Universal Music Australia Pty Ltd v Miyamoto

REASONS FOR JUDGMENT WILCOX J: 1 On 18 July 2003, Lindgren J delivered final judgment on issues of liability raised in this proceeding: see Universal Music Australia Pty Ltd v Miyamoto [2003] FCA 812. These reasons deal with the issues left outstanding by that judgment. The orders of Lindgren J 2 The proceeding was brought by ten applicants who claimed infringement of copyright by twelve respondents. However, orders were made in favour of only three applicants, Universal Music Australia Pty Ltd ('Universal'), Sony Music Entertainment (Australia) Limited and Warner Music Australia Pty Limited. I will use the term 'the applicants' to refer only to these three companies. 3 Lindgren J made declarations of infringement of copyright against seven individuals, Jun Miyamoto, David Pacheco, Peter Papalii, Tahi Croft, Nick Garcia, Joe Sou Anau Sitoa and Daniel Maxwell Nyavor, and two corporations, Minesto Pty Limited trading as Anthem Records ('Minesto'), and Unsound Records Pty Limited. He made permanent injunctions against each of these respondents restraining the copying of the whole or a substantial part of particular sound recordings or any music compact discs ('CDs') released by any of the applicants. His Honour also made declarations of contraventions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). He ordered that '[a]ll issues of the quantum of pecuniary relief be determined separately from and after the determination of all other issues in this proceeding'. Because of Lindgren J's involvement in a lengthy native title case, I have been asked to determine those issues. 4 Lindgren J did not make any order concerning costs. In his reasons for judgment, he explained the reason. His Honour noted that the applicants had sought a lump sum order for costs. An estimate of recoverable costs to that date had been provided by Michael John Williams, a partner in the firm of solicitors acting for the applicants, in the sum of $104,029.54. Mr Williams said this estimate was 60% of the costs actually incurred by the applicants to date, after making an allowance for costs relating to action against three respondents with whom the applicants had reached a settlement. At paras 31-33 of his reasons for decision, Lindgren J said: 'I see no reason to question Mr Williams's affidavit evidence. Moreover, I would wish to make a lump sum order. However, I have a difficulty. What is sought is an order creating joint and several liability, so that each respondent would be liable to pay the whole of the costs - of course, each would have a right of contribution against the others. My difficulty can be indicated by this rhetorical question: Why should one respondent have to bear costs incurred in bringing a proceeding against all the other respondents? Let it be assumed that all the respondents except one do not pay. Is it just that that one should have to bear the total amount of $110,000? Would the costs attributable to bringing a proceeding and proving the case against that one alone be anything remotely approaching $110,000? On the other hand, there are difficulties in the suggestion that the amount each respondent should be required to contribute to costs should be the amount that respondent would have had to pay if a separate proceeding had been brought against that respondent. For example, each of the twelve respondents would have to pay the amount of the filing fee on the proceeding brought against that respondent, whereas, as a result of all having been sued in the one proceeding, the applicants have burdened each respondent with only one twelfth of a single filing fee (on the assumption that all respondents do in fact contribute). No doubt illustrations of such savings of costs could be multiplied: another obvious one is the cost of proving the existence of copyright which has not had to be undertaken more than once.' 5 Because of his concerns about these matters, Lindgren J stood over the issue of costs to a later date. His Honour did not in fact deal with costs at that time. I was asked to do so and I have heard submissions from counsel on the issue. 6 After delivery of Lindgren J's judgment, the applicants reached agreement with two respondents, Unsound Records Pty Limited and Mr Nyavor. Final orders were made in relation to those respondents. Therefore, I am concerned only with the quantum of damages and costs payable by the remaining seven respondents, Mr Miyamoto, Mr Pacheco, Mr Papalii, Mr Croft, Mr Garcia, Mr Sitoa and Minesto. I will use the term 'the respondents' to refer only to those respondents. The present hearing 7 At the hearing before me, Mr Richard Cobden of counsel appeared for the applicants and Mr David Elliott for each of the respondents other than Mr Garcia. Mr Garcia did not appear. However, as I was satisfied that he had been notified of the hearing date, I made an order, under Order 32 rule 2(1)(d) of the Federal Court Rules, that the hearing proceed notwithstanding his absence. 8 The applicants have elected to seek an award of damages rather than an account of profits. Their primary submission is that damages should be assessed under s 116, rather than s 115(2), of the Copyright Act 1968 (Cth) ('the Act'). However, in either event, they seek an award of additional damages under s 115(4) of the Act. It is desirable to set out the terms of ss 115 and 116: '115 (1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright. (2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits. (3) Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not. (4) Where, in an action under this section: (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; and (ia) the need to deter similar infringements of copyright; and (ib) the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and (ii) whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and (iii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iv) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances. 116 (1) The owner of the copyright in a work or other subject-matter may bring an action for conversion or detention in relation to: (a) an infringing copy; or (b) a device (including a circumvention device) used or intended to be used for making infringing copies. (1A) In an action for conversion or detention, a court may grant to the owner of the copyright all or any of the remedies that are available in such an action as if: (a) the owner of the copyright had been the owner of the infringing copy since the time the copy was made; or (b) the owner of the copyright had been the owner of the device since the time when it was used or intended to be used for making infringing copies. (1B) Any relief granted by a court in an action for conversion or detention is in addition to any relief that the court may grant under section 115. (1C) A court is not to grant any relief to the owner of the copyright in an action for conversion or detention if the relief that the court has granted or proposes to grant under section 115 is, in the opinion of the court, a sufficient remedy. (1D) In deciding whether to grant relief in an action for conversion or detention and in assessing the amount of damages payable, the court may have regard to the following: (a) the expenses incurred by the defendant, being a person who marketed or otherwise dealt with the infringing copy, in manufacturing or acquiring the infringing copy; (b) whether the expenses were incurred before or after the infringing copy was sold or otherwise disposed of by the defendant; (c) any other matter that the court considers relevant. (1E) If the infringing copy is an article of which only part consists of material that infringes copyright, the court, in deciding whether to grant relief and in assessing the amount of damages payable, may also have regard to the following: (a) the importance to the market value of the article of the material that infringes the copyright; (b) the proportion the material that infringes copyright bears to the article; (c) the extent to which the material that infringes copyright may be separated from the article. (2) A plaintiff is not entitled by virtue of this section to any damages or to any other pecuniary remedy, other than costs, if it is established that, at the time of the conversion or detention: (a) the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject-matter to which the action relates; (b) where the articles converted or detained were infringing copies - the defendant believed, and had reasonable grounds for believing, that they were not infringing copies; or (c) where an article converted or detained was a device used or intended to be used for making articles - the defendant believed, and had reasonable grounds for believing, that the articles so made or intended to be made were not or would not be, as the case may be, infringing copies.' 9 It has not been suggested that any of the respondents were unaware that their acts constituted infringement of the applicants' copyright. Consequently, neither s 115(3) or s 116(2) applies to this case. The essential facts 10 The findings of Lindgren J relate to six CDs compiled and manufactured by one or more of Mr Miyamoto, Mr Pacheco, Mr Papalii, Mr Croft and Mr Garcia from sound recordings in which one or another of the applicants owns the copyright ('the compilation CDs'). These five respondents all work as disc jockeys providing popular music in venues such as nightclubs, hotels and clubs. The compilation CDs were each given a title. Details of the respondents who made and manufactured copies of the compilation CDs, and the approximate number of copies distributed in each case, are as follows: (i) Bizarre Ride - Miyamoto and Pacheco (150 copies); (ii) Black Label Limited - Miyamoto and Pacheco (150 copies); (iii) Black Label II - Miyamoto and Pacheco (650 copies); (iv) Black Label Vol 3 - Miyamoto and Pacheco (150 copies); (v) Summer Jamz 2002 - Papalii (500 copies); and (vi) Most Wanted Allstars Showtime - Papalii, Croft and Garcia (500 copies). 11 In each case, the compilation CDs were made to enable the maker or makers to use them in musical presentations by the maker, or one of the makers, acting as a disc jockey. However, it would not have been necessary to make so many copies of the compilation CDs for this purpose. The purpose of making many copies was to enable them to be given to audience members, thereby assisting the popularity of the disc jockey, or to be sold to members of the public at prices between $10 and $15 each. 12 Some of the compilation CDs were further reproduced, and copies sold to members of the public, by other unknown persons. The number of further reproduced CDs is not known. 13 There is no evidence that Mr Sitoa was involved in the creation or copying of any of the compilation CDs. He was included as a respondent because he was, and is, a director of Minesto and the manager of the retail business it conducts under the name 'Anthem Records'. Anthem Records maintains a website upon which it offered for sale three of the compilation CDs: Bizarre Ride, Black Label Limited and Most Wanted Allstars Showtime. The website quoted a price of $18 per copy. According to Mr Sitoa, and there is no other evidence on the point, only about 12 copies of the compilation CDs were sold in this way. Mr Sitoa asserts, and again there is no contrary evidence, that none of the compilation CDs was ever sold at Anthem Records' shop. Ordinary damages 14 Evidence adduced on behalf of the applicants satisfies me it is unlikely that any of the applicants would have granted a licence to any of the respondents to reproduce its copyright sound recordings on a compilation CD. For this to happen, it would have been necessary for the particular applicant to have obtained the approval of the relevant performing artists. The evidence establishes that approval is frequently denied and that it is particularly likely that approval would be denied for reproduction in a disc jockey compilation. It follows that it would be inappropriate for me to assess damages, under s 115(2) of the Act, on the basis of assumed licences. 15 Mr Elliott did not suggest it was inappropriate to assess damages on the basis provided by s 116 of the Act. Nor did he dispute the figure of $11, the average price at which copies of the compilation CDS were supplied to retailers, advanced by Mr Cobden. However, he submitted Mr Cobden had underestimated the costs incurred in producing copies of the compilation CDs, when he allowed only 50 cents each for this purpose. Mr Elliott suggested a more appropriate allowance would be $3 to $4 per unit. 16 I agree with Mr Elliott that an allowance of 50 cents is inadequate. There is evidence that it is now possible to purchase blank CDs for 50 cents each. However, there is also evidence that the price has fallen in recent years and that, at the time of the relevant copyright infringements, the cost was closer to one dollar. Moreover, the respondents incurred the cost of purchasing CD cases - apparently about one dollar each - and printing CD covers. Although it is impossible to be precise, it seems reasonable to allow $2.50 per unit by way of deduction from the assumed price of $11. 17 Applying the rate of $8.50 per unit to the numbers of copies made of the compilation CDs, set out in para 10 above, it is appropriate to assess the damages to be allowed under s 116 against Mr Miyamoto, Mr Pacheco, Mr Papalii, Mr Croft and Mr Garcia as follows: (i) to (iv) Miyamoto and Pacheco - a total of 1,100 copies at $8.50 = $9,350; (v) Papalii - 500 copies at $8.50 = $4,250; and (vi) Papalii, Croft and Garcia - 500 copies at $8.50 = $4,250. 18 In cases (i) to (iv) and (vi), where more than one respondent was involved in the infringement, all concerned respondents should be made jointly and severally liable for the stipulated amount. 19 Similarly, joint and several liability should be imposed on Mr Sitoa and Minesto, pursuant to s 116 of the Act, in respect of the 12 copies of the compilation CDs sold through Anthem Records' website. As there is no evidence that Anthem Records incurred any expenditure in connection with the supply of the CDs, I will assess the damages by reference to the selling price of $18. Multiplying that figure by 12 results in a figure of $216. Additional damages 20 Notwithstanding a contrary submission by Mr Elliott, I think this is a case in which to award additional damages under s 115(4) of the Act. 21 Mr Elliott emphasised that none of the respondents has breached any of the injunctive orders made in this case. Those orders go back to ex parte orders made by Allsop J on 12 December 2003, the date of institution of the proceeding. Each of the participating individual respondents - that is, all the respondents except Mr Garcia - has expressed regret about the copyright infringements and asserted he would not infringe again. Mr Elliott also pointed out that none of the respondents filed a Defence or disputed the facts set out in the Notice to Admit Facts served on him or it. He said this facilitated proof of the applicants' case and an early resolution of the proceeding. Mr Elliott noted that many of the compilation CDs were given away to audience members and that the evidence suggests the respondents' financial benefit was minimal. 22 Over the objection of Mr Cobden, on grounds of irrelevance, I permitted Mr Elliott to adduce some evidence as to the financial circumstances of Mr Miyamoto, Mr Pacheco, Mr Papalii and Mr Croft. That evidence indicated that each of these respondents earns a fee of between $150 and $400 for each session at which he works as a disc jockey and that they conduct up to four presentations per week. Each of these men has family financial responsibilities. I have no reason to believe any of them has substantial assets or sources of income. As Mr Elliott submits, any damages or costs orders will bear heavily upon them. 23 Section 115(4) of the Act sets out the criteria to be considered by a court in determining whether to award additional damages. The only criterion that might include a respondent's financial position is that set out in s 115(4)(b)(iv): 'all other relevant matters'. Mr Elliott submits s 115(4) has a punitive element and it is, therefore, appropriate for a court to have regard to the effect of any award, or the award of any particular amount, on the person ordered to pay the damages. I am inclined to think this is correct. Accordingly, I am prepared to have regard to the respondents' financial circumstances in considering the quantum of the additional damages to be awarded against them. However, I am not persuaded that those circumstances dictate refusal of an award of additional damages, even when considered in conjunction with the other matters mentioned by Mr Elliott. 24 The infringements of copyright found by Lindgren J, and now conceded by all the participating respondents, were infringements deliberately made for their ultimate financial gain. In each case, the respondent was aware that his act constituted an infringement of copyright. He flagrantly disregarded the applicants' rights. The evidence suggests the existence, amongst some people in the popular music industry, of a culture of disregard for copyright restrictions. This culture might be based on a perception that sound recording companies are wealthy multinational companies and an attitude that they are, therefore, fair game. Even if the perception is factually correct, the attitude overlooks the circumstance that copyright piracy also deprives performing artists of their legitimate reward. Performing artists may not be wealthy; indeed, they may be financially straitened. They may be significantly dependant upon royalty income. Wholesale copying, in disregard of copyright, may rob them of an important part of that income. 25 As Mr Cobden pointed out in his submissions, each of the five disc jockey respondents has a high profile in his industry, working not only in Sydney but also in other Australasian cities. I accept that each of them is likely to be regarded as a role model for others. 26 If the respondents' infringements of copyright had been limited to creation of one or more of the compilation CDs for use only by the respondent himself, so as facilitate his presentation on a particular occasion, I would have taken a less serious view of the infringements. If that had been the case, it would be difficult to see that the applicants had been injured by the infringement; indeed, they might have benefited from audience members being exposed to particular sound recordings and, thereby, influenced to buy a particular album or albums from a legitimate retailer. However, the respondents went further than to produce the compilation CDs for their own use. They gave away, or sold, hundreds of copies of the compilation CDs, thereby reducing the likely demand for legitimate copies of the copyright sound recordings. The free distribution was intended to advance the disc jockey's popularity and, therefore, his career. The sales were for the disc jockey's financial advantage. Under either scenario, the respondents knowingly trampled on the applicants' rights for their own ultimate financial gain. 27 It is true that none of the respondents filed a Defence or disputed the Notice to Admit Facts. However, this circumstance must be considered against the fact that the respondents also failed to take action to achieve an early, and inexpensive, resolution of the proceeding; for example, by consenting to final orders. On balance, I do not think the history of the proceeding much advances the respondents' case. 28 It is necessary for me to make an order which will mark the Court's disapproval of the respondents' infringing actions and also act as a deterrent to the respondents and others in their position. Were it not for the impression I gained as to the financial position of each of the individual participating respondents and, to some extent, their expressions of regret (which, with one exception, I accept), I would have adopted a higher scale of additional damages, probably producing figures about double the amounts I intend to make. In all of the circumstances, however, I think it is appropriate to make orders for payment of additional damages, under s 115(4) of the Act, as follows: (i) Miyamoto, Pacheco - $10,000 each; (ii) Papalii - $9,000; (iii)Croft - $2,500; (iv) Garcia - $5,000; and (v) Sitoa - $4,000. 29 Mr Miyamoto and Mr Pacheco attract the highest award of additional damages by reason of the fact that they were responsible for the creation of four of the six compilation CDs. They produced a total of 1,100 infringing copies. 30 Mr Papalii was solely responsible for making only one of the compilation CDs, Summer Jamz 2002, but he created 500 copies of it. He was also one of the three people responsible for another of the compilation CDs, Most Wanted Allstars Showtime. Moreover, in the light of one piece of evidence, I cannot accept his professed regret. I refer to an interview he gave to a website, www.GrooveOn.com.au, in November 2003, several months after the delivery of Lindgren J's judgment on liability, in which he used crudely offensive language to express his opinion about disc jockeys who strive 'to get a Legit CD Deal'. He added '[w]e are the real mix CD kings'. If I had been satisfied of Mr Papalii's regret, I would have awarded $7,500 additional damages against him, rather than $9,000. 31 Mr Croft's only involvement was as one of three persons who compiled Most Wanted Allstars Showtime. This infringement was significant; 500 copies of the compilation CD were made. However, I take into account the fact that others were involved, as well as Mr Croft's financial position and his expression of regret. 32 As Mr Garcia chose not to participate in the hearing, I have no evidence as to his financial position. I also have no basis for concluding that he regrets his actions. Consequently, it is appropriate to make a higher award of additional damages against him than against Mr Croft, with whom his position is otherwise comparable. 33 Mr Sitoa's case is somewhat different. He did not create, or make any copies, of the compilation CDs, but he was responsible for three of them being advertised on a website with the possibility of extensive ensuing sales. When Mr Sitoa took this action, he knew he was infringing the applicants' copyright. In the event, it appears that only 12 copies were sold. Nonetheless, the infringement was flagrant and serious. It ought to attract a significant award of additional damages. However, I take into account Mr Sitoa's financial position and expression of regret. 34 I do not award additional damages against Minesto. This would be a duplication. Mr Sitoa was Minesto's mind. The company made no decision, and took no action, other than through the decisions and actions of Mr Sitoa. Costs 35 I agree with Lindgren J that this is an appropriate case for the Court to make a lump sum assessment of costs. Counsel differ markedly in relation to the appropriate order. 36 Mr Cobden's primary submission is that I should adopt a figure representing 60% of the total costs incurred by the applicants. The proportion of 60% reflects Mr Williams' evidence before Lindgren J that taxed party/party costs generally amount to about 60% of the actual costs incurred by a party. Like Lindgren J, I see no reason to doubt this general statement. However, I note that the figure of $104,029.54, given to his Honour as an estimate of the applicants' taxed costs up to the date of judgment on liability, has now been revised downwards, to $94,707.37. Mr Williams has realised his earlier gross figure involved some double-counting. 37 Mr Williams estimated that the total amount of 'taxed' costs incurred since the judgment on liability would amount to $128,488.07. This would give a grand total of 'taxed' costs of $223,195.43. The effect of Mr Cobden's submission is that I should order that the respondents be jointly and severally liable to pay this amount. 38 As an alternative submission, Mr Cobden suggested that, while making an order imposing joint and several liability, I might cap any individual's contribution at, say, one-third or one-quarter of the whole amount. 39 Mr Cobden asked that any order for costs be made in favour of Universal alone, this apparently being the effect of an agreement between the applicants. 40 Mr Elliott adopted the concern of Lindgren J about an order that might result in one of the respondents being obliged to pay the whole of the applicants' costs, with a possibly worthless right to recover a proportion of those costs from other respondents. He suggested the Court should specify the individual liability of each respondent. This would leave the applicants, rather than a paying respondent, to bear the risk of non-recovery from any particular non-paying respondent. 41 Mr Elliott also argued that the Court should not attempt to ensure that the costs orders made in favour of the applicants covered the whole of their taxable costs. While he did not dispute that the applicants had incurred the costs stated by Mr Williams, he said these were 'completely disproportionate to the commercial threat posed'. He said the proceeding was brought as 'part of an anti-piracy campaign'; it was intended to, and will, have a general educative effect. Mr Elliott referred again to the respondents' financial positions. 42 Mr Elliott also drew attention to Order 62 rule 36A(1) of the Federal Court Rules which provides, subject to any different order in a particular case, that the costs ordered to be paid to a party who is awarded judgment for less than $100,000, as is the situation in the present case, will be reduced by one-third of the amount otherwise allowable. The application of that subrule would reduce the applicants' recovery to $148,796.95 (two-thirds of $223,195.43). 43 Mr Cobden argued that I should order that Order 62 rule 36A(1) not apply to this case. He said that, at the date of institution of this proceeding, the Federal Magistrates Court had no jurisdiction in copyright cases, so his clients were obliged to litigate in this Court. That statement overlooks the existence of State jurisdiction in copyright matters. It also misunderstands the primary rationale of Order 62 rule 36A(1). The subrule was not inserted in order to punish applicants for coming to this Court when they might have gone elsewhere. It was inserted in recognition of the fact that the rates of remuneration adopted in the Federal Court Scale of Costs for Work Done and Services Performed are high rates, thought to be appropriate for work in complex, high-value cases, but that their full application is not necessarily appropriate in simpler, lower-value cases. The subrule was intended to improve the proportionality between the amount of costs required to be paid by a party in a particular case and the outcome of the case. Where less than $100,000 is recovered, prima facie the subrule should be applied, without its application being regarded as a criticism of anybody. 44 The bills of costs rendered to the applicants by their solicitors are in evidence. I have looked through them. I accept that the stated work was performed. However, having considered the bills of costs and the applicants' affidavits, I am of the opinion that the latter are more elaborate than would have been necessary, if the only purpose of the proceeding was to obtain relief against these particular, non-defending, respondents. Perhaps, as Mr Elliott suggested, this was because of a perception about the educative effect of the case. If that was so, the action is perhaps understandable, but it ought not to be at the respondents' expense. 45 In the result, I think it is appropriate for me to make separate lump sum costs orders against the respondents totalling $90,000. The applicants will bear the risk of non-recovery of any portion of that sum. This is as it should be. Although there was co-operation in infringement between some of the respondents, the evidence does not suggest they all acted in concert. There is no reason why any of them should be regarded as being responsible for all the others. 46 There is no valid distinction between the respondents in relation to their responsibility for the quantum of costs incurred by the applicants. However, there is a clear distinction between them in relation to the extent of their infringing activity and, consequently, what must have been the applicants' perceived necessity to embark on this proceeding. On the one hand are Mr Miyamoto, Mr Pacheco and Mr Papalii, each of whom was involved in the creation and distribution of copies of more than one of the compilation CDs; on the other hand are the remaining respondents, who were more peripherally involved. I think each of the first three respondents should pay costs of $20,000 and the remaining respondents $10,000. Minesto and Mr Sitoa should be jointly and severally liable for a single sum of $10,000. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Solicitor for the Respondents: Stephen Smart & Associates