FEDERAL COURT OF AUSTRALIA

JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20

ORDERS

THE COURT ORDERS THAT:

1.    The parties submit to the Court by 1.00pm on Tuesday, 8 March 2016 proposed orders to be made in disposition of the appeal and cross-appeal having regard to the reasons for judgment published today.

2.    As to the declaration to be made concerning the subsistence of copyright (and the ownership of that copyright) in versions of the Quik Series Software (“QSS”) released up to and including 1 November 2011 the subject of the cross-claim of the cross-appellants before the primary judge, and the variations to be made to the injunction orders 3 and 4 made by the primary judge on 19 December 2014, the cross-appellants are directed to prepare and serve on the appellants a table identifying the versions of QSS released up to and including 1 November 2011 the subject of that cross-claim so as to enable the parties to submit to the Court by 1.00pm on Tuesday, 8 March 2016, together with other orders in disposition of the appeal and cross-appeal, a proposed formulation of the declaration and proposed variations to Orders 3 and 4 of the primary judge which incorporate an agreed table of the versions of QSS if agreement can be reached as to the content of the table.

3.    In the event that agreement is unable to be reached as to the content of the table, the parties are directed to submit to the Court by 1.00pm on Tuesday, 8 March 2016 their respective proposed version of the table.

4.    The proceeding is adjourned to 9.30am on Friday, 11 March 2016 for the making of final orders.

5.    The parties file and serve short submissions on the question of costs by midday on Thursday, 10 March 2016, such submissions from each party to be limited to no more than four pages.

6.    The costs of and incidental to the appeal are reserved for determination having regard to the submissions of the parties on costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    This is an appeal and cross-appeal from orders made by the Supreme Court of New South Wales.

2    The appellants are JR Consulting & Drafting Pty Limited (“JRC”), Hayes Steel Framing Systems Pty Limited (“HSFS”), Mr Gianni Pacione and Steel Framing Systems International Pty Limited (“SFSI”). The respondents to the appeal are Mr Robert Cummings, Tanmari Pty Ltd (“Tanmari”) and FrameCAD IP Limited (“FIPL”). Mr Cummings and Tanmari have filed submitting notices in the appeal.

3    The cross-appellants are Mr Cummings, Tanmari and FIPL, and the cross-respondents are JRC, HSFS, Mr Pacione and SFSI.

4    JRC and HSFS were the plaintiffs in the action in the Supreme Court of New South Wales and the defendants were Mr Cummings, Tanmari and FIPL. The plaintiffs sought various forms of relief against the defendants, including declarations, orders for specific performance, injunctions, damages at common law, and damages or compensation pursuant to ss 236 and 237 of the Australian Consumer Law. FIPL and Tanmari brought a cross-claim against JRC, HSFS, SFSI, Mr Pacione and a company called FrameCAD Limited (“FrameCAD”). The cross-claimants also sought various forms of relief, including declarations, injunctions, damages under s 115 of the Copyright Act 1968 (Cth) (“Copyright Act” or “the Act”) or an account of profits, orders for delivery up of materials, damages pursuant to s 236 of the Australian Consumer Law and damages pursuant to s 126 of the Trade Marks Act 1995 (Cth).

5    At the centre of the various claims made by the parties is the ownership and control of software known as Quik Series Software (“QSS”). QSS is used in the design and manufacture of cold form metal light gauge wall frames, trusses, flooring and roofing used in the construction of residential and commercial buildings. The primary judge described the composition of QSS in the following terms (at [6]):

Substantial evidence was led as to the history and functionality of QSS. By about 1996 or 1997, QSS included data files and software and was able to operate with rollforming machines, and included a computer numeric control file to permit the transfer of instructions between a computer and a roll form machine which contained the details necessary to produce the relevant steel item (Cummings 4.12.12 [16]-[21]), tables to calculate the placement of each structure in the relevant steel framework (Cummings 4.12.12 [24]) and "look-up" tables or data files containing the dimensions and other relevant information for each steel item within that framework (Cummings 4.12.12 [24]). Several user manuals in respect of the software and its applications are in evidence. After a user selects the relevant module which it wishes to use, the user can enter settings for, for example, applicable design standards and other information, and QSS is then used with third party computer aided design ("CAD") software to draw the roof, walls or floors, as the case may be, in layout form on the computer screen. The QSS software in turn applies the user's settings to that drawing to generate a drawing in elevation form and information about that drawing, and generates a file containing data that will be used to manufacture the relevant steel items.

6    A computer program that generates licence keys that activate the QSS for sub-licensees is also in issue on the claims made by the parties.

7    On 19 July 2013, Bergin CJ in Eq made orders in the action separating questions of liability and quantum, and the orders from which the appeal and cross-appeal are brought relate only to the question of liability.

8    The primary judge handed down his reasons on 12 September 2014: JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1252. He made orders on 19 December 2014. For present purposes, the relevant orders are as follows:

THE COURT DECLARES THAT:

1.    By 11 August 2004 the ‘Deed of Agreement’ dated 28 July 2002 (2002 Agreement) between the First Plaintiff (JR Consulting & Drafting Pty Ltd) and the First Defendant (Robert Cummings) had been abandoned.

2.    The purported termination of the licence agreement between the Second Plaintiff (Hayes Steel Framing Systems Pty Ltd) and the Second Defendant (Tanmari Pty Ltd) dated 11 August 2004 (2004 Agreement) on 24 January 2012 was invalid.

THE COURT ORDERS THAT:

3.    The Third Cross Defendant (Steel Framing Systems International Pty Ltd) be permanently restrained from, without the express written licence of the Third Defendant/First Cross Claimant (FrameCAD IP Limited), whether by itself, its agents, its officers, its employees or otherwise:

a.    reproducing in a material form;

b.    communicating to the public; and

c.    authorising the doing of a or b above,

the whole or a substantial part of versions 11.176, 11.406 or 11.604 of a suite of computer programs known as Quick Series Software (QSS).

4.    Each of the Second Plaintiff/Second Cross Defendant (Hayes Steel Framing Systems Pty Ltd) and the Fourth Cross Defendant (John Pacione) in his personal capacity, be permanently restrained, whether by themselves, their agents, their officers, their employees or otherwise, from authorising, without the express written licence of the Third Defendant/First Cross Claimant (FrameCAD IP Limited) or its predecessors in title, the:

a.    reproduction in a material form; or

b.    communicating to the public,

of the whole or a substantial part of versions 11.176, 11.406 or 11.604 of QSS.

5.    The Third Cross Defendant (Steel Framing Systems International Pty Ltd) be restrained, whether by itself, its agents, its officers, its employees or otherwise, from representing in trade and commerce that it is permitted to license QSS to third parties.

6.    Each of the First Plaintiff/First Cross Defendant (JR Consulting & Drafting Pty Ltd) and the Third Cross Defendant (Steel Framing Systems International Pty Ltd), whether by itself, its agents, its officers, its employees or otherwise, be permanently restrained from using or authorising others to use the Licence Key Generator (as defined in paragraph [77] of the Cross Claim filed 24 May 2013) except to the extent that the First Plaintiff/First Cross Defendant (JR Consulting & Drafting Pty Ltd) uses the Licence Key Generator for the customers set out in paragraphs 4 and 5 of the affidavit of John Pacione sworn 9 December 2014.

7.    The Second Plaintiff/Second Cross Defendant (Hayes Steel Framing Systems Pty Ltd), whether by itself, its agents, its officers, its employees or otherwise, be permanently restrained from disclosing or providing to any third party the Licence Key Generator (as defined in paragraph [77] of the Cross Claim filed 24 May 2013).

9    The primary judge also made orders dealing with election, quantum and delivery up, but it is not necessary for us to set those orders out.

10    There was a dispute between the parties as to the costs of the action and, on 26 February 2015, the primary judge made the following orders in the action:

1.    The Plaintiffs/Cross-Defendants pay to the Defendants/Cross-Claimants 75% of the costs of and incidental to the hearing as to liability in respect of each of the Plaintiffs’ Claim and the Cross-Claim (Costs) as follows:

a.    The Costs to include the costs of and incidental to the hearing on 2-6 and 10-11 June on liability, 22 October 2014 as to the form of the orders and 10 December 2014 as to costs; and

b.    The liability to pay the Costs is to be borne by the Plaintiffs/Cross-Defendants as follows:

i.    Each of JR Consulting & Drafting Pty Ltd (the First Plaintiff/First Cross-Defendant), Hayes Steel Framing Systems Pty Ltd (the Second Plaintiff/Second Cross-Defendant) Steel Framing Systems International Pty Ltd (the Third Cross Defendant) is jointly and severally liable for the payment of the Costs; and

ii.    John Pacione (the Fourth Cross Defendant) is jointly and severally liable only for payment of an amount up to and not exceeding 15% of the Costs.

(see JR Consulting & Drafting Pty Ltd & Anor v Cummings and Ors [2015] NSWSC 10).

11    The appeal and cross-appeal lie to this Court by reason of s 135AQ(2) of the Copyright Act. A judge of this Court granted leave to appeal on 25 March 2015.

12    The facts and issues determined by the primary judge are detailed and complex. A number of them are not in issue on the appeal and cross-appeal. Rather than setting the facts out at this stage, we think that it will assist in the understanding of these reasons if we set out a brief summary of the relationship between the parties and a statement of the key events, state the issues raised by the appeal and the cross-appeal and then deal with the facts when we address each issue.

The Relationship between the Parties and the Key Events

13    JRC, HSFS and SFSI are companies associated with Mr Pacione. He is a director of each of the companies. At all material times, Mr Pacione had control of JRC. HSFS was incorporated on 3 February 2003 and from that date until 30 September 2008, Bradbury International Inc (“Bradbury International”) owned 80% of the shares in HSFS and JRC owned the other 20% of the shares. Bradbury International was a manufacturer of rollforming machines and it owned a New Zealand company, Hayes International Ltd, which supplied rollforming machines manufactured in New Zealand. There was a Shareholders Agreement between Bradbury International and JRC which was executed in March 2004. On or about 30 September 2008, JRC became the sole shareholder of HSFS. SFSI was incorporated in Australia in October 2007 and, at all material times, JRC has been the sole shareholder of the company.

14    JRC and HSFS conducted and SFSI now conducts, at least as to new clients, a business involving the supply of equipment to manufacture steel frame structures for residential and commercial construction and associated software. Mr Pacione described the business conducted by the appellants in the following terms:

The Plaintiffs are in the business of designing and supplying manufacture systems for light gauge steel framing, utilising and integrating computer aided design software (“CAD”), computer aided manufacturing software (“CAM”), machinery and engineering data for the manufacture of light gauge steel wall panels, roof trusses and floors, typically used in residential, commercial and industrial buildings. As part of that work both Plaintiffs licence various software programs to their customers, including CAD software.

15    Mr Cummings developed QSS. He was the author and original owner of copyright in QSS and he would be the owner of copyright in any updates in QSS when copyright came into existence. There was an admission that Mr Cummings made QSS and the end user manuals and other documentation for use with QSS and updates and new releases of QSS and user documentation.

16    Tanmari was incorporated on 11 November 2003 and it is controlled by Mr Cummings. The company took over his business. On 2 November 2011, Mr Cummings and Tanmari assigned their rights in QSS to FIPL. The primary judge said (at [25]) that Mr Cummings could not be regarded as independent of FIPL, “where he is under a continuing retainer to provide services to FIPL”.

17    Mr Cummings and JRC entered into a Deed of Agreement dated 28 July 2002 (“2002 Agreement”) for the transfer by Mr Cummings to JRC of a non-exclusive “interest” in respect of QSS. This is the agreement which is the subject of the first declaration made by the primary judge.

18    The 2002 Agreement is between Robert Cummings & Associates as vendor and JR Consulting as purchaser. “The Goods” are defined in cl 1 as follows:

means a right to the Software package referred to as Quik Series Software and includes Quik Roof, Quick [sic] Truss, Quik Frame and Quik Floor and also includes the Know How, methodology and trade secrets necessary for the implementation of “The Goods”.

There is also a definition of the “The Materials” which is as follows:

means all books, manuals, specifications, programming source codes, instructions whether in a written or digitized form relating to “The Goods”.

19    Clause 2 is the transfer clause and it provides that, subject to cl 4, Mr Cummings will transfer to JRC an interest in and right to “The Goods”.

20    Clause 3 provides for the payment of a deposit of $7,500 upon execution of the agreement and cl 4 provides that JRC will pay Mr Cummings a further $15,000 “on completion of additional development as specified by The Purchaser” and a further $7,500 “on installation/delivery of “The Goods” as full and final payment on ‘The Goods’”.

21    Clause 5 places an obligation on JRC with respect to consultation for any application, adaptation or modification of “The Goods”. JRC is to give Mr Cummings the first option in relation to such work providing the consultation is supplied by Mr Cummings at standard reasonable commercial rates. The clause goes on to provide that any costs incurred for “any application, modification of ‘The Goods’” as instigated by JRC will be at the expense of JRC.

22    Clause 6 provides in the heading of the clause for obligations of Mr Cummings. It is in the following terms:

6.    Obligations by Robert Cummings

Subject to Section 5, Instruction Manuals and staff training as required to establish an operational Software system as being used by an operator at any location required.

All relevant “Materials” pertaining to the design and development of “The Goods”, including functional specifications and source codes.

Complete and updated setup disks as required to load the latest, complete and operational version of “The goods”.

23    There are five recitals in the 2002 Agreement. Recital A identifies Mr Robert Cummings as the developer of “The Goods” who has copyright and proprietorship of “The Goods”. Recital B states that the purchaser is desirous of acquiring an interest in “The Goods” for its use in the development and application of steel construction frame manufacturing systems. Recital C provides that the agreement is for the non-exclusive sale of an interest to “The Goods” and does not prevent the vendor from selling, assigning, transferring or licensing “The Goods”. Recital D deals with payment and identifies the sum of $25,000 as the consideration for the vendor selling, assigning and transferring to the purchaser “a non-exclusive right, title and interest to ‘The Goods’”. Finally, Recital E identifies the sum of $5,000 for further development of “The Goods” to meet the design specification supplied by the purchaser, such development to be exclusive to the purchaser.

24    In July 2003, Mr Cummings, HSFS and a company called NBR (Australia) Pty Ltd entered into an agreement under which Mr Cummings granted a software licence to HSFS whereby HSFS was authorised to grant sub-licences of QSS (“Stramit Agreement”). NBR (Australia) Pty Ltd was a company associated with Mr Nicholas Roulant who is a consulting engineer.

25    On 25 February 2004, Mr Cummings and Tanmari granted HSFS an exclusive licence, inter alia, to “use and exploit” QSS for the territory of Australia (“Exclusivity Agreement”). The Exclusivity Agreement was executed in the context of discussions between HSFS and Stramit, a customer, to provide Stramit with exclusivity. Those discussions ended in about July 2004. The licence included a licence of copyright in QSS. The parties to the Exclusivity Agreement terminated the agreement on 22 February 2005 with effect from 31 March 2005.

26    Mr Cummings sent an undated letter to Mr Pacione on 1 March 2004 under the letterhead of Quik Series Software and addressed “To Whom It May Concern” as follows:

This is to certify that JR Consulting & Drafting Pty Limited (ACN 081 252 691) have been given non exclusive rights to on sell Quick Series Software as defined under the “Deed of Agreement” dated 28thth [sic] July 2002.

While not explicitly stated in this agreement, JR Consulting & Drafting Pty Limited (ACN 081 252 691) has also been granted a non-exclusive right to market Quik Series Software under the HayesCAD banner.

27    There was an agreement entered into between JRC, Mr Pacione and HSFS dated 12 March 2004 and entitled “Technology Licence Agreement”. It is not necessary to discuss the details of the agreement at this stage.

28    On 11 August 2004, Tanmari and HSFS executed an agreement entitled “QSS Software Licence Agreement” (“2004 Agreement”) whereby Tanmari granted to HSFS a perpetual non-exclusive licence in relation to QSS. Clause 4.1 of the 2004 Agreement envisaged the execution of a development agreement between the parties and that in fact occurred on 11 August 2004. This is the agreement which is the subject of the second declaration made by the primary judge.

29    Under the agreement, Tanmari granted HSFS a non-exclusive, perpetual licence to use, copy, market, resell and promote “the Software” in the Territory. The consideration for the grant of the licence was the sum of $1.00 paid by HSFS to Tanmari.

30    The “Software” was defined as follows:

… the software package referred to as Quik Series Software and includes Quik Roof, Quick [sic] Truss, Quik Frame and Quik Floor owned by the Licensor and also includes the know how, methodology and trade secrets necessary for the implementation of the Software.

31    The “Territory” was defined to mean the world other than Australia. The definition of the “Territory” was subject to an important qualification. Upon the termination or expiration of the Exclusivity Agreement then, except where the Exclusivity Agreement was terminated or expired because of a breach by HSFS, the “Territory” under the 2004 Agreement included Australia.

32    The rights conferred on HSFS included the right to grant to its customers the right to use the software for their internal business purposes only, subject to a proviso which applied for a period of seven years after the agreement. During that period of seven years, HSFS shall under its agreements with its customers limit the number of persons within the customer’s organisation who will be authorised to use the software and for each authorised person HSFS was obliged to pay Tanmari the sum of $1,000.00. Payment was to be made by HSFS to Tanmari within 30 days of the person being authorised. HSFS was granted the right to provide to each authorised person all New Releases or Updates as and when they became available without being obliged to make any further payment to Tanmari. A “New Release” was software developed by Tanmari for general release to its customers and primarily to provide an extension, alteration, improvement or additional functionality of the Software and an “Update” was software produced by Tanmari primarily to overcome defects in the Software. The agreement provides that after the seven year period has expired, HSFS was entitled to grant to its customers the right to use any number of copies of the software for their internal business purposes only and was able to provide such customers with all New Releases and Updates without being obliged to make any further payments to Tanmari. The relevant clause in the 2004 Agreement was in the following terms:

2.    LICENCE OF THE SOFTWARE

…

2.2    Right to Use

The Licensee shall be entitled to grant to its customers the right to use the Software for their internal business purposes only, provided that for the period of seven years following the date of this Agreement only the following terms shall apply:

(a)    the Licensee shall under the terms of its agreements with such customers limit the number of persons within the customer’s organisation who will be authorised to use the Software;

(b)    for each person authorised by the Licensee to use the Software under paragraph (a) above the Licensee shall pay to the Licensor the sum of $1,000.00;

(c)    payments due under paragraph (b) above in respect of each authorised person shall be made within 30 days following the date such authorised person is first authorised by the Licensee to use the Software; and

(d)    the Licensee may provide to each person authorised by the Licensee to use the Software under paragraph (a) all New Releases or Updates as and when they become available and without being required to make any further payment to the Licensor under this clause 2.2.

For the avoidance of doubt, following the period of seven years after the date of this Agreement the Licensee shall be entitled to grant to its customers the right to use any number of copies of the Software for their internal business purposes only, and may provide such customers with all New Releases and Updates, without being obliged to make any further payments to the Licensor under this clause 2.2.

33    The 2004 Agreement provided that Tanmari was required to offer all New Releases and Updates to HSFS when they became available and without any further charge. It also provided that at the reasonable request of HSFS Tanmari was required to provide to HSFS with “all assistance and staff training, and copies of all information, documentation, authorisation-number generating software and other tools or materials relating to the Software (excluding source codes) reasonably necessary to enable [HSFS] to use, copy, market, resell and promote the Software”.

34    The 2004 Agreement provided for the provision of development services by Tanmari upon the request of HSFS and for the parties to enter into a Development Agreement which, as we have said, they did.

35    The 2004 Agreement provided for the parties to enter into an escrow agreement with a reputable escrow agent in relation to the source code of the Software and all Improvements (“Improvements” was defined to include, inter alia, any New Releases and Updates).

36    The 2004 Agreement provided that Tanmari could terminate the agreement where HSFS failed to pay the licence fee and such failure remained to be remedied for 21 days after receipt of a written notice from Tanmari. The agreement contained a dispute resolution clause which required the parties to endeavour to resolve a dispute expeditiously using informal dispute resolution techniques as defined. The termination clause in the 2004 Agreement was in the following terms:

8.    TERMINATION

8.1    Termination for breach by Licensee

The Licensor may terminate this document immediately at any time if the Licensee fails to pay the licence fee as set out in clause 3 of this document and such failure is not remedied within 21 days following receipt of a written notice from the Licensor requiring this non-payment to be remedied.

8.2    Consequences of termination

Upon termination under clause 8.1, the Licensee shall immediately cease to use, copy, market, resell and promote the Software, except that:

(a)    the Licensee may use, copy, market, resell and promote any copies of the Software already manufactured or being manufactured, or which it is under contract to provide to third parties;

(b)    the Licensee’s permitted users under clause 2.2 may continue to use the Software for their internal business purposes; and

(c)    any escrow agreement entered into between the parties under clause 5 shall be terminated.

37    The 2004 Agreement provided that neither party could assign or transfer its rights or obligations in the agreement or its rights, title and interest in the software without first obtaining the written consent of the other party, such consent not to be unreasonably withheld.

38    Metal Forming Technology Ltd was a predecessor of FIPL and, in September 2005, it entered into a memorandum of understanding with Mr Cummings. In May 2006, there were further discussions and dealings between FIPL and Mr Cummings.

39    SFSI was incorporated in October 2007 and the appellants’ case before the primary judge was that in 2009 JRC sub-licensed SFSI to use QSS exercising its (i.e., JRC’s rights) under the 2002 Agreement, and that SFSI in turn licensed the use of QSS to a number of its customers under contracts between SFSI and those customers.

40    In mid-September 2011, Mr Cummings and Tanmari on the one hand, and FIPL on the other, negotiated the sale of the interest in QSS to FIPL and a Purchase Agreement (“FIPL Purchase Agreement”) was executed on 31 October 2011 and announced by FIPL in mid-November 2011.

41    In December 2011, Tanmari and FIPL gave notice of breaches of the 2004 Agreement, being the failure to pay licence fees on licences granted by HSFS and SFSI. On 13 January 2012, HSFS gave a notice of dispute to Tanmari under cl 10 of the 2004 Agreement. On 24 January 2012, Tanmari purported to terminate the 2004 Agreement by a letter from its solicitors to HSFS’s solicitors.

42    It is convenient to note two further matters at this point. The primary judge found that between 1990 and November 2011, Mr Cummings developed and released more than 500 versions of QSS and created end user manuals and other documentation (at [314]). The primary judge found that after April 2009, SFSI commenced licensing QSS to new customers after Mr Pacione decided to cease to undertake new business in HSFS and instead commenced to undertake new business in SFSI.

43    Before leaving this section, we should record his Honour’s conclusions about the significance of the credibility and reliability of the witnesses who gave evidence before him. His Honour noted that a number of issues did not turn on assessment of the credit and reliability of witnesses. He was critical of Mr Pacione’s evidence on some topics. He formed a generally favourable view in relation to the evidence of Mr Cummings (at [21]-[26]).

A Statement of the Issues

44    The primary judge found that JRC’s rights under the 2002 Agreement (i.e., a non-exclusive licence) were restricted to QSS as it existed at the date of the agreement and did not include new releases and updates issued after that agreement. Furthermore, he held that the 2002 Agreement had been abandoned by 11 August 2004. Although it was not strictly necessary for him to do so, he held that JRC had not granted or transferred its rights under the 2002 Agreement in April 2009 or indeed at any other time. Each of these conclusions is challenged in the Notice of Appeal (Grounds 1 – 6). The relevance of the appellants’ challenge to these conclusions is as follows. If upheld, the appellants claim that SFSI has a defence to the claim of copyright infringement as do those appellants held liable as having authorised the infringement (i.e., HSFS and Mr Pacione).

45    The primary judge held that SFSI had infringed copyright in certain versions of QSS and that conclusion is reflected in the injunctions he granted against it (orders 3 and 5). He also held that HSFS and Mr Pacione had authorised the infringement and that is reflected in the injunction he granted against them (order 4). Each of those conclusions is challenged in the Notice of Appeal (Grounds 7 – 14) as is the conclusion that there had not been groundless threats of copyright infringement. In the context of the copyright infringement part of the case, we note at this stage that in their cross-appeal, the cross-appellants claim that the primary judge should have held that copyright subsisted in each version of QSS (Ground 10).

46    The primary judge found that the appellants had breached an obligation of confidence in relation to the Licence Key Generator and that is reflected in the injunctions he made in relation to that matter (orders 6 and 7). The appellants challenge the primary judge’s conclusion that there had been a breach of confidence (Grounds 15 – 17).

47    This is a summary of the issues raised on the appeal and the copyright infringement issue raised on the cross-appeal.

48    As to the cross-appeal, and bearing in mind that we have already identified the copyright infringement issue raised on the cross-appeal, the cross-appeal raises a challenge to his Honour’s conclusion that the 2004 Agreement had not been terminated. This conclusion is reflected in the second declaration made by the primary judge. His Honour found that there was no continuing breach of the 2004 Agreement giving rise to a right to terminate the agreement and, in any event, the agreement had not been terminated. Both these conclusions are challenged by the cross-appellants on a number of grounds (Grounds 1 – 8). There is also a challenge to one of his Honour’s conclusions concerning the proper construction of the agreement (Ground 9). The relevance to his Honour’s conclusions about the 2004 Agreement is as follows. HSFS was given certain rights to sub-license QSS under the 2004 Agreement. As his Honour noted in reasons he delivered on 1 December 2014, there was evidence before him that “HSFS now claims to be entitled to grant new licences under the 2004 Agreement” (JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1700 at [8]).

49    Finally, the cross-appellants challenge the primary judge’s orders as to costs, but only in the event that they are successful, in whole or part, on their cross-appeal (Ground 11).

2002 Agreement: grounds 1 to 6 of the notice of appeal

50    The primary judge rejected an argument by the appellants that the 2002 Agreement effected an assignment of copyright and that conclusion is not in issue on the appeal. His Honour held that JRC was given a non-exclusive licence in relation to QSS, but that the QSS was limited to the version of the software as at the date of the agreement.

51    The primary judge identified the relevant principles for the construction of a commercial contract. He referred to a number of cases, including the following authorities: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 per Gibbs J (as his Honour then was); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] per French CJ, Hayne, Crennan and Kiefel JJ. Neither party challenged the primary judge’s statement of the relevant principles and it is not necessary for us to do more than to refer to two authorities. In Pacific Carriers Ltd v BNP Paribas at 461-462 [22] the High Court said:

… The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:

“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

(Citations omitted).

52    In Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy, French CJ, Hayne, Crennan and Kiefel JJ said (at [35]):

Both Verve and the sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

(Citations omitted).

53    The primary judge said that the Recitals to the 2002 Agreement could be taken into account in determining the surrounding circumstances and the commercial purpose or object of the agreement, but that they could not be used to expand or limit the operative provisions where those operative provisions are clear and unambiguous.

54    The primary judge also addressed the circumstances in which the court, in construing a written contract, may have regard to conduct after the contract. He said that conduct after the contract may amount to an admission by one of the parties which is admissible as to the construction of the terms of the written contract. That approach was not challenged by either party (see generally the discussion in Seddon N, Bigwood R and Ellinghaus M, Cheshire & Fifoot’s Law of Contract, (10th Australian ed, LexisNexis Butterworths, 2012) at [10.16]).

55    The appellants submitted that the primary judge erred in not identifying the commercial purpose or object of the agreement. We reject that criticism. In some cases, the commercial purpose or object of a contract is clear and it is a matter of construing a particular clause in an agreement in light of the purpose or object. In this case, the commercial purpose or object was determined as part of an examination of the contract as a whole and having regard to relevant surrounding circumstances. It was identified by the primary judge as the grant of a non-exclusive licence in relation to QSS as at the date of the agreement for monetary consideration.

56    The appellants submitted that the primary judge erred in his approach to the construction of the 2002 Agreement in that he allowed his own view of what was a sensible commercial solution to the issues of construction to determine or influence his decision. They referred to BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd [2013] EWCA Civ 416 at [24] per Aikens LJ. Another way the appellants put the submission was to contend that the primary judge allowed himself to be influenced by what he considered the parties would have done (had they wished to achieve the result for which the appellants contended), or he focused on what the parties may have meant to say, rather than on what they did say. They referred to Byrnes and Another v Kendle (2011) 243 CLR 253. The error was said to be contained in the following passage in the primary judge’s reasons (at [74]):

It seems to me that the structure of the 2002 Agreement, and particularly the use of the term “The Goods”, is consistent with the delivery of property in “The Goods” as they existed at the relevant point in time and does not have ambulatory or future operation indefinitely into the future. It seems to me that the striking absence of any limits to, or controls upon, JRC’s conduct under the 2002 Agreement provides compelling evidence that that agreement should not be construed in the manner for which JRC contends. It seems to me improbable that the parties could have objectively intended that Mr Cummings would grant a licence to use (still less assign the copyright in) all future versions of QSS extending into the future without any time limitation, so as to allow JRC to sub-license others (such as SFSI) who could in turn distribute software to others (as SFSI has done), without imposing significant controls on the use of that software. The lack of control on future use of the software is more readily explicable if that agreement is understood as directed to the software as it existed at a point in time and Mr Cummings assumed only a limited contractual obligation to update that software.

57    The appellants referred in particular to the primary judge’s reference to what seemed to him “improbable”, his earlier reference in the passage to “compelling evidence”, and his reference to “without imposing significant controls on the use of that software”.

58    In BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd, Aikens LJ (with whom McFarlane and Sullivan LJJ agreed) said the following (at [24]):

There was no dispute between the parties on the principles of construction that the court must use in interpreting this commercial document. There has been considerable judicial exposition of these principles by the House of Lords and the Supreme Court in recent years. There is no point in my going over the same ground again at any length. The court’s job is to discern the intention of the parties, objectively speaking, from the words used in the commercial document, in the relevant context and against the factual background in which the document was created. The starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties’ respective rights and obligations. If there are two possible constructions of the document a court is entitled to prefer the construction which is more consistent with “business common sense,” if that can be ascertained. However, I would agree with the statements of Briggs J, in Jackson v Dear, first, that “commercial common sense” is not to be elevated to an overriding criterion of construction and, secondly, that the parties should not be subjected to “…the individual judge’s own notions of what might have been the sensible solution to the parties’ conundrum”. I would add, still less should the issue of construction be determined by what seems like “commercial common sense” from the point of view of one of the parties to the contract.

(Citations omitted).

59    A number of points may be made about these observations. First, we do not think there is any material difference between Aiken LJ’s observations and those of the High Court in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd set out above. Secondly, we too would emphasise the need to identify the commercial purpose or object of an agreement by reference to the interests of both parties and not just by reference to one of them. Thirdly, it is one thing for a judge faced with competing constructions of an agreement to adopt what he or she considers the best commercial solution. It is another for the judge to test a proposed construction by reference to what is or is not in the agreement. The latter is permissible and indeed we think involves taking a commercial approach to the issue of construction. We think that that was all that the primary judge was doing and that he was not in error.

60    The passage in the reasons of Gummow and Hayne JJ in Byrnes and Another v Kendle relied on by the appellants is in the following terms (at 273 [53]):

The fundamental rule of interpretation of the 1997 Deed is that the expressed intention of the parties is to be found in the answer to the question, “What is the meaning of what the parties have said?”, not to the question, “What did the parties mean to say?” The point is made as follows, with reference to several decisions of Lord Wensleydale, in Norton on Deeds:

“The word ‘intention’ may be understood in two senses, as descriptive either (1) of that which the parties intended to do, or (2) of the meaning of the words that they have employed; here it is used in the latter sense.”

Dixon J and Starke J spoke to similar effect when construing the terms of wills creating testamentary trusts.

(Citations omitted).

61    We do not think that this passage assists the appellants. The primary judge did not examine what the parties meant to say and he was well aware that the meaning of the 2002 Agreement was to be determined objectively (see at [30]).

62    The appellants submitted that even if the primary judge did not make the errors it identified and which we have dealt with above, he nevertheless overlooked or failed to place sufficient weight on a number of matters, including the surrounding circumstances and conduct of the parties after the contract, which meant that he adopted a construction of the contract which failed to give effect to the commercial purpose or object of the contract. The appellants submitted that this argument does not involve a challenge to any findings of fact made by the primary judge and that this Court is in as good a position to decide the question of construction as the primary judge. That latter proposition is correct, although this Court must still be satisfied of error before it will intervene (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at 435 [22], 438 [30] per Allsop J (as his Honour then was) (with whom Drummond and Mansfield JJ agreed).

63    It is convenient to address the matters relied on by the appellants by reference to three categories: matters in the 2002 Agreement itself, surrounding circumstances known to both parties, and conduct after the contract. Before doing that, two important matters relied on by the primary judge should be noted because they provide an important aspect of the context in which he made his decision. First, cl 5 of the 2002 Agreement provided for what his Honour called development work by Mr Cummings. That might see updates “provided” to JRC ([50]-[75]). Secondly, his Honour noted that Mr Cummings was in the habit of providing updates of QSS to users, including JRC, and that he did that for users who had not entered into agreements such as the 2002 Agreement.

64    The operative clause in the 2002 Agreement is cl 2 and it refers to “an interest in and right to ‘The Goods’”. “The Goods” means a right to the software package referred to as Quik Series Software. This means at least the software package as at the date of the agreement (i.e., 28 July 2002), but the appellants submitted that it could also mean the software package as at 28 July 2002 and the software package thereafter as it was from time to time (i.e., with updates). They pointed to the fact that the software package is not described as a particular version by number or date, and that Mr Cummings did use different version numbers. These matters are correct, but they do not of themselves advance the resolution of the issue of construction. The appellants also referred to the development work envisaged under cl 5 and the staff training in cl 6 and submitted that it would have been known on 28 July 2002 that if there were updates, then it would only have been sensible for that development work and staff training to take place by reference to QSS as updated at the time of the development work or staff training. As we read his Honour’s reasons, he acknowledged that JRC might obtain updates of QSS through development work carried out by Mr Cummings under cl 5. That is quite a different thing from a general obligation on Mr Cummings to provide each and every update. As far as staff training and cl 6 is concerned, the primary judge noted that cl 6 is expressed to be subject to cl 5 and he did not think that there was an ongoing obligation to provide staff training under cl 6 (at [52]). We agree with those conclusions. Mr Cummings provided some training in August and September 2002, but the primary judge said that that did not establish an obligation to do so, “still less to do so indefinitely into the future” (at [66]). We also agree with that conclusion.

65    The surrounding circumstances allegedly known to both parties and upon which the appellants rely are as follows. First, Mr Cummings knew that JRC and Mr Pacione were developing a business based on using the software as a component of a steel construction frame manufacturing system which they were developing to sell to their customers. It seems that it was common ground that at the time of the 2002 Agreement, no such system was in existence and the appellants’ argument was that the parties would have contemplated the most up-to-date version being installed, not an “old” version. There is some limited force in this argument, but it must be remembered that the appellants’ construction would put an obligation on Mr Cummings which would apply both before and after the system had been developed. Secondly, at the time of the 2002 Agreement, Mr Cummings was updating the software regularly and its code and functionality changed regularly. The appellants submitted that if the software was limited to the software as at 28 July 2002 then, as they put it, “it is likely to be out of date the very next day”. The primary judge did not think that this was significant because he said Mr Cummings was in the habit of providing updates to persons to whom he had sold QSS, but who had not entered into anything like the 2002 agreement. That conclusion was open to his Honour.

66    The subsequent conduct relied on by the appellants was as follows. First, on 13 August 2002, Mr Cummings gave Mr Pacione a compact disc dated August 2002 rather than 28 July 2002. The primary judge said that this did not advance the appellants’ construction because the conduct was equally consistent with a position “that Mr Pacione, sensibly, did not object to Mr Cummings providing a (slightly) more up-to-date version of the software source code that was strictly required under the 2002 Agreement, if it was directed to the software existing at the date of the agreement” (at [68]). We do not disagree with that conclusion. Secondly, Mr Cummings provided JRC with updates to the software after the date of the 2002 Agreement. The primary judge said that the force that this fact might have otherwise had was removed by the fact that Mr Cummings made updates available to other users who did not have agreements like the 2002 Agreement. We do not disagree as long as it is remembered that, although the factual matters can be considered individually, they must also be considered as a whole. In other words, an answer to a particular matter may appear sufficient when that matter is considered alone, but it is necessary to go on and consider the weight to be accorded to all matters considered together. We think that the primary judge did do that. The same comment applies to the fact that in November 2002, Mr Cummings delivered software to JRC’s client, Stratco, using the then current version and not the 28 July 2002 version. Thirdly, the appellants relied on the fact that Mr Cummings signed the Stramit Agreement on 11 July 2003 and it refers to JRC’s rights in the package without limiting it to a particular version by date or number. The primary judge’s response to this submission was as follows (at [73]):

… So far as that recital [i.e., Recital C] recorded that JRC had a right to use QSS arising from the 2002 Agreement, that statement would be no less true if the right related to the software as at the date of that agreement and JRC was dependent on the provision for development services in that agreement and Mr Cummings’ practice of continuing to circulate updates of the product to his clients generally.

We make the same observations as we did in relation to the previous submission. Finally, the appellants relied on the “To whom it may concern” letter given to Mr Pacione on 1 March 2004 which contained a reference to JRC’s rights under the 2002 Agreement and made no reference to a particular version by date or number. The primary judge made the same observation as he did in relation to the previous submission and he said that the letter was drafted by Mr Pacione and he (Mr Cummings) took little notice of it (at [71]). We make the same observation as we have in relation to the two previous submissions.

67    The 2002 Agreement is poorly drafted. There are matters that can be advanced in favour of the construction put forward by the appellants. However, we think that they are outweighed by the matters identified by the primary judge and referred to above (at [56]). We think the primary judge’s construction is the correct one.

Was the 2002 Agreement abandoned by 11 August 2004?

68    The respondents pleaded in their Defence to the Amended Statement of Claim that the 2002 Agreement came to an end by performance or that it was terminated when the 2004 Agreement was entered into. As to the former plea, the primary judge accepted that the obligations in respect of the sale of “The Goods” under the 2002 Agreement were discharged by the delivery of the disc containing the software. However, he did not accept that the 2002 Agreement came to an end by performance on delivery of the relevant disc containing the software because he said that was inconsistent with the continuing option for Mr Cummings to provide development services under cl 5 of the 2002 Agreement. As to the latter plea, the primary judge held that the 2004 Agreement could not bring about a termination of the 2002 Agreement because JRC was not a party to the 2004 Agreement.

69    However, his Honour went on to say (at [93]):

… the conduct of HSFS, under Mr Pacione’s control, in this regard may evidence as separate abandonment of the 2002 Agreement to which JRC was party.

70    The primary judge rejected a submission from the appellants that the respondents could not rely on the doctrine of abandonment because they had not pleaded it. He said that the case was conducted on the basis that whether the 2002 Agreement remained in force was in issue and that the respondents could rely on it (at [94]).

71    The primary judge concluded that the 2002 Agreement had been abandoned. He relied on a number of matters. First, he noted the terms of the Exclusivity Agreement. Recitals B and D of the Exclusivity Agreement were in the following terms:

B.    Licensee wishes to obtain an exclusive Australian territory licence to exploit “The Licenced Goods”.

D.    The parties agree that this licence replaces any other agreement to use “The Licenced Goods” within the territory.

72    Clause 2 of the agreement provided that the licensor (Tanmari) provided to the licensee (HSFS) an exclusive licence to use and exploit “The Licensed Goods” for the term in the territory. The “Licensed Goods” are defined in a similar way to “The Goods” in the 2002 Agreement, and the territory is Australia.

73    Clause 14.4(a) was in the following terms:

(a)    This document contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this document and has no further effect.

74    The primary judge noted the first part of cl 2.5 of the 2004 Agreement as follows:

2.5    Exclusivity Agreement

The parties agree that this document replaces any current licences and licensing conditions issued with, or in relation to the Software, with the exception of the Exclusivity Agreement …

75    At the time HSFS executed the Exclusivity Agreement and the 2004 Agreement, JRC owned 20% of the shares in HSFS. Nevertheless, Mr Pacione had day to day control of HSFS and was involved in the negotiations for the agreements.

76    The primary judge said that HSFS repeatedly acknowledged that previous agreements with respect to QSS had been replaced and that it had the exclusive rights to QSS. He said that JRC was a shareholder in HSFS and that each company was relevantly controlled by Mr Pacione. Furthermore, his Honour said that it was relevant that none of the parties thereafter exercised rights under the 2002 Agreement for a considerable time and until JRC purported to do so in 2009 after their relationship had broken down. These matters combined supported an inference of an abandonment by Mr Cummings and JRC of earlier inconsistent arrangements under the 2002 Agreement (at [95], [99]).

77    The primary judge expressed his conclusion in the following way (at [99]):

In this case, notwithstanding that JRC was not party to the Exclusivity Agreement and the 2004 Agreement, it seems to me that the plain inference from those agreements is that the parties, including JRC (which, as I have noted, was under Mr Pacione's control) intended the Exclusivity Agreement and the 2004 Agreement to replace the 2002 Agreement. The recitals and terms of the Exclusivity Agreement and 2004 Agreement would not have sensible operation, absent such an intention. No later than the date of entry into the 2004 Agreement, Mr Pacione, Mr Cummings, HSFS and Tanmari seem to me to gave [sic] treated the relevant rights as arising under the Exclusivity Agreement and the 2004 Agreement and, more fundamentally for present purposes, JRC did not take any step to exercise rights of ownership of software under the 2002 Agreement, nor did Mr Cummings act as though that agreement were on foot, after that agreement was executed and until Mr Pacione later claimed that JRC had, in 2009, assigned rights under the 2002 Agreement to SFSI. The parties, consistent with the informality of their dealings generally, did not take steps expressly to terminate the 2002 Agreement, but it seems to me that an abandonment of that agreement may properly be inferred from these circumstances. For these reasons, I find that the non-exclusive licence to JRC to use QSS did come to an end by abandonment, at least by the entry into the 2004 Agreement.

78    It is true that abandonment was not expressly pleaded by the respondents. Later in these reasons we consider some pleading objections in relation to the alleged breach of the 2004 Agreement. We discuss his Honour’s approach to the pleadings and we note that generally, he held the parties to their pleadings. However, a party may be permitted to rely on some matters which travel beyond the pleadings but not others (Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437; Water Board v Moustakas (1988) 180 CLR 491). The primary judge is in a better position than this Court to assess that issue. Although, in the case of the alleged abandonment of the 2002 Agreement, the primary judge appears to have accepted that abandonment was not pleaded, he allowed the matter to be raised because of the way in which the case had been conducted. We are not persuaded that we should interfere with that decision. We are fortified in that view because it is not apparent to us that there is a reasonable chance the appellants’ case would have been conducted any differently had abandonment been pleaded. In those circumstances, we would not uphold a challenge to his Honour’s finding of abandonment on the basis that it was not pleaded by the respondents.

79    An initial question arises as to his Honour’s reliance on delay. He referred to JRC’s delay in taking any steps under the 2002 Agreement up until a date on or after April 2009, but the declaration is to the effect that the 2002 Agreement had been abandoned by 11 August 2004. A question arises as to whether the delay between August 2004 and a date on or after April 2009 was conduct constituting part of the abandonment or simply post-abandonment conduct confirming that abandonment had indeed taken place. We do not need to consider this issue because we think the 2002 Agreement was abandoned by 11 August 2004.

80    In Fitzgerald and Another v Masters (1956) 95 CLR 420 Dixon CJ and Fullagar J said (at 432):

There can be no doubt that, where what has been called an “inordinate” length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned. A good example is to be found in Pearl Mill Co Ltd v Ivy Tannery Co Ltd. See also Mathews v Mathews and G W Fisher Ltd v Eastwood Ltd, per Branson J. What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) “the matter is off altogether”.

(Citations omitted)

(see also Summers and Another v The Commonwealth (1918) 25 CLR 144 at 151-152 per Isaacs J; DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited and Another (1978) 138 CLR 423).

81    This is not a case where it can be said that, objectively viewed, abandonment arose by reason of a failure to perform over a long period of time. That will be the most common case where a plea of abandonment is raised. Where a case involves a subsequent agreement, the parties will usually be the same and the issue will not be one of abandonment, but whether there has been an express or implied revocation by subsequent agreement. This case is somewhat unique, but the question is the same and that is whether when all the circumstances are viewed objectively it should be inferred that neither Mr Cummings nor JRC (i.e., Mr Pacione) intended that the 2002 Agreement should be further performed (DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited and Another at 434 per Stephen, Mason and Jacobs JJ).

82    As at 11 August 2004, HSFS had an exclusive licence in Australia in relation to QSS under the Exclusivity Agreement. At the very least JRC, through Mr Pacione, must be taken to have agreed not to exercise any rights in QSS under the 2002 Agreement in Australia. Under the 2004 Agreement, HSFS was given a non-exclusive perpetual licence in relation to QSS with the licensor (i.e., Tanmari) given the express right to terminate the agreement only in the limited circumstances set out in cl 8. Following the expiration of the Exclusivity Agreement, the territory of Australia was to be brought within the terms of the 2004 Agreement. We think that the inference is irresistible that, as at 11 August 2004, the parties, being Mr Cummings, Tanmari, HSFS, Mr Pacione (and through him JRC) and Bradbury International, considered that the future licensing of QSS would be governed by the Exclusivity Agreement and the 2004 Agreement, and then after the expiration of the former agreement, in accordance with the perpetual non-exclusive licence under the 2004 Agreement. The licensee parties would have contemplated that they would proceed in that way and it would not have been contemplated, even as a possibility, that JRC and HSFS would compete with each other. In those circumstances, objectively viewed, it should be concluded that neither party to the 2002 Agreement intended that the agreement should be further performed. We would uphold the primary judge’s conclusion that the 2002 Agreement had been abandoned by 11 August 2004.

Did JRC through Mr Pacione Grant Rights under the 2002 Agreement to SFSI in April 2009?

83    If, as we have held, the 2002 Agreement was abandoned by 11 August 2004, then this issue does not arise. However, the primary judge dealt with it and the parties made detailed submissions with respect to the issue. We will consider it.

84    The appellants’ case was that in April 2009 JRC, acting through Mr Pacione, granted a sub-licence of its rights under the 2002 Agreement to SFSI also acting through Mr Pacione. The sub-licence was not in writing and the primary judge said that its terms were not identified.

85    The primary judge accepted that a person who controls two companies may make an agreement between the two companies, “in an informal way” (at [163]). He said that he was not satisfied that JRC granted rights under the 2002 Agreement to SFSI which would enable SFSI to grant licences to its customers. He referred to Mr Pacione’s evidence to the effect that JRC granted its rights under the 2002 Agreement to SFSI in April 2009. He said that Mr Pacione’s initial evidence was striking for its lack of specificity (at [164]).

86    The primary judge referred to authority which had held that a court could consider the subsequent conduct of the parties with a view to determining if there was an oral agreement and, if so, the terms of the agreement (Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [143] per Campbell JA; Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295 at [98]-[99] per Edelman J).

87    The primary judge first considered correspondence which had passed between the appellants and the respondents in 2008 and the first half of 2009 and in which the appellants put forward proposals for the continuation by one of the companies of its ability to grant licences to its customers. It is not necessary for us to set out the details of the correspondence. The important point is that the proposals involved either new licence agreements or the assignment of rights to JRC. There is no reference to an assignment of rights by JRC under the 2002 Agreement (at [168]-[172]).

88    The primary judge also referred to correspondence which had passed between the appellants and the respondents at or about the time it was alleged that the oral agreement was made. An email dated 19 April 2009 from Mr Pacione to Mr Cummings referred to a proposed transfer of rights to JRC, and an email dated 1 May 2009 from Mr Pacione to Mr Cummings did not refer to JRC granting a licence to SFSI under the 2002 Agreement which, on Mr Pacione’s evidence, had by that time occurred.

89    The primary judge found that there was no contemporaneous notification to Mr Cummings of the grant of a sub-licence under the 2002 Agreement, that there was no contemporaneous record of the grant of the sub-licence, and that there was no reference to such a sub-licence in any of the licence agreements between SFSI and its customers. He also noted that when the solicitors acting for JRC and HSFS wrote to Mr Cummings and Tanmari on 18 November 2011, they referred to the 2002 Agreement as if it was still on foot, but made no allegation to the effect that JRC had granted a licence of its rights under the 2002 Agreement to SFSI.

90    The primary judge said that having regard to the generality of Mr Pacione’s evidence and the absence of contemporaneous support for an agreement, he was not satisfied that there was such an agreement “with sufficient specificity that it was directed, first, to the rights under the 2002 Agreement rather than the 2004 Agreement and, second, that it had the character of a sub-licence of those rights by JRC to SFSI” (at [176]).

91    The appellants challenged the primary judge’s conclusion on three grounds.

92    First, the appellants submitted that the primary judge erred in relying on the generality of Mr Pacione’s evidence as a reason to reject their case. As we understood the submission, it was that the licence granted by JRC was a general one of all of its rights and (as the appellants put it) “the sub-licence did not require any more detail”. We have considered Mr Pacione’s evidence on this topic and we think that the primary judge was entitled to view it as general and lacking specificity (at [164] and [176]).

93    Secondly, the appellants submitted that in rejecting their case the primary judge erred in relying on the fact that JRC did not give any contemporaneous notice to Mr Cummings of the fact that it had granted a sub-licence to SFSI. The appellants submitted that JRC was not required to give notice of the sub-licence to Mr Cummings. It is true that JRC was not required to give notice of the sub-licence to Mr Cummings. However, that does not mean that the primary judge was not entitled to take the absence of notification into account together with other factors, particularly in a context where the appellants had been putting proposals to the respondents which would involve one of the appellants retaining the ability to grant licences of QSS to its customers.

94    Thirdly, the appellants submitted that the primary judge erred in relying on the general course of dealings between the appellants and the respondents in rejecting their case. As we understood the submission, it was that the primary judge should have focused on, and only focused on, the conduct of the two parties to the alleged sub-licence, being JRC and SFSI, whereas he focused more generally on the dealings between the appellants and the respondents. There are a number of answers to this submission. By 30 September 2008, HSFS was a wholly-owned subsidiary of JRC and Mr Pacione was the controlling mind of each of JRC, HSFS and SFSI. He was the person who is alleged to have made the sub-licence agreement between JRC and SFSI. As far as Mr Cummings knew, the entity with the power to grant licences was HSFS under the 2004 Agreement. The primary judge was entitled to consider the dealings Mr Pacione, whether on behalf of JRC, HSFS and SFSI, had with the respondents because they were relevant to whether JRC granted sub-licences to SFSI. In any event, the primary judge did not treat the dealings as decisive. The appellants further submitted that the primary judge “failed to have regard to subsequent dealings between the parties, that is, SFSI licensing customers in 2009, after JRC sub-licensed SFSI in 2009”. This submission contains within it the answer for which the appellants contend. As to the relevance of the fact that SFSI granted licences to customers in 2009, the primary judge took that matter into account and he noted a number of alternatives as to how that might have come about (at [176]).

95    We do not think the primary judge erred in concluding that, assuming the 2002 Agreement was still on foot (contrary to our earlier conclusion that the agreement had been abandoned), he could not be satisfied that, in April 2009, JRC sub-licensed its rights under the 2002 Agreement to SFSI.

96    It is now necessary to consider the grounds of appeal and cross-appeal going to the copyright issues.

The copyright issues: grounds 7 to 14 of the notice of appeal and ground 10 of the amended notice of cross-appeal

97    Before identifying and examining those grounds of appeal and cross-appeal on these issues and thus the contended errors on the part of the primary judge, it is necessary to identify the material findings of the primary judge on these issues and the context within which those findings were made. It is necessary to briefly note some of the earlier factual matters we have already mentioned.

98    JRC and HSFS contended that pursuant to the terms of the 2002 Agreement, Mr Cummings, as author and original owner of the copyright in the “QSS Application” (a defined term described later in these reasons) assigned to JRC “an interest in the copyright” including “updates” to the QSS Application. It followed for JRC that, as an owner of such an interest, it was entitled to non-exclusively use and sub-licence others (customers of its system) to use the QSS Application in the development of its steel frame manufacturing systems business.

99    Put simply, that business involved designing and supplying a manufacturing system which enables a user (a buyer of the system) to manufacture light gauge steel wall panels, roof trusses and floors used in residential, commercial and industrial buildings. Such a system is integrated with computer-aided design software and computer-aided manufacturing software.

100    In the context of issues related to the 2002 Agreement, JRC (and HSFS) contended, in effect, that whatever the characterisation of JRC’s rights might be, the legal source of those enduring rights was to be found in Mr Cummings and the 2002 Agreement.

101    As to the scope of the rights Mr Cummings enjoyed, JRC and HSFS contended that the QSS Application was “a suite of computer programs known as [QSS]” being “one component” of steel framing manufacturing systems sold by JRC and HSFS: see para 3, amended statement of claim (“ASOC”). HSFS continued to sell such systems incorporating the QSS component until April 2009 when SFSI assumed that business (a matter discussed later in these reasons).

102    JRC and HSFS contended that Mr Cummings was “the author and original owner of copyright in the QSS Application”: para 4, ASOC. Moreover, JRC and HSFS contended that copyright subsisted in the suite of computer programs called QSS Application (para 7(a), ASOC); that Mr Cummings was the first owner of the copyright (para 7(b), ASOC); and that Mr Cummings would be the owner of the copyright in any updates to the suite of programs comprising the QSS Application when the copyright came into existence (para 7(b), ASOC): that is, when the copyright in the update was first reduced to a material form, as that term is understood.

103    Those propositions followed for JRC and HSFS because, apart from satisfaction of the relevant connecting factors under the Copyright Act, Mr Cummings was the “author” of the suite of programs and at the relevant time he was the author of the “updates” to the suite of programs called the QSS Application: para 7 (ASOC). By the particulars to para 7 (ASOC), JRC and HSFS asserted that: “QSS Application [as defined at para 3] and each of the computer programs was a literary work”. They also assert by the particulars that: “The QSS Application was in material form and was original”.

104    As to the functionality and early development of QSS by Mr Cummings, the primary judge made the observations at [6] which we have already quoted at [5] of these reasons.

105    At [7], the primary judge makes these further observations:

From about 2002, JRC and later HSFS used (and, so far as new business is concerned, SFSI now uses) QSS software as one of several items used for the design and manufacture of steel framing. These include engineering tables and manuals in book and electronic form; computer aided manufacture software which reads the data file generated by QSS and prepares the relevant data for manufacturing; machine control software known as “frameware” that is used by the operator of the roll-form machinery to manufacture steel framing components from that data; and roll-form machinery which is controlled by the frameware.

106    The QSS Software works together with CAD Software including software referred to as “IntelliCAD” which is software controlled by a group of third parties who use and licence IntelliCAD and the right to sub-licence IntelliCAD. That company provides access to the source code and technical support for IntelliCAD. The primary judge observes that the proceedings gave rise to an issue concerning the impact of updates to IntelliCAD on the use of the QSS Software by JRC and HSFS: [8] of the primary judge’s (“PJ”) reasons.

107    Although some of these background findings have already been mentioned, it is important to further note these matters having regard to the contentions of the parties on the copyright issues. On 3 February 2003, HSFS was incorporated. It was then 20% owned by JRC and became wholly owned by JRC on 30 September 2008. JRC is a company associated with Mr Pacione and at least from 30 September 2008, HSFS was also a company associated with him. SFSI, incorporated in 2007, is a wholly owned subsidiary of JRC although it changed its name to SFSI on 8 December 2008. Mr Pacione is, and was, at all times relevant to these issues, a director of JRC, HSFS and SFSI. On 11 November 2003, Tanmari, a company controlled by Mr Cummings, was incorporated. It took over the business conducted by Mr Cummings: PJ, [4]. On 31 October 2011, Tanmari and Mr Cummings, entered into an agreement to sell to FIPL their respective interests in assets including the “Quik Series Range” of software products including “Truss Module; Wall Framing Module; Floor Framing Module; all current features plus those currently under development; Systems Documentation and Process Documentation”: Schedule 1 to the Agreement. The assets also included the “current version” of the software including “all current releases and fixes”; all prior versions and releases; any fixes, new versions and releases under development at 31 October 2011 and source code: see definitions “Software” and “Assets”.

108    The agreement settled on 2 November 2011.

109    Although JRC and HSFS pleaded authorship and original ownership of the copyright in the QSS suite of programs in Mr Cummings (and the subsistence of copyright, at all material times, in the QSS suite of programs), and also recited in the 2002 Agreement that Mr Cummings “has” the “copyright and proprietorship” in, relevantly, the “software package referred to as Quik Series Software”, including four particular packages, nevertheless, broader questions of originality, subsistence and ownership of subject matter comprising QSS, from time to time, arose in the principal proceedings, in the following way.

110    Mr Cummings, Tanmari and FIPL contended, in answer to JRC and HSFS’s pleading, that Mr Cummings was the owner of the copyright in QSS created between 1990 and 3 February 2004 (and related documentation) which they called “Cummings QSS”; that as to “versions” of QSS created between 4 February 2004 and 1 November 2011, Tanmari is the owner of the copyright (and related documentation) which they called “Tanmari QSS”; and that since 2 November 2011, FIPL has been and remains the owner of the copyright in QSS including QSS created after 2 November 2011 (and related documentation) which they called “[FIPL] QSS”: para 4 of the defence to the amended statement of claim. In response to para 7 of the amended statement of claim, Mr Cummings, Tanmari and FIPL admit para 7(a), that is, that copyright subsisted in the QSS Application (as defined) and also say that copyright subsists in Cummings QSS, Tanmari QSS and FIPL QSS and related documentation. As to para 7(b), they repeat the matters pleaded in para 4 as described above but otherwise deny para 7(b). They admit the assignment by Mr Cummings and Tanmari to FIPL dated 31 October 2011 although they say that FIPL has been the owner of the copyright in QSS (and hence FIPL QSS) since 2 November 2011.

111    By their cross-claim against JRC, HSFS, SFSI, Mr Pacione and FrameCAD, FIPL and Tanmari asserted that in about 1990, Mr Cummings made a suite of computer programs known as QSS and user manuals; that from time to time Mr Cummings made updates and new releases (and user documentation); that between 1990 and 1 November 2011, more than 500 updates and new versions of QSS were made; that each update or new version of QSS contains reproductions of the “whole or a substantial part of the previous version of the QSS program but with additional original material”; and that each update or new release of QSS is a “new literary work” being a computer program in which copyright subsists: paras 1 to 4 of the statement of cross-claim (“SOCC”). They also plead that each update or new release of user documentation contains reproductions of the “whole or a substantial part” of the previous version of the user documentation but with additional original material and that each update and new release of such documentation is a new literary work in which copyright subsists.

112    They plead that Mr Cummings was the owner of the copyright in each version of QSS and the user documentation created between 1990 and 4 February 2004: para 8, SOCC. They plead the incorporation of Tanmari on 11 November 2003 and plead that from 4 February 2004 to 1 November 2001, Mr Cummings made updates and new releases of the computer programs comprising QSS and software manuals comprising the user documentation (paras 10 and 11 of the SOCC) and that he did so in his role as a director of Tanmari as from 4 February 2004: para 10, SOCC. They plead that during the period 4 February 2004 to 1 November 2011, Tanmari was the owner of the copyright in each version of QSS and the user documentation made by Mr Cummings in the period 4 February 2004 to 1 November 2011.

113    In the alternative, they say that Mr Cummings was the legal owner of the copyright in each version of QSS and user documentation made during the period 11 November 2003 to 1 November 2011, holding the ownership of the copyright in trust for Tanmari as equitable owner of the copyright: para 13, SOCC. They also plead that on 31 October 2001, Mr Cummings and Tanmari effected an assignment of their copyright to FIPL effective 2 November 2011. They plead that by reason of the assignment, FIPL is the owner of the copyright in each version of QSS and the user documentation made during the period 1990 to 1 November 2011: para 15, SOCC. They also plead that from 2 November 2011, Mr Cummings has continued to make updates and new releases of QSS and user documentation under a “Services Agreement” between Tanmari and FIPL dated 31 October 2011.

114    By their cross-claim, a declaration is sought that “the copyright in each version of QSS and the User Documentation, including each new release or update, is owned by [FIPL]”.

115    JRC, HSFS, SFSI, Mr Pacione and FrameCAD plead by their defence to the SOCC (“DSOCC”) that they do not admit that each update or new version of QSS contains reproductions of the whole or a substantial part of the previous version of QSS; and that some of the updates or new versions of QSS deleted or amended material, and some of the additional, deleted or amended material was not original: para 3, DSOCC. They plead that they deny that each update or new release of QSS was a “new literary work” in which copyright subsists and they plead that each update or new release of QSS was “not substantial enough” or “original enough” to be a new literary work: para 4, DSOCC. The same contentions were made concerning the user documentation: paras 3 to 6, DSOCC. They admit that Mr Cummings was a qualified person at the time each version of QSS was created: para 7, DSOCC; s 32(2), Copyright Act; para 7, DSOCC. They deny that Mr Cummings was the owner of the copyright in each version of QSS made between 1990 and 4 February 2004: para 8, DSOCC. They admit that Mr Cummings made updates and new releases of QSS and user documentation although no admission beyond that matter is made: para 11, DSOCC. They deny that Tanmari was the owner of the copyright in each version of QSS and user documentation made by Mr Cummings during the period 4 February 2004 to 1 November 2011 (para 12, DSOCC) and deny the alternative pleading that Mr Cummings was the owner, holding legal title to the copyright on trust for Tanmari: para 13, DSOCC. They admit the assignment of 31 October 2011 and admit that the assignment took effect from 2 November 2011: para 14, DSOCC. They deny that FIPL is the owner of the copyright in each version of QSS and user documentation made in the period from 1990 to 1 November 2011. They do not admit that from 2 November 2011 Mr Cummings has continued to make updates under the terms of the Services Agreement (para 16, DSOCC) and they do not admit that FIPL is the owner of the copyright in each version of QSS and user documentation made during the period from 2 November 2011 to date: para 17, DSOCC.

116    By reason of the pleading of the SOCC and the responsive DSOCC, the cross-defendants contended before the primary judge that Tanmari and FIPL had been put to proof of authorship, originality and subsistence and those parties had failed to show that Mr Cummings had contributed sufficient effort, skill, labour and judgement, as author, so as to establish that each version, each update, each new release is an original work of authorship in which copyright subsists. In addition, at paras 56 to 66 of the DSOCC, the cross-defendants deny infringement. As to contended infringement on the part of SFSI, the cross-defendants contended that the cross-claimants had failed to prove objective similarity between the software used and licensed by SFSI and a relevant work in suit.

Some of the findings of the primary judge

117    As to whether copyright subsists in each update or new release of QSS; whether FIPL owns copyright in QSS “releases” after 1 November 2011; and whether copyright subsists in each update and release of user documentation, the primary judge made these observations and findings.

118    As to the operation of para 7 of the ASOC (see [101] to [103] of these reasons) and the proposition there asserted by JRC and HSFS that Mr Cummings would be the owner of the copyright in any updates to the suite of programs defining the “QSS Application” (recognising that paras 7(a) and 7(b) do not address the topic of “new releases”), the primary judge concluded that the pleading deals with the position as to ownership of copyright if and on the assumption that copyright subsists in updates without conceding subsistence: PJ, [308].

119    Since the cross-claim taken together with the defence to the cross-claim puts in issue whether each update or new release of QSS contained reproductions of the whole or a substantial part of the previous version of QSS and whether additional or amended material comprising updates and new versions are original works in which copyright subsists (and whether they are sufficiently substantial to qualify as a work of authorship in each case), it was open to JRC and HSFS to test the assumption about subsistence described in [118] of these reasons and, in any event, SFSI and Mr Pacione were not bound by the amended statement of claim put on by JRC and HSFS: PJ, [308] – [310]. At [310], the primary judge said this:

On balance, and with some hesitation, it seems to me that it is open to the Cross-Defendants [JRC, HSFS, SFSI, Mr Pacione and FrameCAD Ltd], given these pleadings, to place in issue whether copyright subsists in each update or new release of QSS. That issue is at least open to SFSI and Mr Pacione which are not bound by any pleading in that respect in the Amended Statement of Claim filed by JRC and HSFS.

120    Thus, as a matter of principle, it fell to the cross-claimants to prove authorship, originality, subsistence of copyright and ownership of the work or works in suit upon which they relied: PJ, [311].

121    The primary judge made these observations about the state of the evidence of Mr Cummings on these issues at [314]:

There is substantial evidence to support Mr Cummings’ and Tanmari’s claim to originality in QSS and the updates and new releases to it, and to copyright in QSS and those updates and new releases. … Mr Cummings’ evidence is that he developed QSS (Cummings 4.12.12 [3]) and that he was the sole author of all source code for QSS (Cummings 14.10.13 [37]). In 2002 – 2004, Mr Cummings made significant changes to QSS (Cummings 4.12.12, [27] – [31]; Cummings 14.10.13 [100] ff) including rewriting it to achieve compatibility with IntelliCAD; rewriting parts of QSS in the C++ programming language which is machine-readable to allow calculations to be performed more quickly; and developing the look-up tables using engineering principles and reducing the number of lines of source code in QSS. In the period between 1990 and November 2011, Mr Cummings developed and released more than 500 versions of QSS and created end user manuals and other documentation (Cummings 4.12.12 [32]). The release notes of QSS, which are in evidence for versions 11.176 to 11.399 from prior to November 2002 up to 20 May 2005 (Cummings 3.12.12 Ex D6, 215-267), versions 11.209 to 11.533 from 29 October 2002 to 8 March 2008 (Pacione 26.10.12 [27], Ex P7, 3/60-131) and versions 11.400 to 11.605 from 9 June 2005 to 20 September 2011 (Cummings Ex D6, 267-302) indicate the extent of the additional work performed by Mr Cummings in making each new version of QSS. Mr Cummings’ evidence also indicates the extent to which the source code of QSS has increased over that period, from 23,275 lines in version 11.176 (dated prior to February 2002) to 170,062 lines in version 11.406 (prepared in program language C++ in August 2005) and then to 297,954 lines in version 11.604 (prepared in program language C++ in May 2011) (Cummings 14.10.13 [106]). Mr Cummings’ evidence is also that he devoted approximately 40 plus hours per week on writing source code for QSS from 2002 to November 2011 (Cummings, 14.10.13 [110]).

                                [emphasis added]

122    At [315], the primary judge addresses criticisms of this evidence of Mr Cummings made by the cross-defendants (appellants - JRC, HSFS, SFSI and Mr Pacione).

123    The first criticism was that Mr Cummings did not give sufficient evidence about the process of writing the code (that is, the degree of work, labour, effort and other features of engaged authorship so as to satisfy the tests of originality leading to subsistence of copyright in the relevant subject matter); that his evidence did not identify whether he “wrote” each line of code or whether he used software tools to “generate” code or whether he used “common place” routines throughout the code. The primary judge observed that the acceptance, in cross-examination, by Mr Cummings, that he used software tools went “no further than” the use of tools available “within the C++ development environment”: PJ, [315].

124    The second criticism was that the evidence of Mr Cummings concerning the lines of code was just a “counting exercise” rather than evidence of the quality of the code or the files he said he had written or evidence about whether the lines of code altered the functionality of the programs or the logic or structure or sequence of the routines. Moreover, the lines of code were said to contain “data files” not part of the “computer program” constituting the literary work in suit. Further, the hypothesis was put that some of the updates and new releases may have been derived from “third party” works. The primary judge at [315] described this submission as “no more than speculation” which seems to have been an observation related to the last matter only.

125    In addition, the appellants contended before the primary judge that there may be “no human author” of the updates or new releases as they may have been “computer generated”. The primary judge concluded that the evidence (and particularly the evidence of Mr Cummings) provides “no support” for a conclusion that updates or new releases were prepared in the way the appellants had contended: PJ, [315].

126    Notwithstanding that matter, the primary judge made these observations at [317]:

… Nonetheless, the evidence led by the Cross-Claimants does not allow me to determine whether any particular update (other than the three updates to which I refer below) or all updates was original in the relevant sense, although it suggests that many such updates are likely to have that character given the time and work that went into their development. The conclusion that a group of items collectively involved significant effort, and were the original work of an author, does not indicate that every item in that group has that character, where republication of earlier versions with, for example, minor corrections that would not be original in the relevant sense, is by no means implausible. I therefore cannot grant a declaration or other relief extending to every new release and update of QSS. I do accept, however, that the evidence of the substantial time and effort spent by Mr Cummings and the significant increase in the number of lines in the software over time is sufficient to establish that the three identified versions of QSS which were the subject of line counts are subject to a proper claim for copyright and a declaration should be made in respect of those versions.

                                [emphasis added]

127    As to the question of contended “admissions against interest” made by Mr Pacione on behalf of JRC and HSFS, contained in particular documents in the form of recitals, the primary judge said this at [316]:

The Cross-Claimants also rely on admissions as to the copyright of Mr Cummings and Tanmari in Recital A of the 2002 Agreement; Recital A and cl 7.1(e) of the Exclusivity Agreement; Recital A and cl 7.1(e) (warranty) of the 2004 Agreement; cl 7.1 of the Stramit August 2004 software Development Agreement between HSFS and Tanmari; and cl 7.1 of the BNBM 2005 Software Development Agreement between HSFS and Tanmari, to which I have referred above. The Cross-Claimants submit that each of the admissions was made by Mr Pacione on behalf of each of JRC and HSFS and that those admissions are against interest. However, it does not seem to me that those admissions can be treated as binding on SFSI and Mr Pacione, for the purposes of the Cross-Claim.

128    The three versions of QSS the subject of the injunctive orders made by the primary judge are Versions 11.176, 11.406 and 11.604.

129    The orders are in these terms:

3.    [SFSI] be permanently restrained from, without the express written licence of [FIPL], whether by itself, its agents, its officers, its employees or otherwise:

a.    reproducing in a material form;

b.    communicating to the public; and

c.    authorising the doing of a or b above,

the whole or a substantial part of versions 11.176, 11.406 or 11.604 of a suite of computer programs known as [QSS].

4.    Each of [HSFS] and [Mr Pacione] in his personal capacity, be permanently restrained, whether by themselves, their agents, their officers, their employees or otherwise, from authorising, without the express written licence of [FIPL] or its predecessors in title, the:

a.    reproduction in a material form; or

b.    communicating to the public,

of the whole or a substantial part of versions 11.176, 11.406 or 11.604 of QSS.

130    As to the copyright in “all QSS releases to 1 November 2011”, the primary judge said this at [318]:

The second issue identified by the Cross-Defendants is, if copyright subsists in QSS, whether FIPL owns copyright in all QSS releases to 1 November 2011. The formulation of this issue requires one immediate correction. The fact that such copyright exists is pleaded by JRC and HSFS and that pleading amounts to an admission against interest by which they are bound. That is the case notwithstanding they have not admitted the position in respect of each new release and update forming part of the application. The evidence to which I have referred above is sufficient to establish that copyright subsists in QSS, so far as Mr Pacione and SFSI may not have been bound by those admissions.

131    As to the position since 1 November 2011, the primary judge noted the contention that neither Mr Cummings nor FIPL had adduced evidence which demonstrated that FIPL owned the copyright in all QSS releases after 1 November 2011. The cross-defendants (appellants) contended that from May 2013 to October 2013, FIPL worked on developing improved software to be compatible with IntelliCAD Version 6.6; that Mr Cummings had given evidence that he was not involved in development of QSS to be compatible with IntelliCAD; that persons other than Mr Cummings had been involved in the current development of QSS; and that otherwise there was no evidence of who did the work, whether they were qualified persons for the purposes of the Copyright Act, whether the work was original or the substantiality of the work.

132    As to the position since 1 November 2011, the primary judge said this at [321]:

… For these reasons, I accept that it [has] not been established that each of the updates and new releases of QSS since 1 November 2011 constitutes copyright works and that FIPL owns all updates and new releases of QSS since that date. However, little may turn on this matter where JRC and HSFS admit that copyright subsists in QSS and I have rejected the proposition that they have any interest in that copyright.

133    As to infringement of the copyright said to subsist in all works in suit (versions, updates and new releases), at trial the cross-defendant (appellants) did not contend that SFSI derived any authority to use or sub-licence QSS from HSFS under the 2004 Agreement as distinct from the contention that JRC had granted SFSI a licence under what was said to be the enduring 2002 Agreement: PJ, [338].

134    At [339], the primary judge said this of the essential contentions of FIPL and Tanmari on infringement:

The Cross-Claimants contend that the Cross-Defendants have reproduced or authorised the reproduction of QSS and communicated QSS to the public (by making it available online) or authorised the communication, by their conduct in providing QSS under licence to their customers for the purpose of use by their customers in making light gauge steel framing systems. There is no dispute that the Cross-Defendants’ software (previously known as HayesCAD, now known as ProCAD) is the same as QSS. There is also no dispute that SFSI has engaged in that conduct since about 2009 and has continued to exploit the software by making it available to its customers after the date of FIPL’s acquisition in November 2011 and intends to continue this conduct. The Cross-Defendants accept that HSFS also engaged in that conduct on at least one occasion after 2009 (Ex D4).

135    To the extent that SFSI sought to rely upon a licence granted by JRC under the 2002 Agreement, the primary judge found that the 2002 Agreement had been abandoned and in any event no such licence was granted by Mr Pacione, on the facts: PJ, [340] and [163] to [177]. No licence otherwise arose in SFSI: PJ, [340]. We have already dealt with the appeal in relation to these conclusions.

136    At [341], the primary judge notes the contention of the cross-defendants (appellants) that if SFSI exercised any of the rights comprising the copyright in QSS, infringement is only made good by FIPL and Tanmari by their identifying the particular relevant copyright work and then identifying a particular work of SFSI that reproduces either the whole of or a substantial part of the identified work of FIPL and Tanmari. It followed for the cross-defendants before the primary judge, as it does for them as appellants, that FIPL and Tanmari must identify the version of QSS relied upon as the source of the rights, whether a version of QSS or a version taken together with a particular update or one or more updates supplemented or not by a new release (whether amounting to an incremental new version or otherwise), and then demonstrate that the relevant work, so relied upon, has been the subject of the exercise of the defined rights, that is, either a reproduction of the work in a material form in whole or substantial part or a communication to the public in whole or substantial part.

137    Their contention before the primary judge and now on appeal is that FIPL and Tanmari (through Mr Cummings) have failed to discharge that analytical and forensic burden.

138    They say, in effect, that, as a matter of law, no inference can be drawn (either at all or sufficient to discharge the burden) as to originality, subsistence or, relevantly, infringement, from some evidence about some versions or some updates or new versions, to the effect that all versions, updates and new releases attract originality, subsistence and infringement. This proposition is described by the primary judge as the inappropriateness of selecting a “representative sample” of a work in suit (at a particular moment in time) and inferring infringement about all elements of the work (all lines of code, routines, updates, versions and new releases) at all moments in time.

139    As to this contention generally, the primary judge said this at [341]:

… However, it seems to me that SFSI’s alleged infringement of the copyright in QSS is established by the matters that are admitted by JRC and HSFS and the findings that I have reached above. JRC and HSFS themselves plead that Mr Cummings has copyright in QSS and it is common ground that he assigned that copyright to FIPL by the FIPL Purchase Agreement; so far as SFSI is not bound by that admission, the evidence to which I have referred above established that Mr Cummings had copyright in at least three specific versions of QSS to which I have referred; and it is also common ground that SFSI has sub-licenced the use of QSS to third parties since April 2009 relying upon the purported sub-licence to it by JRC of its rights under the 2002 Agreement; and I have held that JRC did not confer those rights on SFSI for the reasons noted above. This finding does not involve the Court taking any “representative sample” and inferring infringement, since the admission by JRC and HSFS and my findings as to ownership of the copyright in the three specific versions of QSS are sufficiently wide that any unauthorised use of that copyright by SFSI gives rise to infringement.

                                [emphasis added]

140    On this topic, the primary judge also said this at [342]:

The Cross-Defendants also point out that the Cross-Claimants claim that each update or new release of QSS and user documentation is a new and literary work (Cross-Claim [4] and [6]) and contend that they have not pleaded or identified which copyright work, which update or new release of QSS and user documentation that SFSI has infringed. … Where it is admitted by JRC and HSFS that Mr Cummings had copyright in QSS and established as against SFSI that Mr Cummings had copyright in the three specific versions of it to which I referred above, and not established that SFSI had any right to use QSS, then the Cross-Claimants can establish the breach of copyright by showing SFSI’s use of QSS, without needing to identify (at least at the liability, as distinct from quantification, stage) the particular updates or releases as to QSS as to which infringement took place. The evidence as to the manner in which QSS was developed and updated, to which I have referred above, supports a finding that any sub-licensing of QSS to that party since April 2009 will have involved reproducing one [or] more of those versions of QSS (or subsequent releases that incorporated them) or communicating them to the public or authorising those acts.

                                [emphasis added]

141    As to authorisation, the primary judge concluded that HSFS had at least a “practical power” to prevent SFSI’s infringing conduct (sufficient to represent a “power to prevent the primary infringement” in the sense contemplated by French CJ, Crennan and Kiefel JJ in Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 at [68], going beyond mere “indifference” or simply “countenancing” infringement (Gummow and Hayne JJ at [142] and [143]). That practical power was to be found in the circumstance that SFSI’s infringing conduct was “enabled” by HSFS ceasing to do business with new clients and thereby permitting SFSI to, in effect, assume the business of HSFS; a close relationship existing between HSFS and SFSI; Mr Pacione controlling and holding the substantial economic interest in each of those companies; HSFS and SFSI co-operating in the transfer of the business of HSFS to SFSI; and HSFS taking “no steps” to prevent SFSI’s infringement by, for example, acting to withhold its co-operation in the conduct of SFSI. It could have chosen, for example, not to cede its business to SFSI: PJ, [344] and [345].

142    Thus, HSFS authorised SFSI’s infringement for the purposes of ss 36(1) and 36(1A) of the Copyright Act.

143    Because the primary judge did not accept that JRC had granted a licence to SFSI in April 2009, as contended (a conclusion we have upheld on the appeal), the primary judge could not be satisfied that JRC authorised SFSI’s infringing conduct (as found): PJ, [346].

144    As to Mr Pacione, the primary judge observed that he was the controlling mind and a director of JRC, HSFS and SFSI although a director would need to do more than act “as a director” of an entity to be found to have authorised that entity’s infringement of copyright: PJ, [347]. The primary judge discussed the tests reflected in the authorities for conduct by a director that would give rise to his or her authorising the tort of the company. Did the director “direct or procure” the infringement? Did the director “make the tort his [or her] own?” Did the director “stand apart” from the company and procure the tort as a separate entity?”: PJ, [348] and [349].

145    As to these matters, the primary judge said this at [350]:

It does not seem to me to be necessary to distinguish the tests, since Mr Pacione should be held liable for authorising SFSI’s conduct on any of them. His actions in the present case were not merely undertaken as an officer of SFSI, in implementing a corporate action, but implementing an arrangement which he developed, and caused the companies to implement, by which HSFS’s business was shifted to SFSI from April 2009 and SFSI continued to grant licences to QSS, where it had no rights to do so derived from Mr Cummings, Tanmari or HSFS and would not be required to pay licence fees to Tanmari under the 2004 Agreement. Mr Pacione was the sole controlling mind of the relevant companies and authorised and undertook each step involved in HSFS’s ceasing business and SFSI assuming its business and granting sub-licences of QSS to its customers. It seems to me that, whichever test is adopted, Mr Pacione authorised SFSI’s infringement of copyright.

                                [emphasis added]

146    Since the primary judge had found that JRC did not authorise, for the purposes of s 36(1A) of the Copyright Act, SFSI’s infringement, no question arose of whether Mr Pacione had authorised JRC’s authorisation of SFSI’s infringement: PJ, [351].

147    As to HSFS’s authorisation of SFSI’s infringing conduct, the primary judge concluded that Mr Pacione at least had a “practical power to prevent” HSFS’s authorisation of SFSI’s infringing conduct (having regard to the same factors earlier mentioned) and that HSFS’s authorisation of SFSI’s conduct would not have occurred had Mr Pacione not exercised his control over HSFS “to bring it about” and that Mr Pacione “caused HSFS to allow SFSI to take up that business”. Thus, Mr Pacione authorised HSFS to authorise the infringing conduct of SFSI: PJ, [352].

148    In the result, as earlier mentioned, SFSI was restrained from exercising the rights described in Order 3 without the written consent of FIPL in respect of the whole or a substantial part of Versions 11.176, 11.406 or 11.604 of QSS. By Order 4, HSFS and Mr Pacione were restrained from authorising, without FIPL’s written consent, the exercise of the rights described in Order 4 in respect of the whole or a substantial part of the three versions of QSS.

The grounds of appeal

149    As to the notice of appeal, JRC, HSFS, SFSI and Mr Pacione assert these grounds of appeal on the copyright and related issues.

150    First, the primary judge erred in holding that SFSI infringed the copyright of the respondents in the absence of “any evidence” that the “version” of the “Software” (defined in the notice as the “suite of computer programs known as [QSS]”) that SFSI was licensing (to its customers) reproduced the whole or a substantial part of the versions of the software in which copyright was found to subsist, that is, Versions 11.176, 11.406 or 11.604: ground 7.

151    Second, the primary judge ought to have held that SFSI did not infringe copyright: ground 8.

152    Third, by reason of Grounds 7 and 8, the primary judge erred in finding that HSFS and Mr Pacione authorised SFSI’s infringement of copyright as no such infringement occurred: ground 9.

153    Fourth, the primary judge ought to have held that neither HSFS nor Mr Pacione authorised SFSI’s infringement: ground 10.

154    Fifth, by reason of Grounds 7 and 8, the primary judge erred in holding that there were no groundless threats of copyright infringement: ground 11.

155    Sixth, the primary judge ought to have held that there were groundless threats of copyright infringement: ground 12.

156    Seventh, even if SFSI infringed copyright, the primary judge erred in holding that HSFS and Mr Pacione authorised SFSI’s infringement because the primary judge erred in applying the factors in s 36(1A) of the Copyright Act: ground 13.

157    Eighth, even if SFSI infringed copyright, the primary judge ought to have held that HSFS and Mr Pacione did not authorise SFSI’s infringement of copyright: ground 14.

The cross-appeal

158    By the amended notice of cross-appeal, the cross-appellants contend that the primary judge ought to have found that copyright subsisted in each version of QSS: Ground 10 of the cross-appeal.

The orders sought

159    As to the copyright and related issues, the appellants also seek an order that paras 3 to 15 of the orders made by the primary judge be set aside which encompasses all of the orders of the primary judge in relation to the copyright issues among other related matters.

160    They seek an order that HSFS be restrained from reproducing in a material form, communicating to the public and authorising the doing of either of those things, with respect to the whole or a substantial part of “any version” of QSS without the licence of FIPL: Order 5.

161    They seek an order that SFSI be restrained from reproducing in a material form, communicating to the public and authorising the doing of either of those things, with respect to the whole or a substantial part of “any version” of QSS without the licence of FIPL: Order 5A.

162    In the alternative to Order 5, they seek an order that HSFS be restrained from reproducing in a material form, communicating to the public and authorising the doing of either of those things, with respect to the whole or a substantial part of Versions 11.176, 11.406 or 11.604 of QSS without the licence of FIPL.

The contentions of the appellants JRC, HSFS, SFSI and Mr Pacione, and cross-respondents HSFS, SFSI and Mr Pacione

163    Having regard to the written and oral submissions, the appellants make these contentions.

164    The appellants contend that Grounds 7 to 12 “hinge” on ground 7 and the “essence” of their complaint is that the findings of infringement by SFSI were reached at [341] and [342] by the primary judge in the absence of any evidence that the version of the software used and licensed by SFSI in April 2009 to its customers reproduced the whole or a substantial part of versions of the copyright in QSS in which copyright was found to subsist, namely, Versions 11.176, 11.406 or 11.604.

165    The appellants contend that the findings of fact on infringement at [341] and [342] are, at their heart, wrong because they are based on inferences unsupported by the evidence.

166    The appellants contend that at [341] the primary judge found infringement on the part of SFSI by reason of the matters admitted by JRC and HSFS (and findings reached otherwise), yet at [310], the primary judge recognised that SFSI and Mr Pacione were not bound by the pleaded admissions of JRC and HSFS.

167    However, the finding at [341] needs to be put in context. It is based on a conjunction of findings and, in particular, the immediate findings at [339] and [340] among earlier findings. At [339], the primary judge observes that since about 2009, SFSI had engaged in the conduct of supplying software in a form called ProCAD which is the same as QSS and at [340], the primary judge observes that SFSI did not acquire that right from JRC and it was not contended that SFSI had acquired that right from HSFS. Thus, at [341], the primary judge observes that “so far as” SFSI is “not bound by” the admissions made by JRC and HSFS, the evidence (to which the primary judge had referred including authorship in Mr Cummings in the terms set out at [314]) established that copyright subsisted in at least three specific versions of QSS as described at [314] and that it was common ground that SFSI had sub-licensed the use of QSS to third parties from April 2009 relying on a purported sub-licence from JRC: [341]

168    The appellants contend that two issues are engaged on this question.

169    The first issue is whether or not the version of the software upon which the cross-appellants rely as the software that SFSI began licensing in April 2009 attracts copyright by reason of proof of the content of the work, subsistence and originality. The second issue is whether the software licensed by SFSI from April 2009 (through to 2011 and beyond) was substantially objectively similar to the version of the work in which copyright subsists.

170    The appellants contend that although they do not deny that the various versions of QSS were created by the respondents, the respondents on their cross-claim have been put to proof in establishing that copyright subsists in particular versions of QSS (that is, each and every version) and that SFSI was infringing that copyright by particular conduct.

171    The appellants contend that they did not accept before the primary judge and do not accept on appeal that the evidence demonstrates that copyright subsists in each and every version of QSS. Apart from this issue of subsistence, the appellants contend that the “fatal flaw” in the reasoning of the primary judge was that there was no evidence that the work that SFSI was using and licensing to others was objectively similar to the copyright work of the respondents.

172    The appellants say that there was no evidence that SFSI was even licensing one identifiable version of QSS and thus no evidence upon which the Court could undertake a comparative analysis of the contended copyright work and the contended infringing work. Moreover, the software licensed by SFSI “could have been a hybrid of different versions”.

173    The appellants attack the finding of the primary judge at [342] where the primary judge observes that the evidence as to the manner in which QSS was developed and updated (described by the primary judge particularly at [314] and also at [315]) supports a finding that any sub-licensing of QSS to SFSI since April 2009 “will have involved reproducing one [or] more of those versions of QSS (or subsequent releases that incorporated them) or communicating them to the public or authorising those acts”. The reference in that quote to “those versions” is a reference to Versions 11.176, 11.406 or 11.604. The finding, of course, goes on to refer to subsequent releases that incorporated one of those versions, as well.

174    The appellants say that this finding is, inferentially, a finding that whatever version (or hybrid of versions) of software SFSI was using in April 2009, that software was objectively similar to other pre-existing versions of QSS in which copyright was found to subsist.

175    The appellants say that Version 11.406 was prepared in August 2005 in C++ programming language. The appellants say that it could not have been Version 11.176 because that version was prepared in a different programming language. They say it could not have been Version 11.604 because that version did not exist until May 2011. They say it could only have been Version 11.406.

176    In the result, the appellants contend that there was “a very substantial leap” made by the primary judge in finding that whatever SFSI was using in April 2009 was objectively similar to whatever comprised the work (Version 11.406) the primary judge found to have been the subject of copyright in 2005. The appellants say that the primary judge found, in effect, that copyright subsisted in a version of QSS in 2005 and another version in 2011 yet found that whatever version of software was released by SFSI to its customers in April 2009 was a breach of a version of QSS in 2009. The appellants say that there was no evidence of what was the version of QSS in April 2009.

177    The appellants contend that no such inferential finding is open on the evidence and that what was required of the primary judge, based on evidence, was a proper comparative analysis between a work in which copyright was found to subsist and whatever was the subject matter of the SFSI licence issued to customers in April 2009.

178    The appellants do not accept that a fair inference is open, on the evidence, that the substance of the software licensed by SFSI was in substance the same as the QSS software of any of the cross-appellants. The appellants contend that even if the respondents establish that copyright subsists in each and every version of QSS there was, nevertheless, no evidence before the primary judge as to the version of the software SFSI was using and licensing and thus it was simply not possible for the primary judge to reach a conclusion about objective similarity and thus infringement.

179    The appellants also contend that notwithstanding the findings of the primary judge about the steps Mr Cummings took as to authorship of all source code and the claims to originality, accepted by the primary judge about source code, updates and new releases (all findings accepted by the appellants – T, p 61, lns 14-19), those findings do not go far enough to establish the subsistence of copyright and thus the primary judge was only able to find the subsistence of copyright in three versions of QSS. The appellants contend that that finding ought to have governed the extent of subsistence and whether there was sufficient evidence to find infringement. They say that those findings provide no factual ground for drawing an inference that infringement is made good.

180    The appellants contend that if they are correct about that matter, that conclusion feeds into Grounds 8, 9, 10, 11 and 12 of the grounds of appeal and if they are wrong about it then all of those grounds fall away.

181    The appellants contend that the rational starting point of infringement is simply that the primary judge would have needed to know precisely what SFSI was licensing in order to make a comparison between that body of software and the work in which copyright was found to have subsisted. That exercise was, they say, simply not open to the primary judge and thus the finding of infringement cannot stand.

182    As to grounds 13 and 14, the appellants contend that the “central issue” is whether HSFS had power to prevent the primary infringement (assuming infringement by SFSI). The “essence” of the appeal point is that the approach of the primary judge elevated what was, in truth, either “countenancing” infringement or “indifference” to infringement into a power to prevent SFSI’s infringement.

183    The appellants contend that Mr Pacione’s evidence in cross-examination was that, based on the licence schedule he prepared, all new licences from April 2009 were issued by SFSI and as from April 2009, SFSI “took over” as the licensor of “QSS software for new, non-existing licences”: Transcript of Evidence, 4 June 2014, p 132, lns 25-46 (AB, p 2449). The appellants contend that having regard to this evidence, there was no proper basis to support the finding at [345] that HSFS had a “practical power” to prevent SFSI’s infringing conduct nor the finding that there was “cooperation” between HSFS and SFSI in the transfer of HSFS’s business to SFSI. Apart from those matters, the appellants say that a “key finding” at [345] was that HSFS took no steps to withhold its co-operation by, for example, refusing to cede its business to SFSI. The appellants contend that allowing something to happen, of and by itself, is not the exercise of “power” and that, at worst, the conduct identified by the primary judge at [345] is “countenancing” infringement and at best it was exhibiting “indifference” to SFSI’s conduct.

184    The appellants say that HSFS may have “encouraged” and “even supported SFSI” in engaging in business but that conduct would be insufficient to “authorise” a copyright infringement which, the appellants say, on the authorities, requires more. It requires the existence of a power to stop something happening.

185    The appellants say that there is a difference between allowing something to happen and possessing a power to stop it from happening. They say that the finding that HSFS had a practical power to stop SFSI’s conduct is “an exercise in artificiality” because in April 2009, Mr Pacione was the controlling mind of HSFS and was the economic owner of HSFS and SFSI. The appellants say that to suggest that “some exercise of will by him could have somehow stopped himself from doing something he otherwise wanted to do [through SFSI], we say, would be something of an absurdity”. The appellants say that there was “no evidence” of any power possessed by HSFS to stop copyright infringement on the part of SFSI as opposed to “standing aside and allowing circumstances to unfold and allow the infringement to occur”.

186    The appellants say that they do not challenge the collection of factual matters recited at [345] but say, as to the ultimate conclusion drawn from those facts, that they do not support a conclusion of a practical power in HSFS to prevent SFSI’s conduct.

187    As to Mr Pacione, the appellants contend that it is not sufficient, in order to establish authorisation of conduct by a director, to show that the director is the guiding mind of the corporation, because all corporations act through their directors (and other officers) and something more is required of a director to establish authorisation than simply discharging the role and duties of director. They say, according to the authorities, that something more by way of “personal involvement” or “close personal involvement” in the conduct is required or conduct of “making the tort his or her own” is necessary. Such an approach is said to be supported the Full Court decisions in King v Milpurrurru (1996) 66 FCR 474 and Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 and also the High Court’s decision in Roadshow Films Pty Ltd v iiNet Limited (2012) 248 CLR 42.

188    The appellants say that on the findings of fact, Mr Pacione was doing no more than acting as a director even though he was a single director and the guiding mind of SFSI: .

189    The appellants contend, having regard to Mr Pacione’s evidence in cross-examination (at p 2387 of the Appeal Book (“AB”) to the effect that SFSI was incorporated in 2007 to move away from the Hayes and Bradbury branding of HSFS and that the subsidiary’s name was changed to SFSI on 8 December 2008 so as to establish an international presence rather than a domestic one as characterised by HSFS), that SFSI was not incorporated in April 2009 as a vehicle of Mr Pacione for licensing purposes. The appellants say that the “nub” of their submission is that the primary judge “failed to refer to any evidence that John Pacione was doing anything other than acting as [SFSI’s] director”. They say that there is no reference to any evidence that Mr Pacione was merely using SFSI as an instrument for his own copyright infringement and nor is there any other evidence that the conduct of SFSI had been made his own.

190    The appellants raise a further matter which they confess does not form part of a separate ground of appeal but is said to be implicit in grounds 7 to 12, which is the question of “additional damages”.

191    The issue of additional damages is not dealt with in the orders of the primary judge. The issues in the principal proceeding of liability and damages were separated out for separate determination. However, in the reasons, the primary judge observes at [402] that the cross-claimants “are entitled to additional damages under the Copyright Act in respect of the infringement” by SFSI. Although the orders do not deal with this issue, it might be said that the primary judge has held, on the trial of the liability issues, that a liability to additional damages has been established and the quantification of those damages, according to the relevant principles, falls to be determined at the separate damages hearing. The appellants contend that they do not want it said against them at the damages hearing, when the time for making an order about additional damages logically arises, that they have not raised a challenge to the primary judge’s observation at [402] such that an issue estoppel might be contended against them.

192    The short point is that they say even if SFSI did infringe any relevant copyright, the primary judge ought not to have “awarded” additional damages because SFSI’s conduct was not “surreptitious” in the sense that it would have been unlikely to be discovered. Nor did it “deny what it was doing”. The appellants (cross-respondents) contend that SFSI was “open” about its conduct and that FrameCAD knew what SFSI was doing. They say that SFSI had a website and FrameCAD’s Mr Taylor took some screenshots of the website which were in evidence at the trial.

193    It seems to us that the appellants, having made their objection to the observation of the primary judge on this issue in the reasons at [402] ought to address, as a matter properly falling within the determination of damages as a separate question at the damages hearing, both their susceptibility to additional damages, according to the relevant principles and factors, and the quantum of any additional damages. The respondents to the appeal agreed with this approach.

The contentions of the respondents and cross-appellants Tanmari and FIPL

194    In this discussion, we will refer to Tanmari and FIPL as simply the “cross-appellants”. The cross-appellants seek injunctive orders on the basis that copyright subsists in any and every version of QSS on the footing that each new version of QSS includes the immediately preceding version of the software and that copyright subsists in each new update or release for QSS.

195    They contend that the primary judge recognised at [311] that it does not follow that such a conclusion can only be reached by individual scrutiny of the content of several hundred releases and updates recognising that on the evidence of Mr Cummings there were 500 updates of the suite of programs between 2002 and 2011.

196    They say that the conclusion as to subsistence of copyright may properly be reached by drawing inferences from, put simply, foundation facts found in the evidence which support those inferences. The foundation facts which might be found in the evidence are those facts going to the essential nature of the work in question (routines and algorithms enabling the functionality of computer software as compared with works such as train timetables, betting coupons or daily or weekly program schedules for television broadcasts); the method and process by which the author deployed work, effort, skill, labour, experience and judgement in bringing the work in suit into existence; the evolving nature and frequency of additions, increments, deletions and changes to functionality as a further function of the essential character of the work or works in suit; and the general processes going to continuing authorship.

197    In that sense, the cross-appellants support the primary judge’s proposition at [311] that “[copyright subsistence] may, in principle, be reached by inferences properly drawn from evidence as to the nature of such updates and releases and the process by which they were prepared”.

198    The cross-appellants contend that any use of QSS will infringe some version of QSS and the copyright owner does not need to identify which QSS version is used.

199    They say that if a user is using a version of QSS and no right of use derives from the copyright owner, infringement is made out once subsistence is demonstrated.

200    The cross-appellants accept that from one version to another and one update to another, it may be that the changes made are too insubstantial to create a “new copyright”. However, the recognition of that matter, they say, does not mean that copyright will not protect every version of the software that is released. That follows because, it is said, reproduction of a version necessarily involves making a copy of the “underlying work” as well as the minor additions each time the user uses or exploits the software. They say that if the variations to the underlying work are insufficient to constitute a new work there would still be infringement of the “whole package” because copyright in the underlying suite of programs making up the underlying work remains.

201    The cross-appellants support the findings and reasoning of the primary judge at [341] to the effect that to the extent that SFSI and Mr Pacione are not bound by any admissions made in the amended pleading by JRC and HSFS, the evidence establishes that Mr Cummings has established copyright subsistence in three versions of QSS and SFSI had purported to exercise rights in QSS since April 2009 under licence from JRC.

202    They also support the finding and reasoning at [342] to the effect that the cross-appellants can establish the breach of copyright as against SFSI by showing SFSI’s use of QSS “without needing to identify (at least at the liability, as distinct from quantification, stage) the particular updates or releases as to QSS as to which infringement took place”.

203    The point sought to be demonstrated by the cross-appellants in supporting [341] and [342] is that the approach adopted by the primary judge is said to be “a conventional finding based on a chain of works, each of which is derivative from the one previous”.

204    The cross-appellants also rely upon a contended admission which they say goes further than the admission the appellants accept. The contended admission from SFSI is said to be contained in a letter from the solicitors for the appellants, Simone Legal, dated 11 December 2013 (AB, Pt C, Vol 2, Tab 5) in these terms:

For the purposes of these proceedings only, [SFSI] admits that it licensed [QSS] to at least one customer after November 2011, and admits that at least one licence covered more than one user of the software.

For the purposes of these proceedings only, [HSFS] admits that it did not licence [QSS] to a customer after November 2011.

…

If [SFSI] licensing [QSS] after November 2011 infringes your client’s copyright, then our admission that [SFSI] licensed [QSS] to at least one customer covering more than 1 user of software after November 2011 is sufficient for the court to find that Third Cross Defendant [SFSI] client is liable for infringement of copyright. Therefore, there is no need for your clients to subpoena Golden Homes and Stratco (WA) Pty Ltd.

                                [emphasis added]

205    In that letter, the appellants also say that SFSI had a reasonable basis for not requiring the licence of [FIPL] to exercise copyright, and therefore even if [SFSI] has infringed copyright, the infringement was not flagrant.

206    Thus, the cross-appellants contend that the substance of the principal proceeding, consistent with the above letter (particularly para 1), involved the proposition that one did not need to look behind the licences issued by SFSI because the central question simply was whether the appellants were entitled to exploit the QSS software and receive updates of it. They say that the primary judge based his findings on the evidence of Mr Cummings summarised at [314] and the primary judge accepted that evidence.

207    The cross-appellants say that the primary judge not only relied upon the evidence of Mr Cummings that he was the sole author of all source code for QSS but also his evidence that in the period between 1990 and November 2011 he developed and released more than 500 versions of QSS. The cross-appellants say that the primary judge had regard to the “release notes” for QSS which included Version 11.176 from February 2002 (AB, p 1471) to Version 11.399 dated 20 May 2005 (AB, p 1419); Version 11.400 from 9 June 2005 (AB, p 1505) to 11.605 dated 20 September 2011 (AB, p 1472); and Version 11.406 dated 10 August 2005 (AB, pp 1503 and 1504) to Version 11.604 dated 5 June 2011 (AB, p 1472).

208    The cross-appellants support the finding of the primary judge at [314] that an examination of the many line items identifying changes to the versions of QSS throughout the period of the relevant versions indicates the extent of the “additional work performed by Mr Cummings in making each new version of QSS”: [314]. The cross-appellants say that one has to “step back” and recognise that Mr Cummings “wrote the whole thing” and over the period from 2002 (Version 11.176) to 5 June 2011 (Version 11.604) the code written by Mr Cummings increased from 23,275 lines to 297,954 lines of code. At the time of Version 11.406 on 10 August 2005, the lines of code he had written had grown to 170,062 lines.

209    The cross-appellants say that the primary judge accepted the evidence of Mr Cummings on this issue and his evidence generally as a witness ([24], [25], [314] and [315]); found Mr Cummings to be an honest and credible witness; and described the notion that some of the software may not have been authored by him or that there was no human author of parts of it, as “speculative”.

210    The cross-appellants say that the evidence of Mr Cummings is that he released the whole of QSS every time he issued a release or update and thus the notion that “there might be hybrid versions of the program around is completely wrong”.

211    The cross-appellants say that the appellants did not have access to the source code as an update or new release although they had access to the software originally in CD form and later made available by download from the website of Mr Cummings except that in 2002, JRC was given what was needed by it to enable it to licence its customers, namely, a program in usable form. The cross-appellants say that it is simply not correct to assert that SFSI could or might have on-licensed something other than the entire QSS package. That package had been made available to HSFS over the period 2004 to 2011.

212    The cross-appellants say that once it is accepted (as the primary judge did) that Mr Cummings was the sole author of all source code, two possible consequences arise.

213    The first is that each of the versions from Version 11.406 of 10 August 2005 and every version after that between 11.406 to 11.604 on 5 June 2011 involved sufficient original skill and labour to constitute a new work and although the primary judge was reluctant to so find, the cross-appellants press a declaration to that effect on appeal.

214    The second is that some of the versions released by Mr Cummings were largely copied from preceding versions with some new material although not sufficient, in itself, to constitute a new original work. In that case, a reproduction or communication of that version would nevertheless involve the exercise of those rights in relation to a substantial part of the predecessor work in which copyright subsists, that is to say, the “underlying work”.

215    Apart from the notion of exercising rights in the underlying work, the cross-appellants say that SFSI at least sold or offered for sale Version 11.603 as well as earlier and later versions. Version 11.603 is a version dated 15 April 2011. The cross-appellants say that on SFSI’s website on 24 November 2011, 20 December 2011, 13 February 2013 and 14 March 2013, SFSI said this:

216    Thus, SFSI was offering to supply Version 11.603 and later versions of QSS.

217    The cross-appellants say that apart from SFSI’s position adopted on its website, Mr Pacione in cross-examination gave evidence that the latest version of QSS held by HSFS obtained in 2011 was Version 11.599 (dated 18 January 2011) or 11.604 (dated 5 June 2011): see PJ, [199]. The cross-appellants say that Versions 11.599 and 11.604 are either discrete works in which copyright subsists or they are reproductions of a substantial part of Version 11.406 (dated 18 August 2005) or each later version which derives from and adds to Version 11.406 at any particular point in time recognising that between Version 11.406 and Version 11.604 approximately 120,000 lines of code was written by Mr Cummings, as author, according to his evidence accepted by the primary judge.

218    The cross-appellants also say that the version of QSS licensed by SFSI was not a “static version” but rather SFSI licensed users (customers) with whatever was the updated version of QSS obtained by accessing the website of Mr Cummings. They say that the licences in evidence at Ex D4 show licences of QSS by SFSI from 2009 to 2011 (and later) and the licensing by SFSI continued up to judgment although discovery of all licences was not necessary for the liability hearing.

219    The cross-appellants also say that in cross-examination, Mr Pacione was asked whether Version 11.576 of QSS (dated 26 February 2010, AB, p 1475) was the version that he currently (that is, at the date of the question, 4 June 2014) was making available to his customers (which must be a reference by the questioner to supply by SFSI since it is in the post-April 2009 period). Mr Pacione answered “no” and said that the version made available was “the last version I think of 2011 that was available, I don’t know what, it may have been 604 or 599”: Transcript before the primary judge at p 178, lns 19-25, AB, p 2495.

220    The cross-appellants say that the evidence demonstrates that the last version accessible in 2011 was Version 11.604.

221    As to infringement, the cross-appellants say that SFSI’s licensing to its customers of any version of QSS as released (such as offering Version 11.603 or later or earlier versions of QSS by website offerings) necessarily involves a reproduction of a work constituted by a version or a reproduction of an underlying work in respect of which all code was written by Mr Cummings. The submission of the cross-appellants is that there was evidence available from which the Court could properly have inferred the subsistence of a separate copyright in each version of QSS released by Mr Cummings and that the Court does not need to examine each version or each release note, line by line, and make an analysis of it by reference to the one before, to be satisfied about whether each version constitutes a “new work”. That is said to follow because the evidence of the relevant foundation facts (that is, the evidence of Mr Cummings taken together with the release notes) supports the drawing of an inference that copyright subsists in each version.

222    The cross-appellants say that if the Court is against them on this matter of contended principle, “in short it doesn’t matter … in the ultimate outcome”.

223    As to authorisation of SFSI’s infringement by HSFS, the cross-appellants contend that the conduct of HSFS is not mere “indifference to” or simply “countenancing of” infringement by SFSI. Rather, the primary judge applied the s 36(1A) factors and rightly concluded that HSFS enjoyed, as a matter of practicality, the power to prevent the primary infringements by SFSI.

224    The cross-appellants rely upon all the findings at [345] which they say are well supported by the evidence including particularly the findings that HSFS “enabled” SFSI’s infringing conduct and “permitted, SFSI, in effect, to assume its business”, although all of the factors addressed by the primary judge are said to reflect a “perfectly correct approach” which is “amply supported by the evidence”.

225    The cross-appellants contend that the primary judge’s finding of co-operation between HSFS and SFSI in the transfer of HSFS’s business to SFSI is supported by an examination of the licences at Ex D4 which includes licences issued by HSFS up to April 2009 and licences issued thereafter by SFSI. They rely upon Ex D4, Tab 9, p 192 which is an email from “Licence SFS [licence@sfsint.com]” under the subject “[HSFS] and [SFSI] Software Licence Renewals” to a particular licensee by which SFSI tells the licensee that “Your ProCAD Authorisation Codes are listed below”. The cross-appellants say that this engages QSS. The ProCAD authorisation codes are used, they say, to activate the QSS software supplied by SFSI. The cross-appellants say that thus HSFS was co-operating with SFSI and enabling it to offer licence “renewals” of QSS to “old customers” of HSFS consistent with the finding at [345].

226    The cross-appellants invite a comparison between the document at Ex D4, Tab 18 with the document at Ex D4, Tab 13.

227    The Tab 13 document is a licence between HSFS and Licensee X. It begins with a proposal coversheet; sets out a revision history from 2 May 2006 to 14 June 2007; contains an “Overview” of the document’s purpose as between HSFS and the Customer/Licensee concerning the supply of the HSFS “system”; describes features of “Steel Wall Panels” and “Steel Flooring”; and attaches the HSFS Standard Terms and Conditions. The final page of Tab 13 is Tanmari’s invoice to HSFS dated 23 July 2007 (paid on 1 August 2007) for the supply of 10 copies of QSS.

228    The Tab 18 document is a licence between SFSI and Licensee Y. It also begins with a proposal coversheet; sets out a revision history showing a date of September 2009 (although this seems to be a start point rather than a true revision); contains an “Overview” of the document’s purpose as between SFSI and the Licensee concerning the supply of SFSI’s “system”; describes the features of “Steel Wall Panels” and “Steel Flooring”; and also attaches SFSI’s Standard Terms and Conditions which are in precisely the same terms as the HSFS document at Tab 13. The invoice to the Licensee recites the provision of ProCAD licences and seems to be dated 29 October 2009.

229    The cross-appellants say that what emerges from the comparison is evidence that HSFS has been enabling of, and was co-operating in, bringing about a “seamless transition”, in part through SFSI’s use of HSFS’s documentation, from HSFS to SFSI of its steel framing production system including licences necessary for the operation of that system. The cross-appellants also say that many of the SFSI licences were signed by Mr Pacione an example of which is the document at Ex D4, Tab 30 and that Mr Pacione, by email, supplied the necessary authorisation codes to licensees, an example of which is the document at Ex D4, Tab 40.

230    Exhibit D4 contains over 40 such licences. The schedule at Ex D4, Tab 1, is a list of “QSS Licences issued by [HSFS] and [SFSI] between 11 August 2004 and 11 August 2011”, the content of which was determined by Mr Pacione as part of discovery. Sixteen of those licences were granted by HSFS and the remainder were granted by SFSI.

231    As to Mr Pacione, the cross-appellants rely on and support the findings of the primary judge at [350] and say that the engagement of Mr Pacione in the licensing transactions reflected in Ex D4 shows that his conduct went “well beyond” mere acts of a director discharging governance duties. The cross-appellants say that all of the findings at [350] are supported by the evidence and that Mr Pacione was “personally involved” in all of the infringing acts. The cross-appellants also say that from about March 2009 to April or May 2009, Mr Pacione sought the consent of Mr Cummings to assign the “existing licence” (from HSFS) to JRC as part of an “inter-company” arrangement which is said to demonstrate Mr Pacione’s direct and personal engagement in seeking to establish precisely the arrangement he wanted to put in place.

Submissions in reply on the appeal and submissions in response to the cross-appeal

232    Counsel for the appellants and cross-respondents took the position that since there is such an overlap between the appeal and cross-appeal on the copyright issues that all responsive matters would be addressed together as a distinct issue.

233    The cross-respondents say that SFSI put the cross-appellants, Tanmari and FIPL, to proof of the claim they made that copyright subsists in all versions of QSS as each version was a new work in which copyright subsists. They say that that was the case the trial judge was asked to decide and the “essential argument” of the cross-respondents is that there is a significant “evidential” deficiency in making that cross-claim good and a flaw or “logical disconnect” in the reasoning and conclusions of the primary judge at [311] to [317] to the effect that the evidence did not allow a finding of originality to be made concerning any or all updates on the one hand and yet the primary judge was satisfied at [341] and [342] that the evidence of Mr Cummings established the subsistence of copyright in three specific versions, 11.176, 11.406 and 11.604, on the other hand. The cross-respondents say that no case of reproduction of an “underlying copyright” work was made against them at trial. Each update was said to be a version properly regarded as a new work attracting subsistence.

234    These submissions do not adequately reflect the sequence of reasoning of the primary judge on this issue although they fairly reflect the case the cross-appellants sought to make in support of the declaration they sought: see the statement of cross-claim and [311].

235    We will address the reasoning of the primary judge later in these reasons but the real question of methodological principle is what constitutes sufficient evidence of originality and subsistence in a particular work especially one said to have been incrementally developed over time by regular changes (additions and deletions) with a consolidated version of the work (the entire suite of programs) published with each new version and whether inferences can be drawn about proof of those matters of fact about such a work from particular foundation facts about the process overall. The cross-respondents say that they do not “take a large issue with” the notion that proof might lie in “inferences” drawn from evidence about the nature of the work and the relevant processes of authorship, although the Federal Court has, they say, “set the evidential bar to prove these things high”.

236    The cross-respondents say that for the purpose of this analysis of originality and subsistence, they do not, and do not need to, challenge the findings of the primary judge concerning Mr Cummings because even accepting the findings of his honesty and that there was work undertaken, having regard to his evidence and the release notes (and his evidence of substantial time and effort expended by him), “nonetheless” the primary judge concluded at [317] that the evidence did not allow him to determine whether copyright subsisted in any one update or all updates as original works (except, of course, for the identified three versions which is said to be logically inconsistent with the general findings about the evidence).

237    The cross-respondents say that the Court ought not interfere with the finding that the evidence did not allow a finding of copyright subsistence in any or all updates.

238    They say that looking at the release notes might say something about functionality but those notes do not reveal anything about originality. They also say that the primary judge was able to find originality and subsistence in only three out of 500 versions of QSS and thus to find that a version in 2009, for example, contained an underlying copyright work from 2005, for example, in which copyright was found to subsist, would not have been open to the primary judge on the evidence.

239    The cross-respondents also repeat their earlier submission that the findings about subsistence of copyright in only three versions do not provide a basis for a finding of “general infringement”.

240    As to infringement, the cross-respondents contend that although it was said against them that they were not given “source code” and therefore it followed that they were necessarily limited (particularly SFSI) to using and licensing customers with whatever version of QSS they had obtained from Mr Cummings or Tanmari, the evidence of Mr Cummings at para 48 of his affidavit of 4 December 2012 (AB, p 2253) was that updates and new releases of QSS “were in the form of an executable file (.exe) and could be installed onto the computer of an end user by double clicking on the executable file”. They say, therefore, that nothing prevented files being added to whatever version of QSS was being licensed into the market by SFSI and thus a comparison would be necessary between the relevant QSS version in which copyright was said to subsist and the collection of files comprising the version licensed to customers by SFSI at any relevant moment.

241    The cross-respondents say that there is no evidence that Version 11.604 was ever licensed to customers by SFSI nor evidence that SFSI obtained a version from HSFS.

242    As to Mr Pacione’s liability, the cross-respondents say that the dimension of a “one person company” means that there is very little distinction between the acts of the person and the conduct of the company itself and thus “one needs to find a personal dimension” to attract liability. The cross-respondents accept entirely the findings of the primary judge as to the things Mr Pacione did but say that nothing his Honour found elevated Mr Pacione’s conduct beyond acting in his capacity as a director of the company.

243    The cross-respondents say that there is no evidence to support the notion that Mr Pacione engaged in some device, through SFSI, to avoid paying licence fees. They also say that the findings of the primary judge were that SFSI dealt with “new business and new customers”. They say that none of SFSI’s customers, in terms of new licences, were HSFS customers and therefore HSFS was not supplying SFSI with customers. They say that the HSFS customers enjoyed perpetual licences with no ongoing fees and therefore SFSI could not generate licensing revenue from them. SFSI’s business model was different. It was based on charging annual licence fees to user/customers.

Consideration of the various issues

244    The first and fundamental consideration is the contention that there was “no evidence” to support the findings of the primary judge of originality and copyright subsistence in the three versions of QSS so found; that there is a logical inconsistency in the reasoning and conclusions of the primary judge between, on the one hand, lack of proof of originality and subsistence in any or all updates and the findings, on the other hand, of originality and subsistence in the three versions; and the contention of the cross-appellants that the evidence makes good originality and subsistence in all versions, updates and releases as new original works or versions containing an underlying work in which copyright subsists.

245    These matters involve questions of fact to be determined according to settled principles of law. It will be necessary to further examine the findings of fact and the evidence said to support those findings.

The principles

246    As to the principles, however, these matters should be noted.

247    The parties conceded before the primary judge that the suite of programs making up QSS comprise a “computer program” and a “literary work” within the meaning of s 10(1) of the Copyright Act: PJ, [307].

248    We understand that concession to mean that updates of those programs, new releases relating to aspects of them or new versions of them are also computer programs or part of a computer program called, conveniently, QSS although we recognise immediately, of course, that the cross-respondents contend that the cross-appellants failed to prove that copyright subsists in updates, new releases or each version of QSS, for the reasons already mentioned. However, to the extent that copyright is said to subsist or is ultimately shown to subsist, the relevant work is properly characterised as a “computer program”. The cross-respondents also contend that the cross-appellants have failed to prove the particular content of the work relied upon as a computer program, or infringement of that work by any of the cross-respondents by the exercise of rights comprised in the copyright in relation to the whole or a substantial part of the relevant work in suit.

249    The context is a statutory one with particular reference to Pt III of the Copyright Act.

250    By s 10(1) of the Copyright Act, a literary work includes a computer program or compilation of computer programs and a computer program means “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”: s 10(1). Copyright subsists in an unpublished original literary work of which the author was a qualified person when the work was made or, if the making of the work extended over a period, copyright subsists in the work if the author was a qualified person for a substantial part of that period: s 32(1). Copyright subsists in an original literary work which has been published or, if copyright subsisted in the work immediately before first publication, copyright continues to subsist in the work, subject to the factors set out at s 32(2)(c), (d) and (e). To the extent that Mr Cummings, on the evidence, is the author of the computer program, updates, releases and versions in suit by the cross-claim, there was no contention before the primary judge that Mr Cummings was not (and is not) a qualified person. Nor was there any contention that either or both of s 32(2)(c) or (d) were not satisfied (that is, first publication in Australia; the author being a qualified person at the time when the work was first published).

251    Copyright in relation to a literary work is, relevantly, the exclusive right to reproduce the work in a material form; to publish the work; and to communicate the work to the public: s 31(1)(a)(i), (ii) and (iv).

252    A reference to the doing of an act in relation to a literary work includes a reference to doing that act in relation to a substantial part of the work (s 14(1)(a)) and a reference to a reproduction or copy of a literary work includes a reference to a reproduction or copy of a substantial part of the work, as the case may be (s 14(1)(b)). To “communicate” a work means, put simply, to “make available online or electronically transmit”, the work: s 10(1). A reference in the Act to an act comprised in the copyright in a literary work is a reference to any act the owner of the copyright has the exclusive right to exercise under the Act: s 13(1). The exclusive right to do an act in relation to a literary work includes the exclusive right to authorise a person to do that act in relation to that work: s 13(2).

253    A literary work is made, relevantly, when the work is first reduced to writing or to some other material form: s 22(1). Material form, relevantly, in relation to a work, includes any form (whether visible or not) of storage of the work or a substantial part of the work: s 10(1). The combined effect of s 32(1), s 22(1) and the definition of material form is to provide for the subsistence of copyright in an unpublished literary work at the time of first fixation by a qualified person whether visible or not. The first publication occurs upon supplying a reproduction of the work to the public (that is, the whole work not just a substantial part of it): s 29(1), s 29(2) (cf, s 14(1)).

254    Subject to s 35 and Pts VII and X of the Act, the author of a literary work is the owner of the copyright subsisting in the work by virtue of Pt III of the Act.

255    Subject to the Act, the copyright in a literary work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright: s 36(1).

256    Section 36(1A) is in these terms:

In determining, for the purposes of subsection (1), whether or not a person has authorised the doing in Australia of any act comprised in the copyright in a work, without the licence of the owner of the copyright, the matters that must be taken into account include the following:

(a)    the extent (if any) of the person’s power to prevent the doing of the act concerned;

(b)    the nature of the relationship existing between the person and the person who did the act concerned;

(c)    whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.

257    These provisions demonstrate the “centrality” of authorship to the overall scheme of Pt III of the Copyright Act: IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 (“IceTV”), French CJ, Crennan and Kiefel JJ at [22] and [24]; and the “significance” of authorship as the “essential source” of original works: Gummow, Hayne and Heydon JJ, IceTV, at [96].

258    Moreover, the “obvious fact” is that “in copyright law” the two expressions “author” and “original work” have always been regarded as “correlative” terms: Sands & McDougall Pty Ltd v Robinson (1917) 23 CLR 49 at 55, Isaacs J (Gavan Duffy and Rich JJ agreeing at 57). The requirement that a literary work be “original” for the purpose of subsistence of copyright “requires that the literary work in question originated with the author and that it was not merely copied from another work”: IceTV, French CJ, Crennan and Kiefel JJ at [33].

259    In Sands & McDougall Pty Ltd v Robinson, Isaacs J at 52 regarded the map in issue in that case as original because the author had applied to it “personal, that is, independent, intellectual effort in the exercise of judgment and discrimination” in its production. See also Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 at 511, Dixon J.

260    In IceTV, French CJ, Crennan and Kiefel JJ in expressing observations about the concept of originality in the context of subsistence of copyright observed at [33] that originality “means that the creation (ie the production) of the work required some independent effort”, adopting the formulation of Isaacs J as early as 1917 except that Isaacs J expressly linked the independent intellectual effort to the “exercise of judgement and discrimination”. In IceTV, Gummow, Hayne and Heydon JJ at [99] observed that it will be a question of “fact and degree” in determining whether one or more authors “have expended sufficient effort of a literary nature to be considered an author of that work within the meaning of the Act” [emphasis added]. This passage may suggest a higher level of authorial originality for the subsistence of copyright in a literary work than that adopted by French CJ, Crennan and Kiefel JJ. It is unlikely, however, that Gummow, Hayne and Heydon JJ, in the context of a discussion about the difficulty of identifying the relevant threshold of authorial contribution by the various “efforts” of multiple authors (such as many contributors to a compilation) intended, without expressly doing so, to introduce any notion of literary “merit” or literary “creativity”, to the statutory correlation of authorship and originality, by the use of the phrase “effort of a literary nature”. That seems especially so having regard to the observations of Gleeson CJ, McHugh, Gummow and Hayne JJ in Data Access Corporation v Powerflex Services Pty Ltd and Others (1999) 202 CLR 1 (“Data Access v Powerflex”) discussed in the next paragraph of these reasons. The phrase “sufficient effort of a literary nature” was qualified by Gummow, Hayne and Heydon JJ by the phrase “within the meaning of the Act” which, since 1917, has been understood (for the purposes of the relevant Copyright Acts) in the terms adopted by Isaacs J and in the sense described by French CJ, Crennan and Kiefel JJ at [33].

261    In Data Access v Powerflex, Gleeson CJ, McHugh, Gummow and Hayne JJ at [22] also accepted (and re-affirmed at [122]) that the question (of originality) for copyright law is whether the work emanates from the person claiming to be its author “in the sense that he [or she] has originated it or brought it into existence and has not copied it from another”. Expending sufficient effort of a literary nature should be understood in the terms just quoted taken in conjunction with the formulation of Isaacs J in Sands & McDougall Pty Ltd v Robinson (supra). Neither literary merit nor novelty or inventiveness is required and although the law of copyright does not protect function and extends only to the expression of a work, a work may serve utilitarian ends: IceTV at [33]; Data Access v Powerflex at [22] and [23].

262    There can be “no doubt” that copyright is given only in respect of the particular form of expression of the work rather than the ideas or information conveyed by the work: IceTV at [26].

263    These observations in IceTV concerning originality in the context of subsistence remain important notwithstanding that subsistence was not in contest in IceTV, even though the observations of all of their Honours might be regarded, strictly, as obiter.

264    As to the “correlative” relationship between authorship and originality, the contemporary question is simply this: Has the author deployed personal independent skill, labour, intellectual effort, judgement and discrimination in the production of the particular expression of the work? In this context, French CJ, Crennan and Kiefel JJ said this at [47] in IceTV:

Much has been written about differing standards of originality in the context of the degree or kind of “skill and labour” said to be required before a work can be considered an “original” work in which copyright will subsist. “Industrious collection” or “sweat of the brow”, on the one hand, and “creativity”, on the other, have been treated as antinomies in some sort of mutually exclusive relationship in the mental processes of an author or joint authors. They are, however, kindred aspects of a mental process which produces an object, a literary work, a particular form of expression which copyright protects. A complex compilation or a narrative history will almost certainly require considerable skill and labour, which involve both “industrious collection” and “creativity”, in the sense of requiring original productive thought to produce the expression, including selection and arrangement, of the material.

                                [emphasis added]

[citations omitted]

265    At [48], their Honours also said this:

It may be that too much has been made, in the context of subsistence, of the kind of skill and labour which must be expended by an author for a work to be an “original” work. The requirement of the Act is only that the work originates with an author or joint authors from some independent intellectual effort. …

                                [emphasis added]

                                [citations omitted]

266    Having regard to the accepted correlative relationship between authorship and originality in a work, it is “essential” that the claimant “identify precisely” the work or works in which copyright is said to subsist and to have been infringed, as a failure to do so might cause the formulation of the issues “to go awry”: IceTV, French CJ, Crennan and Kiefel JJ at [15]; Gummow, Hayne and Heydon JJ at [105].

267    Questions of originality, however, arise not only in relation to subsistence of copyright in a work but also infringement of the work in suit. This is especially so when the question is whether a substantial part of the work in suit has been reproduced, as such an analysis necessarily engages a consideration of, importantly, the quality of the part of the work alleged to have been reproduced. In this context, the authorities direct attention to the “critical question” of the “degree of originality” in the “expression of the part of the work reproduced”: IceTV at [40] and [52]. The fact that a part reproduced “originates” from the author of that part does not, of itself, mean that it is necessarily a substantial part of the whole work because, when giving attention to the quality of the part taken, it may be there has been reproduction of “something that is itself largely unoriginal” [emphasis added]: Autodesk Inc v Dyason [No 2] (1993) 176 CLR 300 at 306, Mason CJ (in dissent), a view affirmed and adopted, however, by Gleeson CJ, McHugh, Gummow and Hayne JJ in Data Access v Powerflex at [83] to [87], and particularly at [84]. Consideration of the skill and labour of the author “may assist” in answering the critical question of the degree of originality in the expression of the part of the work taken because the circumstance that “the creation of a work required skill and labour may indicate that the particular form of expression adopted was highly original” [emphasis added]: IceTV, French CJ, Crennan and Kiefel JJ at [52].

268    It follows that in determining whether the quality of what is taken makes it a substantial part of the copyright work in suit, as the source of the rights, it is important to enquire into the importance which the taken portion bears in relation to the work as a whole. Is it an essential or material part of the work in suit?: Autodesk Inc v Dyason [No 2], Mason CJ at 305, as approved in Data Access v Powerflex at [83] to [87].

269    In Data Access v Powerflex at [84], Gleeson CJ, McHugh, Gummow and Hayne JJ observe that “in determining whether something is a reproduction of a substantial part of a computer program, the ‘essential or material features of [the computer program] should be ascertained by considering the originality of the part allegedly taken’”: quoting Mason CJ in Autodesk Inc v Dyason [No 2] at 305. Since the statutory definition of a computer program is a “set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”, it follows that in determining whether there has been a reproduction of a substantial part of the computer program, it would be necessary to examine what was allegedly taken, the set of statements or instructions comprehended by what was taken and compare it with the original, as part of the enquiry of originality for the purposes of infringement.

270    Although the statutory definition of computer program in Data Access v Powerflex was in different terms, the nature of the enquiry, as a matter of principle, remains the same adapted however to the language of the definition: see Data Access v Powerflex at [84] and [85].

271    Moreover, if a person does no more than reproduce parts of a program which are “data” or “related information” and which are not relevant to the statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result, the person will be unlikely to have reproduced a substantial part of the computer program: Data Access v Powerflex at [86].

272    As to the notion of reproduction (leaving aside for the moment any question of the element of causal connection), the copyright owner must show a sufficient degree of “objective similarity” between the work in suit and the contended infringing work.

273    So far as the correlative relationship between the expressions “author” and “original work” is concerned in respect of literary works such as a “text” which requires regular revision and updating by the author, or a “computer program” that requires regular revisions to accommodate changes to the “set of instructions” used, directly or indirectly in a computer to bring about a “certain result”, particular considerations arise: see the discussion in The Law of Intellectual Property: Copyright, Designs and Confidential Information (Thomson Reuters, subscription service), Ricketson S and Cresswell C, viewed through Westlaw online services, at 7.103 under the heading “The status of derivations and revisions” and at 7.104 under the related topic “Successive drafts of a work”.

274    For example, in the case of a legal text on a particular topic (hypothetically, for example, equitable remedies), the academic author might analyse the settled principles, the questions in controversy, the state of the authorities on those matters, lines of new development and comment upon the state of the law and the likely or perhaps preferred direction the law should take. Let it also be assumed that such a work of authorship is (no doubt) an original work in which copyright subsists and that the work is electronically published due to the likelihood of reasonably regular changes to the text. Let it also be assumed that many of the regular online changes to the text are individually insubstantial in the context of the foundation work in the sense only that a number of paragraphs of the text are altered to reflect one or more new decisions (or perhaps several pages of commentary are added and some of the earlier text is deleted).

275    Is the text as altered, as a whole, to be regarded as a new original work? Are the changes, when analysed, just too insubstantial to bring about a new work? Do the alterations themselves reflect original authorship? If there is no new work as a whole (that is, a revised, updated whole), what “work” is the true source of the rights of the copyright owner? What would be the “work” once the foundation text has been amended in, for example, 30 or 50 “insubstantial” ways? To identify “precisely” the “work” (and thus the source of the author’s rights) is it necessary to identify the state of the foundation text and then identify each and every change by addition and deletion to that text to show that at some point the “work in suit” emerged.

276    Such a work, in this example, would be unlikely to be copied as a whole but that would not necessarily be true of a computer program of utility in a commercial setting comprised of a suite of programs modified and updated from time to time and subject to regular revisions and new releases. In such a case, the question of what is precisely the original work becomes important.

277    At 7.103, Professor Ricketson says this:

A further aspect of originality arises in relation to works that are derived from earlier works. In many cases, it happens that the work for which protection is claimed is only one in a series of works which have been evolved over a period of time, for example, successive drafts of a play or novel or a series of working drawings made in the process of producing a painting or engraving. Although the point is not often taken, it is clear that a work will not be denied protection on the basis of lack of originality simply because it is derived from, or based on, an earlier work of this kind. Thus, providing the later work is not a mere slavish copy, it will constitute an original work in its own right if the author has expended sufficient independent skill and labour in bringing it into material form.

…

More generally, in relation to derivative works, where these form one in a series of evolving productions, Anglo-Australian courts have been prepared to find sufficient originality, even where the work involved may be little more than reproducing a modified or corrected version of an earlier work, such as successive additions of a text book or reissues of a trade catalogue or business brochures. Some guidance in such cases is to be found in the following statement by French CJ, Crennan and Kiefel JJ in IceTV [at [33]]:

Originality for this purpose requires that the literary work in question originated with the author and that it was not merely copied from another work.

…

As a general proposition, therefore, if the “independent intellectual contribution” of the author is more than trivial, this will elevate the new work from a “mere copy” to something entitled to protection in its own right as an original work. In this regard, the expression “more than trivial” must mean something of substance or significance: immaterial variations or differences will not suffice.

                                [emphasis added]

                                [citations omitted]

278    At 7.104 in relation to the related topic of successive drafts of a work, Professor Ricketson says this:

Successive editions of a book, such as a legal text or a dictionary, will probably not pose great difficulties [in terms of originality], even if the differences may be fairly slight. It may be assumed that the author(s) has/have carefully reviewed and considered the preceding text and that any alterations or insertions are intended to be consistent with, and enhancements of, what has gone before. In other words, there has been a revision of the text as a whole and the application of sufficient skill and judgement to make each new edition an original work in its own right. The same reasoning can be applied to differences in successive versions of such things as house plans, computer programmes and clothing designs. In many instances, of course, the differences will be quantitatively as well as qualitatively significant.

The issues discussed above have not so far been contentious in Australian law under our traditional low-level requirements for originality and authorial contribution. As these requirements are raised, however, it will become much more of a relevant inquiry to determine in each case precisely what is the work in issue and the degree to which it differs from any predecessor. In the case of a work with a lengthy history of development and refinement, the preferable analysis may be similar to that suggested above for successive editions of a textbook, namely, that each successive draft needs to be considered in overall terms as the application of fresh authorial effort in revising, reviewing and “settling” what has gone before. All these are activities that should still meet any raised requirement for originality or intellectual creation.

                                [emphasis added]

279    In a forensic probative context, the assumption Professor Ricketson refers to might more properly be regarded as an inference which might arise from relevant foundation facts, as a matter of law.

280    In the context of originality and authorship, it should be noted that works comprising database “compilations” of pre-existing data and information require special consideration for two reasons.

281    First, if database information is organised according to particular subject headings, categories or topics, the “selection” and “arrangement” is likely to be the authorial or original contribution. If so, the “degree of originality” in the expression of the compilation may require close examination not only in relation to the part said to be taken (for infringement purposes) but also as to subsistence more broadly.

282    Second, it may be difficult to identify which author or group of authors undertook the selection and arrangement of the data and information. That difficulty led to the failure of Telstra Corporation to prove subsistence of copyright in its White and Yellow Pages directories for provincial and regional areas in northern and eastern Australia: Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 264 ALR 617. The primary judge, however, held that even if the authors could be identified, the sufficiency of the contribution did not measure up to “independent intellectual effort” according to the observations of French CJ, Crennan and Kiefel JJ at [33] in IceTV or “sufficient effort of a literary nature” according to the observations of Gummow, Hayne and Heydon JJ at [96] in IceTV. The Full Court dismissed Telstra’s appeal having regard to the findings of fact that the compilations were not compiled by “individuals” and thus the Full Court found it not necessary nor relevant to engage on the question of the “sufficiency of the intellectual effort deployed by those individuals who provide data input to the computerised database” although, “scribe” like activities cannot be relied upon, on their own, as authorial contributions: Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 194 FCR 142, Keane CJ at [90] and [59].

283    In an earlier case also concerning Telstra directories (Telstra Corporation Ltd v Desktop Marketing Systems Pty Ltd (2001) 51 IPR 257), the concessions as to authorship before the primary judge, Finkelstein J (a concession criticised by his Honour), may well cast some doubt on the authority of some of the observations of the Full Court (in the judgment on appeal; Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 55 IPR 1 and particularly the very careful and detailed analysis by Lindgren J and Sackville J) on originality, subsistence and the sufficiency of the necessary contribution in the context of the selection, arrangement and structure of database compilations, and in particular compilations described as “whole of universe” compilations. Apart from works of that kind, Lindgren J recognises, as a matter of principle, the correlative relationship between authorship and originality and observes, having extensively analysed many of the major authorities, that the test of originality for copyright purposes is whether the work was not copied, but originated with the putative author.

284    These cases in relation to database compilations and whole of universe compilations are mentioned simply by reason of the observations of their Honours in relation to aspects of a principled approach to originality and subsistence. These proceedings, however, do not involve a database compilation or a whole of universe compilation. They are concerned with works of authorship in the form of a computer program.

285    It may be that the observations in IceTV concerning the statutory conception of authorial contribution sufficient to render a work “original” under the Act, have the effect of “raising the bar” on the threshold skill, labour and judgement an author must contribute so as to render a work an original work. However, it should be remembered that French CJ, Crennan and Kiefel JJ affirmed the orthodoxy of the early formulation of Isaacs J; noted that “too much” has been made in the context of subsistence of the kind of skill and labour which must be expended; and noted that the requirement of the Act is “only” that the work “originates” with an author (or joint authors) from “some independent intellectual effort”, a view consistent with the observations of Gleeson CJ, McHugh, Gummow and Hayne JJ in Data Access v Powerflex.

The state of the evidence

286    The cross-respondents say that there is no evidence to support the subsistence of copyright in the versions, updates and releases of QSS as claimed in the cross-claim and that that is so even if one accepts the findings of fact made by the primary judge because those findings, it is said, are not sufficient to establish subsistence.

287    The evidence of Mr Cummings is this.

288    He is the software developer of QSS. Between late 1988 and 1990, he undertook steel detailing work for an entity described as Nusteel. When working at Nusteel in that period drawings were prepared by hand. The preparation of drawings by hand resulted in calculation errors in the dimension of light gauge steel structures. From 1990, Mr Cummings started to write small software programs enabling calculations in hand-prepared drawings to be checked by computer. He wrote the programs in a programming language called AutoLISP which was built into a base CAD software program called AutoCAD which uses programs to generate drawings. In 1990, Mr Cummings was using a base AutoCAD program to run the AutoLISP files as an “add-on” program to AutoCAD. Between 1990 and 1996, Mr Cummings kept adding to the software to increase its functionality and named it QSS in about 1996. The additions to QSS were often prompted by errors discovered on a construction site when light gauge steel framework was assembled. When that happened, Mr Cummings developed a solution to refine the capability of QSS to error-check and calculate the dimensions of structures and the framework. By about the mid-1990s, QSS contained four separate modules: one each for wall frames, trusses, flooring and roofing. By then Mr Cumming was using QSS to generate and print plans containing detailed designs for wall frames, floor members and roof trusses for the construction of homes and other buildings that could be built from light gauge cold formed steel: as to these matters, see paras 3-15, Cummings affidavit sworn 4 December 2012.

289    By about 1996 or 1997, Mr Cummings had developed QSS to generate an “output file” which could be imported into the primary software used to run roll form machines. That primary software was supplied by the machine manufacturers. The text output file was known as a “CNC file” or computer numeric control file. It permitted the transfer of instructions between a computer and a roll form machine. In either 1996 or 1997, Mr Cummings developed the CNC file for a roll form machine manufactured by Frametek or Able Engineering and by 2010 he had developed a CNC output file for machines manufactured by five other companies. The CNC file was particular to each machine manufacturer. In 1996 or 1997, the CNC files took Mr Cummings about 40 hours to create and refine. By 2010, the CNC files took less time to create because by then he had existing CNC files for most machines that could be adapted by him for a new client. The CNC file involved writing software which would direct the roll form machine to put, for example, a recessed hole in a precise place as steel sheeting passed through the roll form machine. An example is placing (by reason of the relevant lines of code which he identified in his affidavit), a recessed hole “at 2702.1mm, 2748.0mm and 3373.4mm” in the steel sheeting. By about 1996 or 1997, a key feature of QSS was a system of look-up tables or data files. Each steel structure has to be placed within a steel framework according to the dimensions of the structure, among other factors, taking account of load-bearing, wind speed etc. By 1996 or 1997, Mr Cummings had developed look-up tables in QSS to calculate the placement of each steel structure in the framework. The look-up tables for a truss structure alone contained about 600 lines of data. By about 2003, QSS was capable of identifying the gauge and length of any light gauge steel structure and capable of checking wall frames and roof trusses and compliance with relevant Australian Standards. Mr Cummings estimates that from 1990 to 2002 he was spending four to five hours per night, five to six days per week, developing QSS. Between 2002 to November 2011, he was expending between 60 to 80 hours per week developing QSS (which also included customizing QSS for certain clients): see paras 16-26, Cummings affidavit sworn 4 December 2012.

290    In about 2002 or 2003, there were two significant changes to the development of QSS by Mr Cummings. The first significant change was that he began developing QSS using “IntelliCAD SDS” (“IntelliCAD”) which is a software programming “toolkit” published by IntelliCAD Technology Consortium (“ITC”). That software allows users to create customised CAD applications. Mr Cummings switched to it from AutoCAD in 2002 or 2003 because it was cheaper for end users to buy licences for base IntelliCAD software than for AutoCAD. Once Mr Cummings switched to IntelliCAD, he started to develop parts of QSS in the C++ programming language rather than AutoLISP because QSS could perform calculations more quickly when developed in C++. One of the main differences between AutoLISP code and C++ code was that AutoLISP was “human readable”. When QSS was installed on a user’s computer, the AutoLISP code could be read and adapted by a user whereas the C++ code was compiled by machine readable code consisting of a sequence of digits “0” or “1” which could not be adapted or read. The second significant change to QSS was the refinement of the look-up tables so as to adopt engineering principles with the result that the software would achieve the same result using 11 lines of data as it previously did using 600 lines of data. Mr Cummings was assisted by an engineer, Mr Roulant, to assist him with “this step”: see paras 27-31, Cummings affidavit sworn 4 December 2012.

291    Mr Roulant’s role or assistance step was that he provided Mr Cummings with mathematical formulas and calculations which enabled or “facilitated” Mr Cummings in writing code for QSS that translated these formulas for practical application for customers. Mr Cummings up to and including 1 November 2011 was the “sole author of all source code for QSS” and Mr Roulant “did not write any source code for QSS”: see paras 34-37, Cummings affidavit sworn 14 October 2013.

292    Between 1990 and 1 November 2011, Mr Cummings continued to develop QSS and released more than 500 versions of the software commencing with Version 6 of QSS in about 1996 and ending with Version 11.605 in September 2011. As Mr Cummings released versions of QSS he also released “release notes” which identify changes made to the software programs. For example in February 2002, the release notes for Version 11.176 of QSS show 14 changes to the code such as: “3 Radial truss no longer recognised as a normal girder truss”; “6 CNC for SQHF altered to suit new truss class”; “11 authorisation and security codes improved”; “14 Mecano wall CNC takeoffs modified”. Release notes are in evidence for each sequential release from 11.176 through to Version 11.208. Each release sets out the various alterations to the code for each sequential version. Version 11.209 bears the date 29 October 2002 and thereafter each version shows the date of the release through to Version 11.247 which bears the date 17 June 2003 (AB, pp 1471 to 1458 – set out in reverse order). Version 11.240 is dated 21 May 2003 and the release notes are in evidence for Versions 11.240 through to and including, in sequence, Version 11.399 dated 20 May 2005 (AB, pp 1449 to 1419 – again, in reverse order). For 2002, the release notes show the release of 43 separate releases all with release notes describing apparent changes to the code for QSS. In 2003, there were 72 separate releases all with notes describing apparent changes to the code for QSS. In 2004, there were 78 separate releases all with notes describing apparent changes to the code for QSS. In the period 3 January 2005 to 20 May 2005, there were 11 separate releases all with notes describing apparent changes to the code for QSS. The release notes show that many of the releases show 10 or more changes to the code. Quite a number show 20 to 25 additions or deletions to the code. Version 11.389 of 3 January 2005 shows 42 changes and Version 11.399 shows 27 changes.

293    Mr Cummings describes all of these versions as versions “of the software”. He asserts in his evidence that they all reflect changes by addition or deletion to the software, that is, the code.

294    Mr Cummings also refers to the release notes and versions of the software from 9 June 2005 (Version 11.400) in sequence to 2 September 2011 (Version 11.605): para 32, Cummings affidavit, 4 December 2012 and release notes AB, pp 1419 to 1506. For 2005, 2006, 2007, 2008, 2009 and 2010, the release notes show 36, 54, 46, 23, 20 and 32 separate releases, respectively, all with release notes describing apparent changes to the code for QSS. For 2010, the release notes relate to separate releases to 20 September 2011 (Version 11.605).

295    Mr Cummings asserts in his evidence that all of these release notes for these various versions for those six years also reflect changes by addition or deletion to the software, that is, the code, that is to say, the set of instructions to be used directly or indirectly in a computer to bring about the changed result sought to be achieved: para 32, Cummings affidavit, 4 December 2012.

296    From about 1996, Mr Cummings started writing manuals for end users for each of the wall frame, truss, flooring and roofing modules of QSS. He updated those manuals at various times until 1 November 2011 as the QSS modules changed.

297    Mr Cummings further elaborated upon the writing of the source code for QSS in his affidavit sworn 14 October 2013. In that affidavit he observes that between 2002 and 2004 he made a number of “significant and substantial changes” to the QSS code including starting to completely rewrite the QSS code in C++ from AutoLISP and “continually adding functionality” to QSS code based on his observations of industry operations. He estimates that from 2002 to 2004 he spent approximately 40 hours (plus) per week “developing and enhancing” QSS by “writing new source code”. Mr Cummings says that by the term “developing” he means that “at a minimum” he was engaged in creating new functionalities; improving and enhancing existing functionalities; creating new methods; making alterations to methods and functions; and fixing bugs: paras 100 to 102, Cummings affidavit, 14 October 2013.

298    Mr Cummings says that since writing the code for the QSS software programs in 2002, he has re-written the majority of the original code such that the original code has been “completely superseded” to the extent that the only remaining AutoLISP source code in Version 11.604 is less than 2.02% of the total original 2002 QSS source code. Thus, Mr Cummings has, in effect, entirely re-written the source code. Version 11.604 is the version that Tanmari assigned to FrameCAD in November 2011. Mr Cummings expands upon his authorship of the code in this way. He says that in 2002 he wrote the code for QSS in 100% AutoLISP and when he did so QSS was comprised of 42 code files each of which related to different construction industry functionalities (such as trusses, walls, roofs, floors, framing and engineering). Of those 42 code files, approximately 11% of the code related to “truss building” in 2002. Save for the truss building files which remain in AutoLISP (but which have been heavily amended), the balance of the QSS program is written in C++, an entirely different programming language. In Version 11.604 “today” (that is, at the date of his affidavit of 14 October 2013), Version 11.604 is 97.98% C++ based software and the AutoLISP component file size is only 2.02%. In 2002, the code for QSS was 932 kilobytes. In October 2011, the QSS program was approximately 17.8 megabytes: paras 103 to 104, Cummings affidavit, 14 October 2013.

299    In quantitative terms, Mr Cummings compares the total line count of source code in this way for Version 11.176 dated pre-February 2002; Version 11.406 dated 10 August 2005; and Version 11.604 dated 5 June 2011:

300    Mr Cummings says that from 2002 to 1 November 2011 he updated QSS by “writing new source code”. He says that once he finished making changes to the QSS source code, he released the “entire package of QSS”, including the “new source code” but not including ancillary files such as “data files and menu files”. Mr Cummings says that he gave each new “entire package” of QSS a sequential version number. Mr Cummings says that he was engaged, in the period from 2002 to 1 November 2011, on “actually writing source code for QSS” for about 40 hours per week: paras 106 to 110, Cummings affidavit, 14 October 2013.

301    Mr Cummings also says that he gave all end users of QSS free unlimited upgrades and new releases of QSS. He says that until about 2002 or 2003 he emailed upgrades and new releases of QSS to end users. He says that from 2002 or 2003 he was the registrant of the domain name <rcassoc.com.au> and all upgrades and new releases of QSS were offered on the website published on that domain name to end users and anyone else with internet access. He says that the updates and new releases were in the form of an executable file (.exe) and could be installed onto the computer of an end user by double clicking on the executable file: paras 47 and 48, Cummings affidavit, 4 December 2012.

302    The primary judge accepted Mr Cummings as a witness of truth.

303    His evidence establishes the history of his development of QSS; his authorship of the software; his conversion of the software from AutoLISP to C++; his authorship of each sequential change to the code evidenced by the sequence of release notes; the dedication of his time, effort and judgement to the “actual writing” of the lines of “source code” for QSS; and his release of the “entire package” of programs after making each separate set of changes or “updates” to QSS by “writing new source code”, during the period 2002 to 11 November 2011. The new source code so written and released did not include “data files” or “menu files”.

304    This evidence discharges the burden of demonstrating that Mr Cummings was the author of all the source code for QSS for each of the sequential versions of QSS in evidence and that each updated version, released after each update, was an original work of authorship. To the extent that each sequential update (whatever the number of it might be across the period 2002 to 1 November 2011) reflects changes to the source code by addition or deletion (whether the rectification of errors or a new set of instructions to bring about a certain result) that might be regarded as, quantitatively at least, insubstantial, an inference arises from the circumstance of his authorship of the entire programs comprising QSS, over time, and his election to release, with each numerical version of QSS, the entire program as updated, to the following effect: that he has carefully considered the preceding state of the suite of programs and that the alterations, insertions or deletions are intended to be consistent with and enhancements of what has gone before. In other words, Mr Cummings has undertaken a particular revision of the programs on each occasion as part of the whole of the work with the application of sufficient skill and judgement to make each version as updated and released an original work in its own right.

305    The next question is whether SFSI by using a version of QSS and licensing others to use a version of it, has infringed the copyright subsisting in that version by doing an act comprised of the copyright, that is, by exercising the exclusive right to reproduce the work and/or communicate the work to the public, without the licence of the owner of the copyright: s 31(1)(a)(i) and (iv); s 36(1).

306    SFSI did not have a licence from the owner of the copyright in QSS when it began in 2009 to use and licence others to use a version of QSS as it began to take over, from April 2009, the granting of new licences in QSS as HSFS ceased doing so. SFSI claimed to have a licence (or sub-licence) from JRC but the evidence of Mr Pacione (and thus his contentions and that of SFSI to that effect) was rejected by the primary judge with the rejection of Mr Pacione’s evidence of the granting of such a licence by JRC to SFSI under the 2002 Agreement, quite apart from the finding of exhaustion and abandonment of that licence agreement.

307    Any version of QSS (whatever its sequential version number might be) reproduced by SFSI or communicated by it to its clients for their use necessarily engages an exercise by SFSI of those exclusive rights and, plainly enough, SFSI did not have the licence of the copyright owner to exercise either exclusive right comprised in the copyright for that version.

308    Accordingly, we would regard the evidence led by the cross-appellants at trial as establishing the subsistence of copyright in each version of QSS in evidence in the principal proceedings for versions up to and including 1 November 2011 and we would, with respect, depart from the finding of the primary judge at [317] of his Honour’s reasons that the cross-appellants had only established copyright subsistence in three numerical versions of QSS namely Version 11.176 of February 2002, Version 11.406 of 10 August 2005 and Version 11.604 of 5 June 2011.

309    It follows that should SFSI exercise any rights comprised in the copyright subsisting in the versions of QSS in evidence up to 1 November 2011, without the licence of the copyright owner either directly or through a valid sub-licence, such conduct would constitute an infringement of the copyright subsisting in those versions (that is, the versions up to 1 November 2011 the subject of the evidence of subsistence in the case).

310    As to the position after 1 November 2011, the primary judge made a reference to Mr Taylor’s evidence that from May 2013 to October 2013, FIPL (the assignee of the copyright effectively from 2 November 2011) worked on developing improved software compatible with IntelliCAD 6.6 and that persons other than Mr Cummings (and a consultant, Mr Bilkey; see PJ, [322]) have been involved in the “current development” of QSS. The primary judge also referred to the evidence of Mr Cummings that he is not involved in developing QSS to be compatible with IntelliCAD: PJ, [320]. At [321], the primary judge found that FIPL had failed to establish that each of the updates and new releases of QSS since 1 November 2011 give rise to versions of QSS in which copyright subsists (as updated), as original works in their own right. That finding leaves open the question of whether a version since 2 November 2011 contains, nevertheless, a substantial reproduction of a version of QSS prior to 1 November 2011. However, we see no reason to disturb the finding of the primary judge at [321].

311    The next question is, has SFSI infringed the copyright subsisting in a version of QSS by exercising the reproduction and communication right of the copyright owner in that version without authority by using and licensing others (customers) to use that version of QSS.

312    HSFS ceased to deal with customers taking up QSS and substantially ceased all its business from April 2009. It stopped paying licence fees to Mr Cummings or Tanmari by February 2009. At [339], the primary judge notes that there is no dispute between the cross-claimants and the cross-defendants that the HayesCAD software (subsequently called ProCAD software) is the same as QSS; that there is no dispute that SFSI has engaged in the conduct of reproducing QSS or communicating QSS to the public since about 2009; and no dispute that SFSI “has continued to exploit the software by making it available to customers after the date of FIPL’s acquisition in November 2011 and intends to continue this conduct”. The primary judge also observes at [339] that the cross-defendants accept that HSFS also engaged in that conduct on at least one occasion after 2009.

313    The cross-appellants also place emphasis upon the evidence of the conduct of SFSI selling or offering for sale “QSS version 11.603” (a version dated 15 April 2011) as well as “earlier” and “later” versions of QSS by means of the posting on SFSI’s website of the notice set out at [215] of these reasons on four occasions, namely, 24 November 2011; 20 December 2011; 13 February 2013; and 14 March 2013.

314    If SFSI is holding itself out as willing to offer to supply QSS Version 11.603 to users/customers as well as “earlier” and “later” versions of QSS, we see no reason not to be satisfied that the evidence demonstrates that SFSI was supplying or offering to supply QSS Version 11.603 and, relevantly, earlier versions of QSS in which copyright has been shown to subsist, without the licence of the copyright owner. Moreover, we accept that the admission contained in the letter dated 11 December 2013 (quoted at [204] of these reasons) is a concession that any licensing of QSS by SFSI after November 2011 (of a version of QSS in which copyright has been shown to subsist, that is, any version up to 1 November 2011) infringes the copyright in that version and therefore, for the purposes of the principal proceeding, it was not necessary for the cross-appellants to pursue intrusive subpoena processes directed to SFSI’s customer licensees to secure production from them of versions of QSS supplied by SFSI to them.

315    Two other things should be kept in mind.

316    First, Mr Pacione was asked in cross-examination on 4 June 2014 whether Version 11.576 of QSS (a version updated and released on 26 February 2010, see AB, p 1475) was the version that he currently was making available to his customers. The only Pacione entity supplying customers with versions of the QSS software in the post-April 2009 period was SFSI and Mr Pacione answered “no” to that question and said that he understood the version made available was, he thought, the “last version of 2011” and that that “may have been 604 or 599”. Version 11.604 was released on 5 June 2011. Version 11.599 was released on 18 January 2011. Version 11.603 is the expressly identified version which was the subject of SFSI’s notices posted to its website offering the supply of versions as mentioned. It seems clear enough that SFSI was licensing either QSS Version 11.604, QSS Version 11.603 or earlier versions of QSS without the licence of the copyright owner (or later versions).

317    Second, the central questions in issue in the principal proceeding on this topic were, first, whether the cross-appellants had established the subsistence of copyright in each sequential version released by Mr Cummings up to the assignment to FIPL on 2 November 2011 (and then by FIPL after that) as updates and version releases occurred and second, whether SFSI had established a right to use and licence versions of QSS once it commenced to do so around April 2009 (rather than HSFS), that is, whether the exercise of the rights had been validly sourced from the copyright owner by reason of the contentions concerning the operation of the various agreements. There was no contest on a third possible question of whether, assuming proven subsistence and no right in SFSI to exercise the exclusive rights of the copyright owner was SFSI supplying something to its customers other than a version of QSS.

318    Accordingly, there was no probative or forensic need in the cross-appellants to conduct an analysis of a version of QSS in which copyright is shown to subsist and a comparative analysis of a version used and licensed by SFSI, in order to prove objective similarity, because SFSI was offering to supply Version 11.603 of QSS and earlier (and later) versions of it. For the reasons already mentioned, the evidence demonstrates that SFSI was supplying a version of the very thing in which copyright had been shown to subsist as the source of the rights in the cross-appellants.

319    Accordingly, a declaration ought be made that copyright subsists in all versions of QSS in evidence the subject of the conclusions reached in these reasons as to subsistence although the declaration should recite the version numbers in the proper sequences to identify the portfolio of versions in respect of which subsistence has been demonstrated. The finding of infringement by SFSI should not be disturbed.

Authorisation

320    The primary judge found that HSFS and Mr Pacione had authorised the infringements of copyright in QSS Versions 11.176, 11.406 and 11.604 for the reasons discussed at [141] to [148] of these reasons. See PJ, [343] to [352].

321    At [183] to [186], [223] to [231] and [242] and [244] of these reasons, we examine the submissions of the parties on this issue. It should be remembered that the exclusive right to do an act in relation to a computer program, like any literary work, includes the exclusive right to “authorise” a person to do that act in relation to that work (s 13(2)) and s 36(1) of the Act provides that (in Australia) “a person” who, not being the owner of the copyright, and without the licence of the owner, “does” or “authorises” the doing of any act comprised in the copyright, infringes the copyright in the work. In other words, authorising the doing of an act comprised in the copyright is itself an infringement and not just a form of accessorial liability.

322    In considering and determining whether HSFS has infringed the copyright in versions of QSS by authorising infringements by SFSI, the statutory factors set out at s 36(1A) must be taken into account: see [256] of these reasons, but for convenience we set them out again here:

(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 reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.

323    Section 36(1A) and its counterpart s 101(1A) in Pt IV of the Act was introduced into the Act by the Copyright Amendment (Digital Agenda) Act 2000 (Cth) (the “Amending Act 2000”). The proper approach to the construction and application of the above three factors was considered in the judgments of their Honours French CJ, Crennan and Kiefel JJ, and Gummow and Hayne JJ, in Roadshow Films Pty Ltd v iiNet Ltd [No 2] (2012) 248 CLR 42 (“Roadshow Films v iiNet [No 2]”). We consider those judgments later in these reasons.

324    In determining whether Mr Pacione is a person who has infringed the copyright in versions of QSS by authorising infringements by SFSI, the s 36(1A) statutory factors must be considered but, in addition, questions arise of whether Mr Pacione is, by reason of his position as a director of SFSI (and HSFS) taken together with other matters of fact as found by the primary judge, a “joint tortfeasor” with SFSI in its infringing conduct and a joint tortfeasor with HSFS in its contended s 36(1) infringing conduct of authorising SFSI’s infringements of the copyright owner’s exclusive reproduction and communication right.

325    As to s 36(1A), the questions to be asked concerning Mr Pacione are these.

326    First, what was the “extent”, if any, of his “power to prevent” the doing of the act by SFSI, the act being the reproduction and communication to SFSI’s customers (licensees) from April 2009, without the licence of the copyright owner, of any version of QSS released earlier than 1 November 2011 and, in particular, either Version 11.604 or 11.603 or versions of QSS released earlier than 11.603?

327    Second, what was the “nature” of the relationship existing between Mr Pacione and the entity which did the act concerned, SFSI?

328    Third, did Mr Pacione take any reasonable steps to prevent or avoid SFSI doing the act concerned? There is no industry code of practice to be considered.

329    As to HSFS, the questions required to be asked by s 36(1A) are these.

330    First, what was the extent, if any, of the power of HSFS to prevent the doing of the act by SFSI, being the act described at [263]? Second, what was the nature of the relationship existing between HSFS and the entity which did the act concerned, SFSI? Third, did HSFS take any reasonable steps to prevent or avoid SFSI doing the act concerned?

331    Mr Pacione is a director of JRC, HSFS and SFSI. To the extent that HSFS has engaged in a s 36(1) act of infringement by authorising SFSI’s infringements of copyright in versions of QSS, s 36(1A) requires these questions to be asked. First, what was the extent, if any, of Mr Pacione’s power to prevent HSFS authorising the infringements by SFSI? Second, what was the nature of the relationship existing between Mr Pacione and HSFS? Third, did Mr Pacione take any reasonable steps to prevent or avoid HSFS authorising SFSI’s infringements?

332    These are statutory questions required, by the Copyright Act, to be asked.

333    As to the question of whether the conduct of Mr Pacione rendered him a joint tortfeasor with SFSI in the commission of the statutory tort of doing an act comprised in the copyright in versions of QSS or a joint tortfeasor with HSFS in the statutory tort of HSFS authorising SFSI’s infringements, these considerations are relevant.

334    Where the same damage is caused to a person by two or more wrongdoers, those wrongdoers may be either joint or independent tortfeasors and the law will regard them, uncontroversially, as joint tortfeasors in the commission of the same wrongful act in at least the circumstances of vicarious liability or “common intention”, that is to say, as to the latter, the “joint commission” of the same wrongful act giving rise to the civil wrong in suit. In The Koursk [1924] P 140 at 159, Sargant LJ put it this way: “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” [emphasis added].

335    As a matter of foundation principle then, in order for a director to be regarded as a joint tortfeasor with the company of which he or she is a director, there must be concurrence in the acts of both the company and the director causing the damage rather than coincidence of roles comprised of the company as an entity doing something and a director discharging duties as a director of the company doing that thing. This may be the implicit principled source of the notion articulated in the line of authority to the effect that the director must act, engage, so as to “make” the tort of the company “his or her own”, that is, a demonstrated concurrence in the acts giving rise to the civil wrong causing the damage in suit rather than a coincidence of rolls.

336    Various formulations of the necessary concurrence have, however, been adopted. In Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 ((“Keller v LED Technologies”), a design infringement case in which two directors were sought to be made liable as joint tortfeasors with the relevant entities), Emmett J, in the Full Court, observed at [83] that in order to render a director a joint tortfeasor with the company it is “necessary to show something more than that the company acted through that person” and further observed that the director “must do something that makes him or her, in addition to the company, an invader of the victim’s rights”, drawing that formulation from O’Brien v Dawson (1942) 66 CLR 18 at 32-33. At [84], Emmett J added these observations:

Thus, in circumstances where a director can be shown to be making use of a corporation or company as an instrument whereby infringement is perpetrated, such that the director can be seen to be hiding behind the corporate veil, it may be thought that the director is going beyond actions performed merely in the capacity as director. If a company is merely the alter ego of a director, such that there is no real difference between the mind of the officer and the mind of the company, there may well be circumstances where it will be appropriate to conclude that the officer is invading the rights of a victim of the company.

                                [emphasis added]

337    In Keller v LED Technologies at [272], Besanko J observed that something more “by way of personal involvement” in the tortious acts of the company was necessary and observed that the first test of liability supported by authority is that liability arises where the director has “directed or procured” the infringing acts of the company, sometimes also called to “authorise” those acts. The foundation authority for that proposition is Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 (“Performing Right Society”), per Atkin LJ at 13-16. That case was a copyright infringement case concerned with public performance rights in musical works and the very particular question of whether the manager of the company (the entity being the principal infringer) was vicariously liable for particular tortious conduct. Although reaching beyond the scope of the questions in issue in the appeal, Atkin LJ at 15 said: “If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly” [emphasis added]. However, it seems clear enough that “directed” in this sense means a much higher level of engagement in the infringing acts by the director (more akin to directing and procuring the acts) than conduct of giving directions in the performance and discharge of the duties of director.

338    The second recognised test of liability derives from a formulation of Le Dain J in Mentmore Manufacturing Company Ltd v National Merchandising Manufacturing Company Inc (1978) 89 DLR (3d) 195 (“Mentmore Manufacturing”), a decision of the Canadian Federal Court of Appeal in which the judgment of the Court was delivered by Le Dain J for Urie, Ryan and Le Dain JJ. That case was a patent infringement case in which two directors of the relevant entity were sought to be made personally liable as joint tortfeasors with the entity for patent infringement. It is important to remember that in formulating the test, intention was irrelevant to the question of the company’s liability for patent infringement. Le Dain J at 203 asked, what he described as an “elusive question”: “What is the kind of participation in the acts of the company that should give rise to personal liability?” Le Dain J answered that question in this way at 203:

It would appear to be that degree and kind of personal involvement by which the director or officer makes the tortious act his own. It is obviously a question of fact to be decided on the circumstances of each case. I have not found much assistance in the particular case in which Courts have concluded that the facts were such as to warrant personal liability. But there would appear to have been in these cases a knowing, deliberate, wilful quality to the participation.

                                [emphasis added]

                                [citations omitted]

339    Le Dain J further answered the question at 204 in this way:

I do not think we should go so far as to hold that the director or officer must know or have reason to know that the acts which he directs or procures constitute infringement. That would be to impose a condition of liability that does not exist for patent infringement generally. … But in my opinion there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it. The precise formulation of the appropriate test is obviously a difficult one.

                                [emphasis added]

340    Le Dain J expanded at 205 upon those observations by saying this:

Opinions might differ as to the appropriateness of the precise language of the learned trial Judge in formulating the test which he adopted – “deliberately or recklessly embarked on a scheme, using the company as a vehicle, to secure profit or custom which rightfully belonged to the plaintiffs” – but I am unable to conclude that in its essential emphasis it was wrong.

                                [emphasis added]

341    Deliberately using the company as a vehicle to secure profit or custom which rightfully belonged to the plaintiffs, sounds very much like conduct of “invading the rights of a victim of the company”.

342    In Allen Manufacturing Company Pty Ltd v McCallum and Company Pty Ltd (2001) 53 IPR 400, the Full Court observed at [43] that the difference in the tests between the Performing Right Society decision and the Mentmore decision may be more apparent than real because, in practice, an act of direction or procurement by a director would generally meet the Mentmore test. In Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 (“Root Quality”), Finkelstein J, like Le Dain J, thought that purpose was an important consideration. His Honour seemed to focus on a reasonably high threshold of involvement on the part of the director. His Honour put both matters this way at [146]:

The director’s 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. If a director deliberately takes steps to procure the commission of an act which the director knows is unlawful and procures that act for the purpose of causing injury to a third party, then plainly it is just that liability should be imposed upon him.

                                [emphasis added]

343    However, at [146], his Honour also observed that “lesser conduct may suffice” and an example of lesser conduct is a director acting with reckless indifference to whether his company’s act was unlawful and would cause harm. His Honour said that such conduct “may also suffice” although in the end it would depend, as all cases do, upon the facts of each particular case.

344    In Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Limited [2010] 85 IPR 525, Bennett J considered the liability as joint tortfeasor of a director who was styled as the “Managing Director” and “Founder” of the company found to have infringed a patent. Her Honour pointed out (at [183]) that the apparent inconsistency between the tests as previously propounded could be resolved if the mental element of the Mentmore test of ‘the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it” relates to the pursuit of the course of conduct and not to its characterisation. The question is whether the director knowingly pursued a course of conduct which, judged objectively, led to infringement or was likely to constitute infringement or reflected indifference to the risk of infringement. Liability was determined by reference to the director’s involvement in the management and operations of the company. There was no evidence that any other director played an active role in the management of the company and there was evidence that the actions of the director in question enabled and procured the infringement by the company and his course of conduct, which resulted in the infringement by the company, was deliberate.

345    At [290] and [291] in Keller v LED Technologies, Besanko J having examined a number of authorities addressing each test made this observation at [291]:

In my opinion, in considering a director’s potential liability as a joint tortfeasor, it is necessary to consider carefully the director’s involvement in the unlawful or infringing acts. A close personal involvement in the infringing acts by the director must be shown before he or she will be held liable. The director’s knowledge will be relevant. In theory, that knowledge may range from knowledge that the relevant acts are infringing acts to knowledge of an applicant’s registered designs [relevant to the particular contended infringement by the entity] to knowledge of acts carried out by others.

                                [emphasis added]

346    In Keller v LED Technologies, Jessup J also examined the authorities deriving from each test in considerable detail. Ultimately, his Honour reached this conclusion at [404]:

For a director to be liable because he or she directs or procures his or her company to commit a wrong, the context must be such that the director is effectively standing apart from the company and directing or procuring it as a separate entity. There must be a sense in which the director is using the company as the instrument of his [or her] own wrong. This is, as I have explained earlier, the original sense in which Atkin LJ’s words in Performing Right are to be understood, at least to the extent that they drew upon what Lord Buckmaster had earlier said in Rainham Chemical. Likewise with a joint enterprise, unless the director is conceptually separate from the company, there is, it seems to me, no “jointness” about the enterprise at all, but merely a one-person wrong in which the company is [the] actor.

                                [emphasis added]

347    In other words, unless the director is standing apart from the company, there will not be concurrence in the acts but merely a coincidence of roles in which the only true actor is the company itself.

348    On this topic, these other matters should be noted.

349    In Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380, Kenny J in the Full Court expressed support at [161] for the formulation adopted by Finkelstein J. French J agreed with that view and also with the views of Branson J who decided the questions on appeal on a different ground altogether. In Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231, Lindgren J expressed support for the “directed” or “procured” test of Performing Right Society which in his view (at 245) was less “confusing”, more “illuminating” and less “troublesome” than the Mentmore Manufacturing formulation for the reasons set out at 241-247. Sundberg J in Pioneer Electronics Australia Pty Ltd v Lee (2000) 108 FCR 216 at 234 [46] also adopted the “directed” or “procured” test although Sundberg J recognised that three other formulations including the Mentmore Manufacturing formulation had been supported in the authorities: see Pioneer Electronics at 233 [45].

350    We suspect that there is ultimately not a great deal of difference between these lines of authority as the director must be shown to have directed or procured the tort and the conduct must, clearly enough, go beyond causing the company to take a commercial or business course of action or directing the company’s decision-making where both steps are the good faith and reasonable expression of the discharge of the duties and obligations of the director, as a director. The additional component required is a “close personal involvement” in the infringing conduct of the company and inevitably the quality or degree of that closeness will require careful examination on a case by case basis. That examination might show engagement by the director of the kind or at the threshold described by Finkelstein J in Root Quality at [146] (as earlier discussed) which would undoubtedly establish personal liability in the director or a less stringent degree of closeness (perhaps described as “reckless indifference” to the company’s unlawful civil wrong causing harm), yet sufficiently close to demonstrate conduct of the director going beyond simply guiding or directing a commercial course and engaging in (perhaps vigorously) decision-making within the company as a director.

351    Ultimately, the question, on the facts, is what was the conduct of the director said to go beyond the proper role of director so as to descend into the realm of “close personal involvement”?

352    These are all matters that go to whether a director is a joint tortfeasor in the civil wrong of the company.

353    However, as to the Copyright Act itself, a person infringes the copyright by authorising an infringement by another and the determination of the statutory question of authorisation requires consideration of the s 36(1A) factors. As to those factors, in University of New South Wales v Moorhouse (1975) 133 CLR 1 (“Moorhouse”), both Gibbs J and Jacobs J accepted that the s 36(1) notion of “authorising” an infringement of copyright ought to be understood as: to sanction, approve, countenance or permit (Gibbs J adding the word “permit”) an infringement. Moorhouse, of course, was a decision well prior to the introduction of s 36(1A) into the Copyright Act by the Amending Act 2000.

354    The s 36(1A) factors were considered (in the context of s 101(1A)) in Roadshow Films v iiNet Ltd. iiNet operated as an internet service provider. Some of iiNet’s customers used the internet access provided by iiNet to infringe the copyright of the appellants who were the owners (or exclusive licensees) of the copyright in a large number of commercial films. They did so by using a peer-to-peer file sharing system called “BitTorrent” which enabled customers to port films (files) directly to one another. Although iiNet provided internet access, it had no involvement with the BitTorrent system. Nor did it host infringing files (electronic copies of films). Nor did it host websites which made the infringing files available for peer-to-peer sharing. iiNet’s contracts with its customers required the customers to comply with the law and not to use the service to infringe copyright. The copyright owners (or their exclusive licensees) sent weekly notices to iiNet setting out multiple infringements of copyright by iiNet’s customers. They contended that iiNet had authorised the infringements by the customers by sanctioning, approving, countenancing or permitting the infringing conduct of customers. Ultimately, because the contracts expressed iiNet’s formal and positive disapproval of acts of infringement (see French CJ, Crennan and Kiefel JJ at [66] and [67]) the rights owners were forced to rely upon “countenancing” infringement in making good authorisation.

355    At [68], French CJ, Crennan and Kiefel JJ said this:

“Countenance” is a long-established English word which, unsurprisingly, has numerous forms and a number of meanings which encompass expressing support, including moral support or encouragement. In both the United Kingdom and Canada, it has been observed that some of the meanings of “countenance” are not co-extensive with “authorise”. Such meanings are remote from the reality of authorisation which the statute contemplates. The argument highlights the danger in placing reliance on one of the synonyms for “authorise” to be found in a dictionary. Whilst resort to such meanings may have been necessary in the past, attention is now directed in the first place to [s 36(1A)]. That provision is intended to inform the drawing of an inference of authorisation by reference to the facts and circumstances there identified, and recourse must be had to it. That is an express requirement.

                                [emphasis added]

                                [citations omitted]

356    At [69], their Honours also observed that conduct of “supporting” and “encouraging” customers to continue to make certain films available online may not be sufficient to establish authorisation. At [69], their Honours said this:

… An alleged authoriser must have a power to prevent the primary infringements (WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274 at 286-288). Australasian Performing Right Association Ltd v Jain (1990) 26 FCR 53, Tape Manufacturers (1993) 176 CLR 480 and Cooper (2006) 156 FCR 380 all confirm that there must be such a power to prevent. So much had been recognised earlier, in any event, in Adelaide Corporation (1928) 40 CLR 481 at 498-499 per Higgins J; 503, 504 per Gavan, Duffy and Starke JJ and Moorhouse (1975) 133 CLR 1 at 12 per Gibbs J.

357    At [77], their Honours rejected the notion that iiNet should be taken to have authorised the infringements by customers unless it “took measures” with respect to its customers because such a notion assumed “obligations” on the part of iiNet which the Copyright Act did not impose. At [78], their Honours concluded that iiNet’s “power” was limited to “an indirect power” to prevent a customer’s primary infringement of the appellant’s films by terminating the contractual relationship between them. Because the information contained in the notices did not provide iiNet with “a reasonable basis for sending warning notices to individual customers containing threats to suspend or terminate those customers’ accounts”, iiNet’s “inactivity” after receipt of the notices did not give rise to “an inference of authorisation (by ‘countenancing’ or otherwise)”.

358    It follows that the statutory reference to the “extent” of any power, for the purposes of s 36(1A) ought to be understood as a “power to prevent” and the power to prevent a primary infringement is not made out by seeking to rely upon “an inference” arising out of “an indirect power to prevent”: see [77] and [78], French CJ, Crennan and Kiefel JJ.

359    At [135], Gummow and Hayne JJ in Roadshow Films v iiNet [No 2] said this:

Section 101(1A) [and relevantly for these purposes also s 36(1A)] is so drawn as to take an act of primary infringement and ask whether or not a person has authorised that act of primary infringement. In answering that question there will be “matters” that must be taken into account. These include, but are not confined to, the matters identified in paras (a), (b) and (c). Was there any relationship that existed between the primary infringer and the (alleged) secondary infringer? If so, what was its nature (para (b))? Did the secondary infringer have power to prevent the primary infringement; if so, what was the extent of that power (para (a))? Other than the exercise of that power, did the secondary infringer take any reasonable steps to prevent the primary infringement, or to avoid the commission of that infringement (para (c))?

360    As to “indifference”, their Honours said this at [142] and [143]:

142    The “key facts” as to the “indifference” of iiNet upon which the appellants relied in this Court were four in number. They were: (i) the provision by iiNet of the internet connections, a necessary but insufficient step for the acts of primary infringement; (ii) the technical ability of iiNet to control the use of its service and its contractual ability to issue warnings and suspend or terminate accounts; (iii) the evidence provided by [the notices] given before and after suit; and (iv) the absence of action by iiNet in response to [the notices].

143    These matters, taken together, do not establish a case of authorisation of those primary infringements [the scheduled infringements] … The progression urged by the appellants from the evidence, to “indifference”, to “countenancing”, and so to “authorisation”, is too long a march.

                                [emphasis added]

361    Their Honours at [144] embraced the notion that “indifference” might simply be, in the relevant case, an attitude adopted by somebody who did not consider it his or her business to interfere, who had no desire to see another person’s copyright infringed, but whose view was that copyright and infringement were matters not for him or her but for the owners of the copyright.

What were the relevant facts and circumstances?

362    HSFS was incorporated on 3 February 2003, then owned 20% by JRC and 80% by Bradbury International Inc, a manufacturer of roll-forming machines. It became a wholly owned subsidiary of JRC on 30 September 2008. In October 2007, SFS Australia Pty Ltd was incorporated. It ultimately became SFSI. Mr Pacione is a director of JRC, HSFS and SFSI. On 24 February 2004, Mr Cummings and Tanmari granted HSFS an exclusive licence to use and exploit QSS. That licence came to an end on 31 March 2005. A QSS software licence was entered into between Tanmari and HSFS on 11 August 2004 by which HSFS was granted a non-exclusive perpetual licence to use, copy, market, re-sell and promote the QSS software throughout Australia and the world. The grant of rights included a right to grant customers of HSFS the right to use the software, such use to be granted in accordance with the terms of the licence document.

363    On 8 December 2008, SFS Australia Pty Ltd changed its name to SFSI.

364    HSFS substantially ceased all its business from April 2009.

365    It stopped paying licence fees in February 2009 to Mr Cummings or Tanmari. SFSI from April 2009 began granting licences of QSS to its customers.

366    It was common ground between the parties at the trial of the proceeding that Mr Pacione was the “controlling mind” of JRC, HSFS and SFSI: PJ, [347].

367    Mr Pacione’s evidence on this “important issue in the case” of HSFS ceasing its business and SFSI taking up, for the future at least, the role HSFS had exercised under the licence of granting licences to customers, “verged”, according to the primary judge, “on being misleading” by discussing the business of JRC and HSFS without acknowledging that HSFS had substantially ceased to conduct that business in April 2009 and that SFSI had, in effect, assumed its business and also that HSFS had at least ceased to deal with new clients: PJ, [23], [148] and [149].

368    The primary judge found that Mr Pacione had diverted the business of HSFS to SFSI: PJ, [160], second sentence.

369    The contended sub-licence by JRC to SFSI, as contended for by Mr Pacione, was not in writing. Its terms were not identified: PJ, [162]. The primary judge found that Mr Pacione did not grant, through JRC, an informal sub-licence to SFSI in April 2009 or at all: PJ, [163]; see the criticisms of Mr Pacione’s evidence on this topic at [164] to [176].

370    We accept that the evidence demonstrates that Mr Pacione as the guiding mind of HSFS and SFSI set about a course of diverting the business of HSFS to SFSI and used those vehicles for that purpose in circumstances where Mr Pacione knew that SFSI enjoyed no licence from the copyright owner to use, reproduce or communicate versions of QSS to customers of SFSI and that Mr Pacione set about a course of obfuscating, by his evidence, his knowledge that SFSI had no legal standing to engage in the conduct which he brought about on behalf of both HSFS and SFSI. We accept the submissions of the cross-appellants that the licence agreements contained in AB, Pt C (Supplementary) Vol 1, demonstrate Mr Pacione’s engagement in the transitional arrangements both in relation to new licences to be granted by SFSI and in dealing with licences granted by HSFS which were to be renewed. We accept the submissions of the cross-appellants described in these reasons at [225] to [230].

371    At [186] of these reasons, we note the submissions of the appellants that they do not challenge the collection of factual matters recited at [345] but say that as to the ultimate conclusion drawn from those facts, it was not open to the primary judge to conclude that HSFS had a “practical power” to prevent SFSI’s infringing conduct.

372    At [345], the primary judge observed that HSFS ceasing to grant new licences in about April 2009 to new customers enabled SFSI to assume what was previously the business of HSFS. The primary judge also concluded that there was “a close relationship” between HSFS and SFSI because Mr Pacione controlled and had the substantial economic interest in each of them. The primary judge also concluded that HSFS and SFSI co-operated with each other to effect the transfer of HSFS’s business to SFSI and that HSFS took no steps to prevent or avoid withholding its co-operation from SFSI in the ceding of its business to SFSI.

373    We are satisfied that in circumstances where Mr Pacione was the controlling or guiding mind of both companies; Mr Pacione caused a transition to occur by bringing the granting of new licences by HSFS to an end and the substitution of SFSI as the granting entity; Mr Pacione, in effect, divested HSFS of its ongoing business undertaking so as to posit that activity in SFSI; Mr Pacione knew that SFSI had no lawful right to exercise any of the rights of the copyright owner; Mr Pacione obfuscated the truth of the matter in his evidence before the primary judge; and Mr Pacione was directly engaged in the licence arrangements reflected in the documents at AB, Pt C (Supplementary) Vol 1, that Mr Pacione has engaged in the conduct of using each of HSFS and SFSI for the purpose of enabling the infringing conduct of SFSI or, put another way, invading the rights of the copyright owner. There can be no doubt that Mr Pacione actively understood that SFSI had derived no legal right from the copyright owners to engage in the conduct in question.

374    So far as Mr Pacione is concerned, the answers to the s 36(1A) questions are these. First, Mr Pacione plainly enjoyed a power to prevent SFSI from engaging in the infringing conduct by reason of his position as a director and the circumstance that he knew and could have stopped SFSI from engaging in the conduct of assuming the role of granting licences in place of HSFS in circumstances where he knew that SFSI had no lawful right to do so. Second, the nature of the relationship between Mr Pacione and SFSI was that he was a director and, in substance, the economic owner of that company and chose to use that vehicle for the purpose of granting licences without the licence or authority of the copyright owners. Third, Mr Pacione took no reasonable steps to prevent or avoid SFSI’s infringing conduct. Rather, he facilitated it, consciously, and obfuscated having done so.

375    Apart from the statutory position under s 36(1) and s 36(1A), Mr Pacione’s conduct was such that he, together with SFSI, invaded the rights of the copyright owner by enabling reproduction and communication of versions of QSS to customers of SFSI and thus Mr Pacione was a joint tortfeasor with SFSI.

376    As to HSFS, the answers to the questions are these. First, HSFS could only act through the actions of Mr Pacione. Mr Pacione used HSFS as a vehicle for the purpose of the divestment of its business (or at least its future business) to SFSI and in doing so Mr Pacione caused HSFS to co-operate and facilitate the transition of the granting of licences in QSS from a vehicle which ostensibly had obligations to the copyright owners, to a new vehicle, SFSI, which had no such obligations. In order to effect the transition, HSFS had to act consensually with SFSI in the transition both as a matter of fact and as a question of law. In that sense, HSFS, by reason of the conduct of Mr Pacione, enjoyed a practical power to prevent the conduct of SFSI albeit that HSFS was simply the instrument of Mr Pacione for that purpose. Second, the nature of the relationship between HSFS and SFSI was that both entities were under the control of the guiding mind of Mr Pacione and that HSFS’s co-operation, facilitated by Mr Pacione, in the transition, was necessary to enable SFSI to engage in the infringing conduct. HSFS took no reasonable steps to prevent or avoid SFSI engaging in the conduct because Mr Pacione, as the guiding mind of HSFS, caused HSFS to assist and facilitate the transition to SFSI.

377    For these same reasons as described above, Mr Pacione enjoyed the power to prevent HSFS authorising the infringements by SFSI. The nature of the relationship between Mr Pacione and HSFS has already been described. Mr Pacione took no reasonable steps to prevent HSFS authorising SFSI’s infringements. Rather, Mr Pacione was putting in place the arrangements as between HSFS and SFSI which would enable the infringements by SFSI to occur. Moreover, Mr Pacione obfuscated the true nature of the arrangements in the course of his evidence before the primary judge.

378    For these reasons, the orders of the primary judge in relation to authorisation, ought not to be disturbed.

Breach of Confidence: grounds 15 to 17 of notice of appeal

379    The appellants’ challenge is to the finding that JRC acted in breach of a duty of confidence in relation to a Licence Key Generator. A Licence Key Generator is a computer program that generates licence keys which are necessary to activate (in the sense of make available to) QSS for sub-licensees.

380    The respondents’ case as pleaded in its Statement of Cross-Claim was as follows. The Licence Key Generator was confidential information in the nature of a trade secret and it was provided by Tanmari to HSFS. Tanmari assigned its rights to the Licence Key Generator to FIPL under the FIPL Purchase Agreement. HSFS breached the obligation of confidence in relation to the Licence Key Generator by disclosing it to JRC and SFSI, and SFSI knowing that the information was confidential information in the nature of a trade secret, breached the obligation of confidence by using the Licence Key Generator to activate licences of QSS.

381    The primary judge found that Mr Pacione was provided with two versions of the Licence Key Generator, one in August 2002 after the 2002 Agreement (having regard to the parties to that agreement, presumably by Mr Cummings to JRC), and another after entry into the 2004 Agreement (having regard to the parties to that agreement, presumably by Tanmari to HSFS) (at [381]).

382    The primary judge found that the Licence Key Generator was confidential information. We need not consider his Honour’s reasons because his conclusion is not challenged.

383    The primary judge found that SFSI had been sub-licensing QSS to third parties and that to do that it must have had access to the Licence Key Generator. The provision of it to SFSI and the use of it by SFSI was a breach of confidence. Neither the 2002 Agreement (which had been abandoned) nor the 2004 Agreement authorised the provision of the Licence Key Generator to SFSI.

384    The appellants submitted that Tanmari and FIPL did not have title to sue for breach of confidence. They accepted that Mr Cummings had title to sue, but, they submitted, he was not a party to the cross-claim. The primary judge said that Tanmari had title to sue and he did not need to consider whether, as a result of the FIPL Purchase Agreement, FIPL had title to sue.

385    Although it is not entirely clear, we think that the appellants’ appeal is confined to an appeal by JRC and relates to the injunction made against it (order 6). That follows from the terms of the appellants’ Notice of Appeal and their submissions.

386    Before considering JRC’s submissions, there was one argument put by the appellants in the course of oral submissions on the appeal that seemed to challenge his Honour’s finding that SIFI could not have sub-licensed QSS to third parties without access to the Licence Key Generator (at [385]). The argument is that HSFS could not have provide its Licence Key Generator to SFSI because it only worked for HSFS customers. This contention does not appear in the appellants’ Notice of Appeal or the appellants’ written submissions. Other than referring to one paragraph in Mr Cummings’ affidavit sworn on 14 October 2013, the argument was not developed to any real extent. The argument does not have obvious merit and, having regard to the circumstances in which the appellants sought to raise it, we think it should be rejected.

387    JRC’s submission is that an injunction in relation to the Licence Key Generator should not have been made against it because the Licence Key Generator was provided to it by Mr Cummings following the 2002 Agreement. Unless Mr Cummings had assigned his rights to the information, only he could sue for beach of confidence. JRC acknowledged that Mr Cummings and Tanmari transferred assets to FIPL pursuant to the FIPL Purchase Agreement and that the assets were defined to include confidential information and trade secrets, but submitted that the only form of confidential information that could be transferred or assigned were trade secrets. They relied on Farah Constructions Pty Ltd and Others v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [118] in support of the latter proposition. JRC submitted that his Honour did not make a finding that the Licence Key Generator, although confidential, was in the nature of a trade secret.

388    We think the answer to this submission is that his Honour’s reasons for concluding that the Licence Key Generator was confidential information justify a finding or conclusion that it was confidential information in the nature of a trade secret. We note, for example, that the case his Honour considered in some detail at [383] – Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326 – addressed at length the relevant factors for determining whether information was a trade secret. It was accepted by the appellants that trade secrets were transferred or assigned under the FIPL Purchase Agreement.

389    JRC submitted that it retained certain rights to the Licence Key Generator which it had under the 2002 Agreement. The answer to this submission is that we have upheld the primary judge’s conclusion that the 2002 Agreement was abandoned by 11 August 2004. Even if some rights survived the abandonment (a matter it is not necessary for us to address), they did not include a right to disclose the Licence Key Generator to SFSI for the latter’s use.

390    We uphold his Honour’s conclusions and order with respect to the respondents’ breach of confidence claim.

2004 Agreement: grounds 1 to 8 of the amended notice of cross-appeal

391    The main issue raised by the cross-appellants in relation to the 2004 Agreement is a contention that his Honour erred in not concluding that HSFS had breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement and that either Tanmari or FIPL terminated the agreement in 2011. The relevance of this issue is identified in the Statement of the Issues above (at [48]). There is also a challenge by the cross-appellants to his Honour’s construction of a clause in the agreement. We start with the main issue and we divide it into two parts, the first being whether HSFS breached the agreement in a manner which gave Tanmari the right to terminate, and the second being whether the agreement was in fact terminated.

Did HSFS breach the 2004 Agreement in a manner giving Tanmari the right to terminate?

392    The 2004 Agreement gave HSFS the power to grant the right to use QSS to its customers and placed an obligation on HSFS to pay a licence fee in relation to each person authorised by it to use the software. Under cl 8.1 of the agreement, the non-payment of the licence fee by HSFS gave Tanmari the right to terminate the agreement. That is the only express power to terminate in the 2004 Agreement.

393    At the trial, the cross-appellants claimed that HSFS had failed to pay licence fees in respect of licences granted by it. The primary judge found that HSFS had failed to pay licence fees in respect of licences granted by it, but that those breaches had been cured by a payment made by HSFS on or about 6 January 2012. The primary judge noted that it was not alleged by the cross-appellants that that payment was not sufficient to cure the past breaches by HSFS in respect of the licences granted by it (at [156]). The cross-appellants did not challenge those conclusions on the cross-appeal and that means that their case that HSFS breached the 2004 Agreement does not rely on a failure by HSFS to pay licence fees in respect of licences granted by it.

394    The primary judge found that after April 2009, SFSI commenced licensing QSS to new customers. SFSI was a wholly-owned subsidiary of JRC. By that time, HSFS was also a wholly-owned subsidiary of JRC. Mr Pacione was the controlling mind of all three companies. The primary judge said that in or about April 2009, Mr Pacione decided to cease to undertake new business in HSFS and instead to undertake new business in SFSI (at [148]). The primary judge said that Mr Pacione’s evidence about the activities HSFS undertook after April 2009 was unclear and that, doing the best he could with the evidence, he concluded that “HSFS had at least ceased to deal with new clients and substantially ceased all its business from April 2009, but may have had a residual business renewing licences granted to previous clients, the extent of which is unclear” (at [148]).

395    In their Statement of Cross-Claim, the cross-appellants alleged that HSFS breached the 2004 Agreement by:

(1)    failing to pay licence fees in respect of licences granted (paragraphs 38-41);

(2)    purporting to license, including the right to sub-license, the use of QSS and any know how, methodology and trade secrets necessary for the implementation of QSS to SFSI (paragraphs 28-32); and

(3)    consenting with knowledge to JRC purporting to license, including the right of sub-license, the use of QSS and any know how, methodology and trade secrets necessary for the implementation of QSS to SFSI (paragraphs 33-37).

396    We turn to deal with paragraphs (1) and (2). Paragraph (3) was not raised on the cross-appeal.

397    As we have said, there was no continuing breach by HSFS in failing to pay licence fees in relation to licences granted by it. After 2009, SFSI granted licences of QSS to its customers and did not make any payments in respect thereof to Mr Cummings or Tanmari. That conduct did not give rise to an obligation on HSFS to pay licence fees under the 2004 Agreement. HSFS was under an obligation to pay licence fees in respect of each person it authorised to use QSS under cl 2.2 of the agreement. Neither party argued that HSFS had licensed SFSI to exercise the rights under cl 2.2 of the agreement and thereby had become liable to pay licence fees under the 2004 Agreement. The cross-respondents’ case at trial was that SFSI had rights to sub-license QSS by reason of JRC granting the rights it had under the 2002 Agreement, and the cross-appellants’ case was that SFSI’s activities were in breach of their copyright. It is not necessary for us to consider the argument that, in any event, the 2004 Agreement did not give HSFS the power to confer on SFSI the right to grant sub-licences. We make the observation that that argument appears to be correct. The cross-appellants made reference in their submission to the fact that in an early version of the cross-respondents’ Statement of Claim, they alleged that SFSI acted as HSFS’s agent, but never made clear how they sought to deploy this allegation.

398    The primary judge rejected the cross-appellants’ case that HSFS breached the 2004 Agreement in purporting to licence, including the right to sub-licence QSS to SFSI, on the ground that there was no evidence that HSFS purported to transfer its rights to licence QSS to SFSI. He said that although he rejected the cross-respondents’ case that JRC had conferred a right to licence on SFSI under the 2002 Agreement, “that does not lead to the conclusion that some other transaction took place, where the Plaintiffs do not contend any other transaction took place and the alternative conclusion that SFSI simply dealt with the software without any right to do so is plainly open” (at [160]).

399    The cross-appellants submitted that the primary judge did not address, or did not properly address, their case that HSFS breached the 2004 Agreement by purporting to license its rights under the 2004 Agreement to SFSI. They submitted that the primary judge erred by assuming that the cross-appellants needed to show that HSFS’s conduct was effective or by proceeding on the basis that it was common ground that JRC purported to license its rights under the 2002 Agreement to SFSI in April 2009. They pointed to the following passages in the primary judges’ reasons (at [155], [325] and 341]):

155    The Defendants contend that they were entitled to terminate the 2004 Agreement for failure by HSFS to pay licence fees to Tanmari as and from 2009 and for the purported transfer of the rights to license QSS to SFSI, without the knowledge or consent of Mr Cummings or Tanmari. That proposition assumes that HSFS in fact transferred such rights to SFSI.

325    Paragraphs 28-29 and 32 of the Cross-Claim raise an issue whether HSFS purported to license the right to licence the use of QSS, know-how methodology and trade secrets under the 2004 Agreement to SFSI. The Plaintiffs and Cross-Defendants did not contend that such a licence had been granted. They relied exclusively on the sub-license of rights under the 2002 Agreement said to have been granted by JRC (by Mr Pacione) to SFSI (by Mr Pacione) in April 2009. The case has therefore been conducted on the common basis that no such licence of rights under the 2004 Agreement was granted by HSFS to SFSI.

341    … and it is also common ground that SFSI has sub-licensed the use of QSS to third parties since April 2009 relying on the purported sub-licence to it by JRC of its rights under the 2002 Agreement; and I have held that JRC did not confer those rights on SFSI for the reasons noted above. …

400    There are some difficulties in these passages, although fairly read, we do not think that there is an error in paragraph 325. Nevertheless, we reject the cross-appellants’ submission. We think the primary judge did address the cross-appellants’ case that HSFS breached the 2004 Agreement by purporting to license its rights under the Agreement to SFSI. We refer to paragraph 398 above. Furthermore, we are not persuaded that there is any error in the primary judge’s reasoning.

401    We come now to the cross-appellants’ principal argument in support of their contention that HSFS breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement.

402    We have set out above his Honour’s findings in support of his conclusion that HSFS had authorised SFSI’s infringement of copyright and the facts supporting the finding that HSFS breached an obligation of confidence. To recapitulate, his Honour held that HSFS had authorised the infringement of copyright by SFSI on the basis that HSFS had at least a practical power to prevent the infringing conduct by SFSI. He relied on the following matters:

(1)    HSFS ceased doing business with new clients and thereby permitted SFSI, in effect, to assume its business;

(2)    there was a close relationship between HSFS and SFSI, by the fact that Mr Pacione controlled and had a substantial economic interest in each of them, and by their cooperation in the transfer of HSFS’s business to SFSI; and

(3)    HSFS took no steps to prevent or avoid the infringing conduct which could have included at least withholding its cooperation by not ceding its business to SFSI

(at [345]).

403    The primary judge found that HSFS had provided the Licence Key Generator to SFSI in breach of an obligation of confidence it owed to Tanmari. In order for SFSI to sub-license QSS to third parties, it would need to have access to the Licence Key Generator (at [385]).

404    We will refer to this conduct of HSFS as “HSFS’s infringing conduct”.

405    The cross-appellants submitted that the primary judge ought to have found that HSFS’s infringing conduct in addition to authorising SFSI’s infringement of copyright and constituting a breach of confidence, was a breach of the 2004 Agreement which gave Tanmari the right to terminate the agreement.

406    This argument was sometimes advanced under the rubric of the argument that HSFS breached the 2004 Agreement by purporting to license its rights under the agreement to SFSI and sometimes as an independent argument. There was also a suggestion that the Court should lift the corporate veil, although which entity would be revealed and with what consequences was never made clear. By way of example, the following submissions appear in the cross-appellants’ written submissions on the cross-appeal:

The artifice of interposing and facilitating a new company (SFSI) to grant the licences without any corresponding obligations, constituted such a fundamental breach …

Put another way, HSFS armed SFSI with the means to infringe the copyright and to breach confidence and thereby sought to avoid its obligations as licensee under the 2004 Agreement …

Thus, the primary judge should have held that HSFS purported to grant a sub-licence of QSS to SFSI and, by that means, it sought to avoid its obligations under the 2004 Agreement, including to pay any royalties for the exploitation of the Software …

407    The cross-respondents’ chief response to this argument was that this was not a case pleaded by the cross-appellants or advanced before the primary judge and the cross-appellants should not be permitted to raise it on the cross-appeal.

408    The following matters support the cross-respondents’ contention:

(1)    There is no plea in the cross-appellants’ Statement of Cross-Claim that the 2004 Agreement contained an obligation of good faith or a duty of cooperation and an obligation of that nature seems to be the foundation of the argument;

(2)    There is no express plea that HSFS’s infringing conduct gave rise to a breach of the 2004 Agreement;

(3)    The primary judge did not deal with the argument;

(4)    In the context of the contention identified in paragraph 402(3) above, the primary judge said (at [328]):

The Cross-Defendants respond to the claim that HSFS's knowledge and consent to SFSI's conduct amounted to a breach of the 2004 Agreement by observing that there are no express terms prohibiting HSFS from knowing and consenting to JRC purporting to license SFSI and the Cross-Claimants have not otherwise pleaded why HSFS's knowledge and consent to JRC purporting to license SFSI is a breach of the 2004 Agreement. I accept those submissions. That conduct may or may not have breached a duty of good faith or an implied duty of cooperation or a narrower duty of HSFS not to act in a manner that would deprive Tanmari of the benefit of licence fees under that contract. However, a claim on that basis was not pleaded by the Cross-Claimants and it would not be appropriate to address it where it was not squarely raised so as to allow the Cross-Defendants to respond to it.

(5)    The trial was conducted according to the pleadings as was made clear by the primary judge in a number of passages in his reasons (see, for example, [42] and [308]).

409    On the one hand, there are reasons why this Court should entertain and determine the cross-appellants’ argument. They are as follows:

(1)    It is difficult to think of a reason why the 2004 Agreement did not contain an implied term of cooperation, that is to say, a duty on each party to do all things necessary within the context of the agreement to enable the other party to have the benefit of the agreement;

(2)    The cross-appellants were plainly arguing that HSFS had breached the 2004 Agreement giving Tanmari the right to terminate, and the argument that it did so by purporting to licence SFSI can be seen as a related argument. That argument was dealt with by the primary judge; and

(3)    HSFS’s infringing conduct was clearly in issue at the trial and, indeed, formed the basis of the primary judge’s conclusion with respect to the authorisation of infringement of copyright and breach of confidence.

410    We have had regard to recent judicial statements as to the function of pleadings. In Betfair Pty Ltd v Racing New South Wales and Another (2010) 189 FCR 356, the Full Court of this Court said (at 374-375 [55]):

In our respectful opinion, the proposition favoured by the primary judge that, from beginning to end, Betfair’s case was fatally flawed by a failure to adequately plead that the discrimination it alleged was of a protectionist kind, gave insufficient recognition to the fact that the case was fought out in every other sense on the constitutional issues arising from s 92. Betfair’s opponents sought to rely at the trial on the general proposition that Betfair would be “held” to its pleaded case. An announcement of that kind by a party misstates that party’s capacity to direct the course of the proceedings. The course of proceedings is in the control of the Court. That control is to be exercised for the attainment of a just outcome. There will obviously be cases where a pleaded case does not raise an important fact for attention. If that remains the position at the end of the case, the case may be lost on that basis, so far as it depends on that fact. Sometimes it would be unfair to allow a party to amend a case, or a pleading, to raise a new matter which could have been, but was not, raised earlier. On the other hand, mere infelicity of drafting will rarely be allowed to defeat a case on its merits if the merits of the case have been made apparent on the evidence without unfairness to the other party.

411    In Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, the Full Court of this Court said (at [13]):

It is well-established that the main purposes of pleadings are to give notice to the other party of the case it has to meet, to avoid surprise to that party, to define the issues at trial, to thereby allow only relevant evidence to be admitted at trial and for the trial to be conducted efficiently within permissible bounds: see, eg Dare v Pulham (1982) 148 CLR 658 (at 664-665). However, it is also well-established that pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation: see Banque Commerciale S.A. (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 (at 293) per Dawson J who cites Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 (at 517). For these reasons, the courts do not, at least in the current era, take an unduly technical or restrictive approach to pleadings such that, among other things, a party is strictly bound to the literal meaning of the case it has pleaded. The introduction of case management has, in part, been responsible for this change in approach: see the observations of Martin CJ in Barclay Mowlem Construction Limited v Dampier Port Authority (2006) 33 WAR 82 (at [4]-[8]). Even before the widespread use of case management, the High Court reflected this approach in decisions such as Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 (at 668-669) per Stephen, Mason and Jacobs JJ and Water Board v Maustakas [sic] (1988) 180 CLR 491 (at 497) per Mason CJ and Wilson, Brennan and Dawson JJ.

We have also borne in mind the observations in Leotta v Public Transport Commission (NSW) and Water Board v Moustakas to which we have previously referred.

412    With some hesitation, we have reached the conclusion that it is not open to the cross-appellants to advance before this Court the argument that HSFS’s infringing conduct gave rise to a breach of the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement. We do not think the cross-appellants should be permitted to advance the argument in the absence of a plea of a contractual term (i.e., a duty of good faith or duty to cooperate) forming the foundation of the argument and having regard to the primary judge’s approach to a closely related plea and to his approach to the pleadings more generally.

413    In the circumstances, it is not necessary for us to consider the parties’ submissions as to the decision in Cowell v The Rosehill Racecourse Company Limited (1937) 56 CLR 605 and the application of that decision to the facts of this case.

Did Tanmari or FIPL terminate the 2004 Agreement?

414    In view of our conclusion that HSFS did not breach the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement, the issue whether Tanmari or FIPL in fact terminated the agreement for such “breach” does not arise. However, the primary judge addressed the issue as did the parties in their submissions. We will consider the issue on the assumption that HSFS breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement.

415    The cross-appellants’ case as pleaded in their Statement of Cross-Claim was that Tanmari, through its solicitors Sparke Helmore, terminated the 2004 Agreement by letter dated 24 January 2012 (paragraph 49). In that letter, Sparke Helmore said:

7.    Accordingly and effective immediately, Tanmari terminates the 2004 Agreement:

(a)    in accordance with clause 8.1; and

(b)    additionally, and pursuant to its common law rights, for Hayes SFS’s continued breach of a material condition of the 2004 Agreement.

416    In late 2011 and early 2012, Sparke Helmore were acting for Tanmari and, it seems, Mr Cummings. A New Zealand firm of solicitors, Simmonds Stewart, was acting for FIPL. A New South Wales firm of solicitors, Simone Legal, was acting for JRC and HSFS.

417    There was a dispute before the primary judge about whether Tanmari had the right to terminate the 2004 Agreement or whether, by reason of the FIPL Purchase Agreement and other conduct, that right resided in FIPL. The primary judge decided that the right to terminate the 2004 Agreement in late 2011 and early 2012 resided in FIPL (at [191]) and neither party on the appeal and cross-appeal challenges that conclusion.

418    The cross-appellants submitted that nevertheless the Sparke Helmore letter dated 24 January 2012 was effective to terminate the 2004 Agreement on behalf of FIPL because Mr Taylor on behalf of FIPL gave evidence that he “directed” Tanmari as trustee for FIPL to send, inter alia, the Sparke Helmore letter dated 24 January 2012. Furthermore, they pointed to the fact that in a different context – a claim in tort by the cross-respondents against FIPL for inducing or procuring Tanmari to breach the 2004 Agreement – the primary judge said (at [299]):

… I accept that FIPL induced or procured Tanmari’s attempted termination of the 2004 Agreement. Mr Taylor's evidence was that he “directed” Tanmari to send the letter giving HSFS notice of breach of that agreement and the further letter terminating that agreement …

419    There are a number of difficulties with this argument which, when combined, mean that the argument must be rejected. First, the terms of the Sparke Helmore letter are clearly to the effect that it is Tanmari which is purporting to terminate the 2004 Agreement. Secondly, Tanmari was not acting as trustee for FIPL. The matter might have proceeded in that way had the assignment under the FIPL Purchase Agreement been ineffective (cl 5.5 of the FIPL Purchase Agreement), but the primary judge found that the assignment was relevantly effective and there is no challenge to that finding. Thirdly, there is nothing in the correspondence to indicate to HSFS that Tanmari was acting on behalf of FIPL in purporting to terminate the 2004 Agreement. In fact, Simmonds Stewart, acting for FIPL, wrote to Simone Legal complaining of SFSI’s unauthorised use of the QSS Software on 21 December 2011 and 24 January 2012.

420    In the alternative, the cross-appellants submitted that the Simmonds Stewart letter on behalf of FIPL to Simone Legal dated 24 January 2012 was an effective notice of termination. This letter is not referred to in the Statement of Cross-Claim. The cross-appellants submitted that it was a sufficient notice of termination by FIPL because it states that the 2004 Agreement is now terminated and adopts the reasoning for that termination in the Sparke Helmore letter dated 24 January 2012. The relevant passages in the letter are as follows:

1.    We refer to your letter of 11 January 2012 and the letter to you from Sparke Helmore on behalf of Tanmari Pty Limited of today’s date (Tanmari Response).

…

7.    Framecad considers that the Tanmari Response resolves many of the continuing issues between Tanmari and your clients. The 2004 Agreement is now terminated and Tanmari has made a without prejudice offer to provide you the Quick Series source code as at the date of the 2002 Agreement. It would appear the only remaining matter to be discussed is Hayes SFS’s liability to Tanmari for the previous breaches of contract.

…

421    We do not think that this is a termination by FIPL. It is at best an assertion by FIPL that Tanmari had terminated the 2004 Agreement by its letter dated 24 January 2012.

422    We come now to the principal argument advanced by the cross-appellants and that was that FIPL terminated the 2004 Agreement by letter from Sparke Helmore dated 23 May 2014. The primary judge seems to have made contradictory findings about whether this letter was sent on behalf of Tanmari and FIPL or only on behalf of Tanmari. He said (at [153]):

By a further letter dated 23 May 2014, without admission as to the effectiveness of the earlier notices to remedy the breaches and termination notices, Tanmari and FIPL terminated the 2004 Agreement for non-payment of licence fees and terminated any licence, authorisation or authority to JRC, HSFS, SFSI or Mr Pacione to do any of the acts comprised in the copyright in QSS or the user documentation.

423    Later, his Honour said (at [192]):

Tanmari gave a further notice of termination of the 2004 Agreement by letter dated 23 May 2014 from Sparke Helmore to HSFS (Ex P2 401.) The Plaintiffs also contend that notice was ineffective. That notice was not necessary so far as any question of service was concerned, since I have held that the initial termination letter was effectively served, and does not otherwise bring about an effective termination of the 2004 Agreement where notice was given by Tanmari rather than FIPL.

424    The cross-respondents submitted that the letter dated 23 May 2014 cannot be relied on by the cross-appellants because it was not pleaded. We reject this submission. It was written after the cross-respondents had commenced their action and was in evidence at the trial. Furthermore, the cross-respondents have not identified any prejudice to them if the cross-appellants are able to rely on the letter as an effective notice of termination.

425    The cross-respondents submitted that the letter dated 23 May 2014 did not terminate the 2004 Agreement because “[FIPL] denied that the earlier termination letters were ineffective and also denied that the 2004 Agreement was assigned to [FIPL]” and that “[FIPL] cannot exercise rights where [FIPL] does not acknowledge that such rights even exist”.

426    These submissions are based on the following passages in the letter:

1.    As you know we act for the Defendants/Cross Claimants in the proceedings JR Consulting & Drafting Pty Ltd & Anor v Robert Cummings & Ors.

…

7.    Notwithstanding that, without any admissions as to the effectiveness or otherwise of the Written Notice and/or the Termination Notice, for the avoidance of doubt and in accordance with clause 8.1 of the 2004 Agreement, Tanmari hereby terminates the 2004 Agreement for non-payment of licence fees in accordance with clause 2 of the 2004 Agreement.

8.    Alternatively, if the 2004 Agreement was assigned to FramceCAD as alleged by you (which is denied) without any admissions, for the avoidance of doubt and in accordance with clause 8.1 of the 2004 Agreement, FrameCAD hereby terminates the 2004 Agreement for non-payment of licence fees in accordance with clause 2 of the 2004 Agreement.

…

427    We reject this submission. This is not a case where a party and, in particular, FIPL cannot put its position in the alternative. We think that had there been a breach entitling Tanmari or FIPL to terminate, then the letter dated 23 May 2014 was an effective notice of termination.

428    However, the cross-appellants’ challenge to the second declaration made by the primary judge must be rejected because there was no breach of the 2004 Agreement by HSFS which entitled Tanmari or FIPL to terminate.

The Construction Point: ground 9 of the amended notice of cross-appeal

429    The primary judge determined various points of construction concerning the scope of the licence granted under cl 2 of the 2004 Agreement. Only one of his determinations is challenged and that is a challenge by the cross-appellants on the cross-appeal. The issue is whether after the seven year period referred to in cl 8.2, that is to say, after August 2011, HSFS was restricted to granting sub-licences to its then customers without paying a licence fee, or whether, in addition, it could grant sub-licences to new customers without paying a licence fee. The primary judge held that the latter was the proper construction of the agreement and the cross-appellants appeal against that determination.

430    The primary judge said that he reached his conclusion with considerable hesitation (at [142]). He noted that another clause in the agreement, cl 9, referred to “any customer or prospective customer of HSFS” whereas cl 8.2 did not (at [140]) and that the construction he adopted might be viewed as conferring a windfall on HSFS being the right after August 2011 to grant as many licences as it wished to existing and new customers without having to pay any licence fee. However, the decisive matter to his mind was that the word, “customer” should receive a consistent interpretation throughout cl 2 and that in the earlier part of the clause it plainly meant customers of HSFS from time to time. That would embrace, he said, new customers.

431    The cross-appellants submitted that two matters should have led the primary judge to the alternative construction, being the windfall otherwise conferred on HSFS and that it was consistent with licences usually associated with software, that is, that “the existing end user who has purchased the software may continue to use it (and often to update it until the updates cease) without further payment”. On one view, the cross-appellants’ construction seems to reflect a more sensible commercial object or purpose than that of the cross-respondents, although that said, clearly one cannot ignore the words of the agreement. Whilst we express no view on whether the licence could be revoked on grounds other than the non-payment of licence fees, if that was not the case, the construction adopted by the primary judge would mean the licence would enable HSFS to issue sub-licences to new customers in perpetuity. There seems to be considerable force in the cross-appellants’ submissions.

432    The cross-respondents submitted that the primary judge decided an issue which was not before him. There were issues before him as to whether the licence granted to HSFS was restricted to granting sub-licences to customers who were purchasing a steel framing system from HSFS and an issue as to whether the licence was restricted to a period of seven years (paras 37-39 of the Amended Defence) which his Honour determined adversely to the cross-appellants, but no issue as to whether after seven years the right to sub-license was restricted to existing customers. The cross-respondents submitted that his Honour’s determination on this point, although favourable to them, was no more than “obiter dicta”. They made the point, which is correct, that the primary judge’s determination is not reflected in any order made by him.

433    We do not think that we should address this issue because its determination is not reflected in any order of the Court. We assume neither party has asked his Honour to make an order reflecting his determination and we do not think that we should be making an order about the matter for the first time on appeal.

Costs

434    The appellants have been unsuccessful on the appeal.

435    The cross-appellants have succeeded on the cross-appeal as to the subsistence of copyright in QSS, but failed on the 2004 Agreement and on the point of construction concerning cl 2 of the 2004 Agreement.

436    Our provisional view is that an order that the appellants/cross-respondents pay 85% of the respondents/cross-appellants’ costs of the appeal and the cross-appeal would fairly reflect the result of the appeal and of the cross-appeal. However, we will give the parties the opportunity to make submissions on the question of the costs of the appeal and cross-appeal.

437    The orders as to the costs of the hearing concerning liability are set out above at [10]. The cross-appellants’ success on the cross-appeal on the subsistence of copyright in QSS calls for an adjustment of those orders. Our provisional view is that only one adjustment is called for and that is to adjust the figure of 75% to 80%. However, again we will give the parties the opportunity to make submissions on the question of the costs of the hearing concerning liability.

Conclusions

438    It follows that the appeal is to be dismissed.

439    As to the cross-appeal, the orders of the primary judge are to be varied (Orders 3 and 4) such that the restraint contemplated by each order is to be framed not in terms of Versions 11.176, 11.406 or 11.604 but rather in terms of all versions of a suite of computer programs known as Quik Series Software published or released up to and including 1 November 2011.

440    Apart from restraints varied as described, a declaration is to be made as to the subsistence and ownership of the copyright subsisting in each version of QSS published or released up to and including 1 November 2011.

441    The principled basis upon which such a declaration is to be made is that the declaration is explanatory of the operative orders as varied. The restraining orders and the declaration are to recite all of the relevant version numbers of QSS so as to give precision to the declaration and the injunctions. The version numbers might be framed in terms of version X to version Y by reference to numbers and dates but precision would be ensured if a table was prepared setting out a list of all of the versions and the date of publication or release of each version. No doubt, the cross-appellants are in a position to prepare such a table (and submit it to the appellants) as all of the information would be available to them.

442    The table could then be incorporated into the framing of the declaration and Orders 3 and 4 as varied.

443    A table setting out the relevant versions of QSS is to be prepared and submitted to the Court by the parties by Tuesday, 8 March 2016 together with a proposed form of the declaration and proposed orders varying the injunctions.

444    The cross-appeal is otherwise to be dismissed.

445    The costs, as we have indicated, are to be the subject of further short submissions to be filed and served by Thursday, 10 March 2016. The parties are to limit their submissions to no more than four pages in length.

Associate:

Dated:    3 March 2016

SCHEDULE OF PARTIES