be taxed on a solicitor and client basis. On this issue I have had regard to the way in which the respondents have run their defence. The respondents put TS&B Retail to its proof on all kinds of issues which they knew TS&B Retail would likely prove, but hoping that TS&B Retail might slip up. As well they made several false denials; for example, they denied using the data (particularly the five tables) and copying the manufacturing drawings. These caused TS&B Retail to incur considerable additional expense to prosecute their claim. Indeed at every turn the respondents attempted to thwart TS&B Retail in the proof of its case. Thus at several interlocutory hearings when discovery was in issue the respondents resisted discovery of documents relating to its dealings with Kmart after 10 April 2003, being the day on which the interlocutory injunctions were granted. The argument which in no small measure found favour with me was that the respondents were subject to, and complying with, the restraining order so discovery of later documents was unnecessary. We now know that to be untrue. While a defendant cannot be prevented from engaging in tactics in an attempt to stave off a plaintiff's claim, that approach comes at a cost. The cost is that the unsuccessful defendant should be ordered to pay solicitor and client costs.
Orders
255 In addition to the awards of damages and costs, TS&B Retail may ask for additional relief. I will hear the parties on the form of orders that should appropriately be made.
I certify that the preceding two hundred and fifty-five (255) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.