FEDERAL COURT OF AUSTRALIA

Leica Geosystems Pty Ltd v Koudstaal (No 3) [2014] FCA 1129

THE COURT ORDERS THAT:

1.    It be declared that the first respondent has infringed the applicants’ copyright in Leica’s material (as defined in this judgment) by reproducing in a material form the whole or a substantial part of Leica’s material, without the licence, consent or authority of the applicants.

2.    It be declared that the first respondent has wrongfully used and disclosed confidential information of the applicants, in breach of his equitable obligation to keep confidential the Confidential Leica material (as defined in this judgment), by his unauthorised reproduction of the Confidential Leica material during his employment with the first applicant, and his unauthorised reproduction, possession and use of that material after the conclusion of his employment with the first applicant, including for purposes of his employment with the second respondent.

3.    It be declared that the first respondent has acted in breach of clauses 5.2(a), 5.2(b), 5.2(e), 5.2(f), 6.1(a) and 8.7 of his employment agreement with the first applicant, by his unauthorised reproduction of Leica’s material during his employment with the first applicant, and his unauthorised reproduction, possession and use of Leica’s material after the conclusion of his employment with the first applicant.

4.    It be declared that the first respondent has improperly used information obtained, because he had been an employee of the first applicant, to gain an advantage for himself and the second respondent, in contravention of his obligation under s 183(1) of the Corporations Act 2001 (Cth).

5.    The first respondent, whether by himself, his servants, agents or otherwise howsoever, be permanently restrained from:

(a)    keeping, storing, or reproducing in a material form, without the licence of the applicants, the whole or any part of Leica’s material;

(b)    using or reproducing in any way any document or part of a document, or information contained in any document electronically stored on the hard drive of any computer in his power, possession or control, which is either a copy or a substantial copy made directly or indirectly from source code, other software or any document in the possession of any of the applicants at the date of termination of the first respondent’s employment on 3 November 2011;

(c)    using, publishing, communicating or disclosing in any way, any of Leica’s material, or any other confidential information (as defined in clause 6.1 of the first respondent’s employment agreement with the first applicant) of the applicants or any of them;

(d)    authorising, procuring or inducing others to do any of the acts that he is so restrained from doing by Orders 5(a)-(c) hereof.

6.    Within seven (7) days after the date of this Order, the first respondent shall deliver up to the first applicant’s solicitors:

(a)    all software, computer files, documents or other property of the first applicant; and

(b)    all copies of Leica’s material, and any other confidential information of the applicants,

which are in the possession or under the control of the first respondent.

7.    All copies of Leica’s material (or part thereof) presently held by the Court pursuant to Order of this Court, or otherwise, be released to the first applicant’s solicitors.

8.    The first respondent shall pay to the applicants compensatory damages for infringement of the applicants’ copyright pursuant to s 115(2) of the Copyright Act 1968 (Cth), and breach of the first respondent’s employment agreement, and compensation for breach of the first respondent’s equitable obligation of confidence, in the sum of $1.00.

9.    The first respondent shall pay to the applicants additional damages for infringement of the applicants’ copyright, pursuant to s 115(4) of the Copyright Act 1968 (Cth), in the sum of $50,000.

10.    The first respondent shall pay the applicants’ costs of and incidental to this proceeding, including reserved costs, to be taxed if not otherwise agreed.

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

REASONS FOR JUDGMENT

1    The applicants are members of the Leica Geosystems Mining group, being the Mining Division of the Hexagon Geosystems Group of which the ultimate holding company is Hexagon AB (a listed public company based in Sweden). This group of companies is in the business of selling software products and providing services to the mining industry.

2    In particular, the applicants supply valuable computer and GPS-controlled mine equipment control systems to clients in the mining industry. The first applicant (“Leica Australia”) is incorporated in Australia, while the second and third applicants are related companies based in Switzerland and the United States respectively. The first respondent, Andrew Koudstaal, was employed by Leica Australia as a software engineer from 10 May 2010 to 3 November 2011.

3    Mr Koudstaal concluded employment with the first applicant on 3 November 2011 to then commence employment with a competitor company, Automated Positioning Systems Pty Ltd (“APS”), on 7 November 2011. It appears that over a period commencing 11 October 2011 until 1 November 2011, and over the course of several hours on 2 and 3 November 2011 (shortly before he left his employment with Leica Australia), Mr Koudstaal deliberately copied a large volume of the applicants’ material to an external hard drive which he removed from the premises of Leica Australia when he finally left their employment.

RELEVANT MATERIAL

4    In their third further amended statement of claim (“statement of claim”) the applicants press claims in respect of three categories of material.

5    The first category is described in paragraph 10 of the statement of claim as “the Leica Classic material”, and comprises:

a.    certain computer programs (within the meaning of that expression as used in the Copyright Act 1968 and which exist in the form of human readable source code in which the programs are written and machine readable code including but not limited to object code) for fleet management systems and machine guidance systems, specifically written by employees of one or more of the Applicants or their predecessor, known as:

i.    Leica Classic (which comprises IMS, PitOps, DozerNaz, Dignav, Drillnav, Drillnav Plus and Dragline Series 3); and

ii.    ORENAV

b.    files and material associated with the computer programs referred to in subparagraph 10(a) hereof, including:

 i.    source code;

 iv. databases; and

 xii. object code.

 c.    documentation

d.     and

e.    all derivatives, improvements or enhancements of the works referred to in subparagraphs 10 (a)-(c) hereof.

(Numbering in original.)

6    The second category is described in paragraph 10A of the statement of claim as “the Jigsaw material” and comprises:

a.    certain computer programs (within the meaning of that expression as used in the Copyright Act 1968 and which exist in the form of human readable source code in which the programs are written and machine readable code including but not limited to object code) for fleet management systems and machine guidance systems, specifically written by employees of one or more of the Applicants, known as MineOps (also known as Jigsaw or JMineOps), including J2Shovel, J2Dozer, J2dragline and J2Drill.

b.    Files and material associated with the computer programs referred to in subparagraph 10A (a) hereof, including:

 i.    source code

 iv.    databases; and

 xii.    object code.

 c.    Documentation and

d.    all derivatives, improvements or enhancements of the works referred to in subparagraphs 10A (a)-(c) hereof made by the First Applicant and the Third Applicant.

(Numbering in original.)

7    The third category is described in paragraph 10B of the statement of claim as “the Confidential Leica material” and comprises:

 a.    …

b.    Comprehensive versions lists by customers (details of what software versions are being used by each client by product type);

 c.    …

 d.    Test procedures and results;

e.    Documentation relating to the development of the Leica Classic material and the Jigsaw material, including internal release documents;

f.    Documentation (including product documentation, user documentation and customer site access information, limited to:

 i.    Site specific access codes and remote access details;

 ii.    Training and user manuals specifically created for client sites

 iii.    Surveys of site equipment

 iv.    Site overview documents

 v.    Implementation details and designs

 g.    Source code comprising part of the Leica classic material

 h.    Source code comprising part of the Jigsaw material.

8    In the statement of claim, these three categories are described as “Leica’s material”. At paragraph 20 of the statement of claim the applicants cumulatively refer to all material referred to as “Leica’s material” as well as material additionally copied on 3 November 2011 as “the Taken Material”.

9    Except where otherwise identified, I will be referring throughout these proceedings to “the Taken Material”.

RELEVANT CLAIMS AGAINST THE RESPONDENTS

10    Originally the applicants sought relief against both Mr Koudstaal as first respondent and APS as second respondent, however on 6 February 2014 I made consent orders dismissing the application against APS.

11    In their amended originating application filed 23 July 2013 the applicants sought (materially), the following orders:

1.    An order that the first Respondent, whether by himself, servants or agents or otherwise howsoever, be restrained permanently from:

a.    Reproducing in a material form, without the licence of the Applicants, the whole or a substantial part of Leica’s material (as defined in the statement of claim);

b.    Using or reproducing in any way any document or part of a document, or information contained in any document electronically stored on the hard drive of any computer in his power, possession or control, which is either a copy or a substantial copy made directly or indirectly from source code, other software or any document in the possession of any of the Applicants at the date of termination of the First Respondent’s employment on 3 November 2011;

c.    Using, publishing, communicating or disclosing in any way, Leica’s material or any other confidential information (as defined in cl. 6.1 of the employment agreement) of the Applicants or any of them.

2.    An injunction or mandatory order requiring the First Respondent to forthwith deliver up to the First Applicant’s solicitors all software, computer files, documents or other property of the First Applicant which are in his possession or under his power or control.

 3.    …

4.    A declaration that by the conduct pleaded in the statement of claim, each of the Respondents have wrongfully used and disclosed confidential information of the Applicants.

5.    A declaration that by the conduct pleaded in the statement of claim the First Respondent has breached the term of his employment agreement.

6.    A declaration that each of the Respondents has infringed the Applicants’ copyright in Leica’s material (as defined in the statement of claim)

7.    An order that the Respondents and each of them forthwith deliver up to the Applicants’ solicitors all copies of Leica’s material, and any other confidential information of the Applicants which are in the possession or under the control of the Respondents or either of them.

 8.    Damages for breach of contract.

 9.    Damages pursuant to s. 115 (2) of the Copyright Act.

 10.    Additional damages pursuant to s. 115 (4) of the Copyright Act 1968.

 11.    Conversion damages pursuant to s. 116 (1) of the Copyright Act 1968.

 12.    Equitable compensation for breach of confidence.

13.    Alternatively to the relief sought in paragraphs 9, 10, 11 and 12 hereof, at the election of the Applicants, an order that an account be taken of the profits made by the Respondents by infringements of copyright and breach of confidence, and an order that the Respondents pay such profits to the Applicants.

14.    All necessary inquiries as to damages, or in the alternative, profits made with respect to the conduct of the First and Second Respondents.

 15.    Interest pursuant to s.51A of the Federal Court of Australia Act 1976 (Cth).

 16.    Costs

17.    Such further or other orders, directions or relief as to the Court may seem appropriate.

12    The trial in this matter was part heard in 2013 and returned for continuation of the hearing earlier this year at which time the applicants closed their case. While earlier in the proceedings Mr Koudstaal had legal representation, by the time the hearing commenced Mr Koudstaal was unrepresented.

13    Following the orders of 6 February 2014 and the cessation of APS as a party, the applicants informed the Court that they continued to press four causes of action against Mr Koudstaal, namely:

1.    copyright infringement under the Copyright Act 1968 (Cth) (“Copyright Act”);

2.    breach by Mr Koudstaal of the equitable obligation of confidence;

3.    breach of the terms of his employment contract with Leica Australia; and

4.    breach of his statutory duties under s 183(1) of the Corporations Act 2001 (Cth).

14    In summary the remedies sought by the applicants against Mr Koudstaal alone were:

1.    compensatory damages;

2.    additional damages pursuant to s 115(4) of the Copyright Act;

3.    declaratory orders;

4.    injunctions; and

5.    orders as to return of the confidential information.

15    The applicants’ claims against Mr Koudstaal are, in my view, potentially far less problematic than any claims originally pressed against APS. I make this observation in light of two sets of admissions by Mr Koudstaal.

16    First, I note admissions made by Mr Koudstaal in his fourth further amended defence (“defence”) and the Agreed Statement of Issues filed in these proceedings. These include:

    the Taken Material constituted original literary or artistic works or works within the meaning of those terms as used in the Copyright Act, and copyright subsisted in that material.

    on 27 October 2011 and 2 November 2011, Mr Koudstaal accessed certain files in the OreNav virtual machine and commenced a build process for the Leica source code.

    on 2 November 2011, Mr Koudstaal copied some or all of the Taken Material to his external hard drive.

    on 3 November 2011, before cessation of his employment with Leica, Mr Koudstaal further copied to his external hard drive certain material so as to comprise, together with the material referred to in the immediately preceding bullet point, all of the Taken Material, and other material.

    on 24 January 2012 Mr Koudstaal copied all of the Taken Material from his external hard drive to his laptop computer.

    during the period from 24 January 2012 to 27 January 2012 Mr Koudstaal accessed part of the Taken Material on his laptop computer.

17    Second, I note admissions made by Mr Koudstaal at the hearing on 24 March 2014 where Mr Koudstaal conceded that he had copied the Taken Material. In a statement to the Court at the opening of his case, Mr Koudstaal said as follows:

I believe the heart of the matter is that, yes, I had in my possession files of one of the applicants and I shouldn’t have taken a copy of those files – one of the applicants. Copying the files was very stupid, very naÏve and it was a very thoughtless act. It’s one that I very much regret and I’m deeply sorry for. I intended no malice or harm to the applicants in my actions and I believe I’ve admitted to the allegations made by the applicants in my defence. However, I’ve never passed to others the contents of the files belonging to the applicants that I had in my possession. No use was ever made of the applicants’ data except to check work that I performed for them. I have not profited from it, nor did I ever intend to.

(Transcript 24 March 2014 p 11 ll 9-18.)

18    He later continued:

Thank you, your Honour. The applicants’ information was never communicated to nor made available to the second respondent or any other party. Neither I or the second respondent have profited from or made use of any information belonging to the applicants.

(Transcript 24 March 2014 page 12 lines 36-39.)

19    Further, he submitted:

A lot of the material does involve various allegations against the second respondent and myself. I do apologise if I’ve made inappropriate references to the second applicant – to the second respondent. The applicants enjoyed the benefit of search orders and have had full and complete discovery from both myself and the second respondent. Despite this, the applicants, in my belief, have not presented any credible concrete evidence that their information was used in the products of the second respondent. Despite the enormous expanse of documents produced in this matter, the applicants have not demonstrated a single product, an appliance or piece of software belonging to the second respondent that contains intellectual property of the applicants. And that concludes my statement. Thank you, your Honour.

(transcript 24 March 2014 page 13 lines 5-15.)

20    Mr Koudstaal repeated these concessions on the next hearing day (transcript 28 March 2014 p 90).

Copying the Taken Material – specific evidence

21    The applicants submit that between 11 October 2011 and 1 November 2011 Mr Koudstaal retrieved from the Leica Subversion source control system large amounts of source code, and then built this source code into executable program files. This submission is supported by expert evidence of Mr Nicholas Inglis in his report filed 6 June 2013. Mr Inglis’ evidence to this effect is unchallenged by the first respondent.

22    In particular, it does not appear to be in dispute that on 2 November 2011 over a period of seven hours Mr Koudstaal downloaded and copied approximately 190,000 files (including relevant source code, executable programs and documentation) to a Coolmax external hard drive owned by him. Further, over a period of five hours on 3 November 2011 – Mr Koudstaal’s last day of employment with Leica Australia – Mr Koudstaal downloaded and copied approximately a further 190,000 files to his Coolmax external hard drive, totalling over 60 gigabytes of data.

23    “Computer programs” are defined in s 10 of the Copyright Act as:

… a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.

24    “Source code” is incorporated in or associated with the overall computer program and is essential to the effective operation of the computer program. It was not in dispute that the relevant source code was not published and is part of the applicants’ confidential material.

25    There is evidence before the Court that material in the categories described as the Taken Material was found on Mr Koudstaal’s external hard drive. I refer in particular to evidence of expert witnesses Mr Ajoy Ghosh and Mr Inglis. Both witnesses also deposed that material copied by Mr Koudstaal contained two copies of Leica’s password-protected Virtual Machines, and, crucially, copies of Leica’s source code. Mr Stephen Roberts, the Chief Executive Officer for Leica Geosystems Mining, gave evidence that the Virtual Machines contained all the tools that allow someone to take the source code and make it into a product (affidavit of Stephen Roberts affirmed 15 March 2012).

26    The accuracy of this description of the Taken Material, including that it contained Virtual Machines and Leica’s source code, does not appear to be in dispute. During cross-examination, Mr Koudstaal conceded that the Jigsaw suite and the Orenav/Leica Classic suite were the heart of Leica’s business (transcript 24 March 2014 p 32 ll 29-31).

Discovery of the Taken Material

27    The manner in which the applicants discovered that Mr Koudstaal had copied the Taken Material appears in evidence of Ms Stefana Vella, who at material times was a marketing executive of Leica Australia. Ms Vella was a friend of Mr Koudstaal during his time at Leica Australia. On the evening of 28 January 2012 while at Mr Koudstaal’s apartment she saw reference to a folder named “Leica” and its contents on a television screen while Mr Koudstaal was scrolling through the external hard drive linked to the television. Ms Vella informed her employer that a former member of staff appeared to have copied a large volume of Leica material, and the applicants deduced that it was Mr Koudstaal.

28    On 24 February 2012 Justice Dowsett of this Court made a search order permitting, inter alia, entry into Mr Koudstaal’s domestic premises, and search and seizure of:

1.    Source code which is owned by Leica (or its associated companies) which relates to its software products, including software components for MineOPS and JOptimizer, JSDrill, JReplicator, JAction, jspanel (all components of MineOPS), Ruby files such as rb.xml, all code in the Leica Classic code base (such as PitOPS, DrillNav, DozerNav, DigNav, Telemetry) and all code relating to OreNav. All of this code should be Ruby, C++, Objective C, C# (pronounced C Sharp), .Net (pronounced dot net), Visual Basic, Crystal Reports, XML and C files and their associated files such as header files (with a .h extension), libraries (.lib and .tar.gz, or .tar.bz files).

2.    All source code relating to Praemium Australia Pty Ltd, DST Global Solutions Pty Ltd and TOTE Tasmania Pty Ltd.

3.    All of the above possibly located on any data storage device including but not limited to mobile telephones, external and internal hard drives, USB sticks, Xbox and other game stations, laptops and CDs and DVDs and like devices including software logs showing activities thereon, that are apparently the property of one or other of the respondents.

29    This order was executed on 27 February 2012 by an independent solicitor, Mr Frederik Potgieter, and a computer expert, Mr Daniel Swart. A file entitled “Leica” with a large number of subfiles was identified on Mr Koudstaal’s desktop computer at his home, as well as the external hard drive to which Ms Vella had referred. On 19 March 2012, Mr Koudstaal was ordered to deliver his laptop computer to the applicants’ solicitors in order to permit the applicants’ computer expert to:

(a)    inspect and make a forensic image of all files contained on the removable hard disk and Mr Koudstaal’s computer; and

(b)    conduct a forensic examination on the evidence copies and images, and prepare a report on the forensic examination.

30    This inspection and the forensic examination were subsequently carried out by Mr Ghosh.

Access to Taken Material by Mr Koudstaal after leaving employment of Leica Australia

31    It is not in dispute that over the period 24-27 January 2012 Mr Koudstaal installed on his laptop computer three items of software necessary for developing source code, in particular:

    he created a copy of the database file jmineops_acd.bak on the laptop, which file had the creation and last modified date of 18 November 2010;

    he installed an upgrade to software known as Oracle VirtualBox, which is software used for operating virtual machines; and

    he installed Microsoft SQL Server, which is software used for working with database files.

32    Further, Mr Koudstaal acknowledges that on 27 January 2012 he ran the virtual machine he had copied on 24 January 2012 in a simulator and looked at the Leica database files including the jmineops_acd.bak file (affidavit of Andrew Koudstaal sworn 26 September 2013).

Mr Koudstaal’s reasons for copying and later accessing the Taken Materials

33    In his fourth affidavit filed 5 July 2013 Mr Koudstaal claimed that he had witnessed a number of former employees of Leica being criticised behind their backs for their work after they had left the organisation, and accused of having done something “the wrong way”. He deposed that he was determined not to have such things said about him, and decided that he would take a copy of his work so that if he was ever accused “of that” he would be able to point to his work. He further deposed:

84.    I had also worked particularly hard at my last week at Leica to develop automated testing programs for Leica’s Jigsaw mining system. I worked closely with the quality assurance tester Ati Brown to write code to test various aspects of the Leica Jigsaw guidance system.

85.    I wanted a copy of the hard work that I had done in my last few days at Leica. I had never heard of anyone else being asked to work until the very last minute, as I had been asked to work. I worried for the quality of my work and I wanted a copy of my work for this reason, so I would know what I had done if people would criticise me for it.

34    Further, in paragraph 12 of his defence Mr Koudstaal claimed that he downloaded from the external hard drive some of the source code for the purpose of checking work that he had prepared while in the employment of Leica Australia. He supports this claim in his fourth affidavit where he deposes (at paragraph 89 et seq) that on 24 January 2012 he went to lunch with former colleagues of his from Leica and was told that his attempt at fixing a problem in the database of a piece of software that he had worked on at Leica in relation to a mine site in Indonesia had not worked. This issue was referred to during the trial as “the Indonesian bug fix”. Mr Koudstaal gave evidence that he later copied the material from the Coolmax hard drive to his laptop to run the virtual machine, and because the issue of the Indonesian bug fix “nagged” him he looked at the software on 27 January 2012.

35    This evidence is disputed by the applicants. Evidence of four witnesses who were apparently at the lunch on 24 January 2012 was that they could not recall any discussion concerning the Indonesian bug fix (affidavits of Mr Tim South, Mr Chris Middleton, Mr Brendon Lilly and Mr Bill Lindbergs).

Relevance of the Taken Material to Mr Koudstaal’s work for future employers

36    Mr Koudstaal stated in oral evidence that he took a “lazy” approach to taking source code from Leica:

… as Mr Logan has pointed out, the employer does own the products the employees create and that’s entirely correct. At the time, I felt a deep sense of ownership of that code. It was – it was code that I had worked on. It was unfortunate in the way that I copied it that I should have been more discriminatory perhaps in copying it. Instead, I got lazy. I had all the copies of the source code including things that I had worked on on my desktop computer while I was employed at Leica, and instead of going through and saying, “Hey, maybe I shouldn’t have had this or ..... this”, I said to myself, “Well, I’ve worked really hard on this material. I feel some ownership of it even though, yes, in the strict legal sense I have no ownership.” I fully admit that. But I wanted some reference for myself of the hard work that I had done and, as I’ve said in my opening statement, it was very stupid, it was very thoughtless. There’s no real good excuse for doing that but it was easier to drag – to get the top little folder containing everything and drag it across to the external hard disk where I copied it.

(transcript 24 March 2014 p 31 ll 31-44.)

37    Mr Koudstaal also gave evidence that he had taken the source code as a type of “trophy” from Leica, and further:

So it was a self-protection thing as well for yourself. Is that right? ---- It was self-protection. I did feel some ownership of it even though, as I’ve said, I don’t really have ownership of it. I still did feel some pride in it. I did feel that, you know, I had worked very hard on that in very trying circumstances at Leica to produce that work and, yes, so whatever insane reason – I thought, well, “I will have a copy of that to take with me” and, yes, I can stick it on the shelf, I can – I can say, “Yes, I did all this. I’m proud of it. I’m a good software engineer.” All of those sort of things, so – and as it has turned out, yes, it has been an incredibly, incredibly stupid mistake.

(transcript 24 March 2014 p 32 ll 10-18.)

38    Further, Mr Koudstaal denied that he incorporated Leica drill code into the code he wrote for APS (fourth affidavit para 100). He submitted that the applicants have been unable to produce evidence that their source code was used by him in APS’s products or otherwise used by him at APS.

39    The applicants led evidence to support their contention that Mr Koudstaal had been discriminatory in respect of the material he copied. In particular, Mr Ghosh gave evidence that Mr Koudstaal had copied 190,000 files from Leica’s system on to Mr Koudstaal’s external hard drive on 2 November 2011, but that on 3 November 2011 Mr Koudstaal deleted 54,586 of those files and copied another 190,452 files. This evidence is not disputed. Further Mr Guy Di Mattina, the software development manager for Leica Global Systems Mining, gave evidence in his affidavit affirmed 5 June 2013 that due to the way in which the source code was developed and purchased, source code was stored within different Subversion repositories, meaning that Mr Koudstaal needed to deliberately search to find what he wanted (at [63]).

40    The applicants also point to the fact that Mr Koudstaal reproduced the whole of the applicants’ source code and other material on 24 January 2012 and copied the database file on 27 January 2012, at a time when Mr Koudstaal was an employee of APS, working on a new APS product (“Drill Monitor”) and writing source code to enhance an existing high precision drill guidance system. It does not appear to be in dispute that at that time the relevant APS product did not have full functionality, but the comparable Leica product did. There is also evidence before the Court that on 23 January 2012 Mr Koudstaal attended a meeting with a mining consultant from SMP Mining where Leica products were discussed, and that on the following day Mr Koudstaal made notes in his work notebook (exhibited to Mr Inglis’ affidavit sworn 5 June 2013) referencing such terms as “drill hole tags”, “patternID” and “holeID” which are referable to source code of both Leica and APS.

41    Further, the applicants point to evidence of Ms Stefana Vella, who deposed in her affidavit of 24 February 2012:

29.    Again, I can’t recall the exact words Andrew used but he had said words that were to the effect of “my main role at APS is to work on the drill program and I look at the Leica code to see if it will help me fix what I am doing at APS.” I am not sure if those are the exact words used by Andrew however those words are as close to the words used by Andrew that I can now recall. I understood that meant he was trying to overcome a problem on the APS drill product and he was referring to the Leica drill source code as guidance on how to fix the problem he was facing at APS.

…

31.    I do not recall the exact dates that he made the statements detailed in the paragraphs above but I believe that they were made prior to the time I viewed the folders on his external hard drive. It was seeing the Leica folder and subfolders (which I recognised to be Leica products), on the external hard drive which was the “nail in the coffin” …

INFRINGEMENT OF COPYRIGHT

42    In the circumstances of the case I am satisfied that the applicants have substantiated their claim against Mr Koudstaal concerning infringement of copyright.

43    This is because, in light of admissions in Mr Koudstaal’s fourth further amended defence as well as in Mr Koudstaal’s oral concessions, there appears to be no dispute and I am satisfied that:

    Mr Koudstaal copied the Taken Material for his own purposes and removed it from the applicants;

    the Taken Material constituted original literary or artistic works in which copyright in Australia subsists (s 10 and s 32 Copyright Act);

    the applicants or certain of them were the owners of that copyright (s 35(1) and s 196 Copyright Act);

    in copying the Taken Material, Mr Koudstaal reproduced a substantial part of those works in a material form, without the licence, consent or authority of the applicants (ss 14(1), 31(1)(a)(i) and 36(1) Copyright Act).

44    Earlier in the proceedings Mr Koudstaal claimed that he was authorised to copy at least certain aspects of the Taken Material as part of his duties, in particular elements of the source code. However his concessions in Court on 24 and 28 March 2014, as well as the preponderance of evidence to the effect that he downloaded a large volume of highly confidential material intrinsic to the applicants’ business on the last two days of his employment, clearly negate that particular assertion. Certainly there is no material before the Court to support a finding that Mr Koudstaal was authorised to reproduce the Taken Material between 24 January 2012 and 27 January 2012, to which reproduction Mr Koudstaal also admits.

45    Importantly, Mr Koudstaal maintains his denial that he used any of the Taken Material in his work with APS. Clearly however this denial does not answer the applicants’ claim that, in copying the Taken Material without their licence, consent or authority and later reproducing it, he infringed the applicants’ copyright in that material.

46    The position is less clear in relation to the other three causes of action pressed by the applicants against Mr Koudstaal. While the case could be disposed of on the basis of copyright infringement, it is appropriate to deal with the other claims pressed by the applicants in light of the relief they have sought.

EQUITABLE OBLIGATION OF CONFIDENCE

47    The equitable duty of confidence in respect of confidential information is of particular relevance in the employment context where employees have access to confidential information in the possession of their employers. In this case there is no dispute that the information in respect of which the applicants claim confidentiality has been specifically identified. As I noted in Leica Geosystems Pty Ltd v Koudstaal [2012] FCA 1337 at [32], equity will intervene to restrain an actual or threatened breach of confidence involving disclosure of information where:

(i)    the information is of a confidential nature;

(ii)    the information is communicated in circumstances importing an obligation of confidence; and

(iii)    there is an unauthorised use of the information to the detriment of the party who communicated it.

(cf Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47-48; Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 50; and the discussions in Sappideen C, O’Grady P, Riley J, Warburton G and Smith B, Macken’s Law of Employment (7th ed, Lawbook Co, 2011) at 231 and Neil I and Chin D, The Modern Contract of Employment (Thomson Reuters, 2012) at 199).

48    Breach of the equitable duty of confidence is more easily established in circumstances where there is a fiduciary relationship between the parties, for example employer/employee (as was the case here). An employer whose confidential information has been misused is entitled to seek injunctive relief as well as equitable compensation for breach of equitable duty (cf Giller v Procopets (2008) 24 VR 1 at [133]) or an account of profits. These rights continue beyond the termination of the employment relationship.

49    In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334 Kirby P observed:

Determining what is confidential involves a decision on a question of fact in each case where that quality is asserted. Considerations which courts have found to be relevant, in particular cases, in determining this question include:

(a)    The fact that skill and effort was expended to acquire the information …

(b)    The fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others …

(c)    The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential …

(d)    The fact that the usages and practices of the industry support the assertion of confidentiality … and

(e)    The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer’s organisation …

(case references omitted.)

50    In this respect it is necessary to distinguish between such confidential information, and information and knowledge which forms part of the employee’s stock of general knowledge and information (cf discussions in Transpacific Industries Pty ltd v Whelan [2008] VSC 403 at [76]-[78] and Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40). It is also important on the facts of this case to note that the applicants do not claim that all the Taken Material was confidential. This includes source code comprising part of the Leica Classic and Jigsaw suites, material ancillary to that source code and customer version lists. This is clear from paragraph 10B of the statement of claim.

51    In this case it is not in dispute that this material (defined in paragraph 10B of the statement of claim as “Confidential Material”) was of a confidential nature, such that Mr Koudstaal was subject to a duty of confidence in respect of his possession of and access to that material. As I note in more detail later in this judgment, he clearly, but falsely, stated on his final day of employment with Leica that he did not have in his possession any property of the applicants.

52    Mr Koudstaal submits that senior employees of Leica such as himself were expected to work longer hours, unusual times, and from home. He relies on the affidavit of Mr Di Mattina dated 5 June 2013 in support of this submission. I do not doubt the veracity of this submission. However this proposition does not negate the confidentiality of this material, and does not of itself answer the applicants’ claims. It is clear that the source code and materials ancillary to the source code were communicated to Mr Koudstaal in circumstances importing an obligation of confidentiality to him. Certainly there is no evidence that the applicants authorised Mr Koudstaal to copy and permanently remove copies of this material from the applicants. The sheer volume and complexity of the material taken by Mr Koudstaal from the applicants negates a finding that this material was information Mr Koudstaal took with him as part of his general knowledge, such that he owed the applicants no duty of confidentiality. That volume and complexity of material, considered in light of the fact that Mr Koudstaal took this material in the final two days of his employment when there is nothing before me to support an inference that Mr Koudstaal needed to download the entirety of the applicants’ source code, point to a breach of Mr Koudstaal’s duty of confidentiality.

BREACH OF THE TERMS OF MR KOUDSTAAL’S EMPLOYMENT CONTRACT WITH LEICA AUSTRALIA

53    That Mr Koudstaal was employed by Leica Australia as a software engineer from 10 May 2010 until 3 November 2011 is agreed, as is the fact that his employment with Leica Australia was subject to an employment contract dated 29 April 2010. Materially that employment contract contained the following relevant terms:

5.    Your Obligations

…

5.2    General Duties

During your employment you shall do the following:

(a)    Give the whole of your time, ability and attention in normal working hours (which are between 8am and 4.30am) or when reasonably required outside those hours, to the Employer’s business and affairs;

(b)    Faithfully and diligently perform the duties and exercise the powers consistent with the Position that may be assigned to you by the employer from time to time’

(c)    …

(d)    …

(e)    Use your best endeavours to promote the interests of the Employer; and

(f)    Protect the property of the Employer from theft, loss, damage or neglect and without delay give notice immediately to the Employer or its responsible representatives of any theft, loss, damage or neglect of such property which may come to your knowledge.

6.    No Competition and Confidentiality during employment

6.1    Obligation

You shall not without the Employer’s prior written consent, do any of the following while employed by the employer:

(a)    Enter into any other employment or business activity that could reasonably conflict with, or be detrimental to, or interfere with, the Employer’s interests or the performance of your duties, or that could make use of Confidential Information; or

(b)    Disclose or use any Confidential Information, except

(i)    Disclosure or use in the proper course of your duties;

(ii)    For information which is freely available to the public; or

(iii)    To the extent you are required to disclose information by law or requirement of any regulatory body.

Confidential information includes, without limiting its ordinary meaning, information whether oral, written or recorded electronically and including all copies or extracts, known to you or in your possession or control, relating to Group’s affairs, transactions, customers or business in your possession or control, including information which may come into your possession or control in the course of and by reason of employment with the Employer, whether or not the same was originally supplied by the Employer.

Group means the Employer and any Related Body Corporate (within the meaning given to that term by the Corporations Act 2001 (Cth) from time to time, and includes:

(a)    Leica Geosystems AG of Heinrich-Wild-Strasse CH9435, Heerbrugg, Switzerland, and its subsidiaries;

(b)    Hexagon AB of Cylindervagen 12, Box 112, SE-131 26 Nacka Strand Sweden, and its subsidiaries

7.    Your Obligations After Employment Ceases

7.1    Separate Provisions

Clauses 7.2 and 7.3, each Time Period and each Area in the Schedule have effect as if they consisted of separate provisions, each being severable from the other. If any one or more of the restraints resulting from a combination of those variables is unenforceable or illegal:

(a)    The fact shall not affect the other mentioned restraints; and

(b)    The unenforceable or illegal restraint or restraints will be deemed severed from and will form no part of this agreement.

7.2    Confidentiality

(a)    Within each of the Time Periods and each of the Areas in the Schedule, you covenant in favour of the Employer that you will not, without the prior written consent of the Employer, use or disclose to any person any Confidential Information. Without prejudice to any other available remedy, the Employer may recover any loss sustained by the Employer or profit obtained by you as a result of any use of Confidential Information contrary to this agreement.

(b)    Clause 7.2 (a) does not apply to:

(i)    the disclosure of information that is freely available to the public;

(ii)    disclosures required by you by any applicable law or requirement of any regulatory body.

…

8.7    Return of the Employer’s property

On termination of this agreement and whenever requested by the Employer, you shall immediately deliver to the Employer all books, documents, papers, materials, credit cards, software, computer files, access keys, motor vehicles and other property of the employer which may then be in your possession or under your power or control.

54    On the last day of his employment with Leica Australia, Mr Koudstaal signed a “Termination Checklist” in which he agreed to the following statement:

I hereby acknowledge that I do not have in my possession any property (equipment, documentation or electronic media) belonging to Leica Geosystems Pty Ltd or its related entities.

I understand that any information obtained by myself relating to the business or affairs of the company (including, but not limited to, intellectual property, trade secrets, sales & marketing information and financial information) remains the sole property of Leica and shall remain confidential.

55    It is clear that, to the extent that Mr Koudstaal agreed to this statement in the Termination Checklist, that agreement was false. In this respect it is at the very least clear that Mr Koudstaal has acted in breach of clause 8.7 of his employment contract.

56    The evidence before me supports a finding that Mr Koudstaal copied these materials (which were at the heart of the applicants’ business) to provide him with, among other things, a reference point to assist him in subsequent employment with competitors of the applicants. In my view this constitutes a breach by Mr Koudstaal of clauses 5.2(a), 5.2(b), 5.2(e), 5.2(f) and 6.1(a) of his employment contract.

57    In my view this aspect of the applicants’ claim is substantiated.

BREACH OF STATUTORY DUTIES UNDER SECTION 183(1) CORPORATIONS ACT

58    Section 183(1) of the Corporations Act provides as follows:

A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a)    Gain an advantage for themselves or someone else; or

(b)    Cause detriment to the corporation.

59    As the applicants note in their submission, s 183 is a civil penalty provision for which the Court may order equitable compensation, a civil penalty, injunctive relief or a declaration.

60    The learned authors of Ford’s Principles of Corporations Law (15th ed, LexisNexis Butterworths, 2013) at [9.280] helpfully summarise the matters which must be proved to establish a contravention of s 183(1) as being:

1.    The defendant was at the relevant time an officer or employee of the corporation;

2.    The defendant acquired the relevant information;

3.    The defendant acquired that information by virtue of the position as officer or employee of the corporation;

4.    The defendant made improper use of the information;

5.    The defendant made that improper use for the purpose of gaining an advantage or, alternatively, causing detriment to the corporation;

6.    Such advantage was either for the officer or for someone else.

61    It is common ground that Mr Koudstaal was an employee of the first applicant at material times and therefore subject to s 183(1) of the Corporations Act.

62    There is no substantive evidence before the Court that Mr Koudstaal has disclosed the Taken Material or any of it to APS, or that the applicants have suffered detriment. Indeed the brevity of the applicants’ closing submissions on this point are indicative of the dearth of material supporting a finding that Mr Koudstaal, in the final analysis, actually used the Taken Materials in the course of his employment with APS. I make this observation in light of the fact that s 183(1) of the Corporations Act is a civil penalty provision, consideration of which entails application of s 140 of the Evidence Act 1995 (Cth) and the principles identified in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362, particularly:

(a)    the nature of the cause of action or defence; and

(b)    the nature of the subject-matter of the proceeding; and

(c)    the gravity of the matters alleged.

63    However as the majority of the High Court found in Chew v R (1992) 173 CLR 626 it is not necessary that the actions of the defendant actually resulted in either an advantage to him (or another) or a detriment to the corporation – it is necessary only that the defendant’s actions were motivated by that improper purpose. Accordingly in these circumstances is irrelevant that any purpose of Mr Koudstaal may have been thwarted, for example, by these very proceedings (cf Chew at 633).

64    “Impropriety” in this context was described by the High Court in R v Byrnes (1995) 183 CLR 501 at 514-515 in the following terms:

Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.

65    The applicants submit that Mr Koudstaal acted in the way in which he did to gain an advantage for himself or alternatively for APS.

66    By the end of the trial Mr Koudstaal’s explanation for taking the Taken Material was reduced to two reasons – namely that it was in the nature of a “trophy” taken because he had worked hard on the relevant source code and was proud of it, and that he wanted to protect himself from any future allegations of poor work from Leica. To a degree I accept these explanations. Mr Koudstaal impressed me as an intelligent man who took great pride and interest in his work, and indeed could be obsessive about it. However I am also satisfied that another reason for Mr Koudstaal taking the Taken Material was that it could potentially prove useful for him as a reference source in his future work, in particular with APS with whom he was about to commence employment. The Taken material did not fall into the category of general knowledge an employee in Mr Koudstaal’s position would take with him when leaving the employment of the applicants. Copying the Taken Material was undertaken for an improper purpose, such that Mr Koudstaal’s conduct contravened s 183 of the Corporations Act.

67    I have formed this view for four reasons.

68    First, Mr Koudstaal was discriminating in respect of the Taken Material which he copied to his external hard drive, and was fully aware that the relevant source codes were at the core of the applicants’ business. Indeed the volume of material taken by him was such that he could run relevant Leica source code on virtual machines. I am not satisfied that Mr Koudstaal was authorised to copy the Taken Material such that he could leave his employment with it. I am satisfied that this material would be useful to Mr Koudstaal in working on similar projects with APS. Indeed Mr Koudstaal conceded this during cross-examination by Mr Logan of Counsel (transcript 24 March 2014 pp 23-25).

69    Second, Mr Inglis gave detailed evidence as to the advantages of possessing working source code when developing software for the same purpose. At paragraphs 90-91 of his affidavit Mr Inglis deposed:

90.    When developing software for a purpose, there are advantages to possessing pre-existing software for the same purpose. Broadly, these advantages include:

(a)    Examining database structures to understand what entities exist, how they relate to each other and what data needs to be recorded about them. This can save weeks or months of work in large systems.

(b)    Examining algorithms used to process this data. This is important if the algorithms for processing the data is not known by the programmers of the new system to be developed.

(c)    Examining the user interface of the existing system. This can also save weeks or months or work and customer meetings.

(d)    Examining specific interface code to 3rd party software or hardware. This can be of particular importance if the new system must interface to the same 3rd party hardware or software.

(e)    Examining the overall architecture of the existing system. This can help in the analysis of what architecture should be used for the new system.

(f)    Examining the technologies used to implement the database, algorithms, user interface, 3rd party interfaces and architecture. This can help in the analysis of what technologies should be used for the new system.

(g)    Examining the build and deployment systems used. This can be important for software that must be deployed in industries with particular deployment challenges such as on mine sites.

(h)    The ability to use the knowledge gained above as “prior art” in order to make improvements more quickly than would otherwise have been possible.

(i)    The ability to use the knowledge gained above in order to directly interface with the existing system.

91.    There are extra advantages than can be gained when the existing system comes from a direct competitor. These extra advantages include:

(a)    The ability to perform a “white box” gap analysis between the competitor’s system and the proposed functions of the new system (as opposed to a “black box” analysis performed using only publicly-known attributes of the competitor’s product).

(b)    The ability to look for technical weaknesses or vulnerabilities in the competitor’s system, and exploit them either commercially (e.g. by making little-known issues widely known in the competitor’s user base, or by making product comparison marketing material that directly attacks those weaknesses) or technically (e.g. by directly causing a problem to occur on a client site).

(c)    The ability to interface with the competitor’s system (and thus access its data and functions) without the competitor’s prior knowledge or consent, and possibly bypassing licensing requirements.

(d)    The ability to make the competitor’s source code available to other parties.

70    This evidence has not been disputed.

71    While I make no finding in respect of any use by Mr Koudstaal of the Taken Material in his work with APS, I am persuaded by Mr Inglis’ evidence that Mr Koudstaal would potentially have benefited from his possession of Leica’s source codes and other materials in developing comparable software for competitors of the applicants, and that Mr Koudstaal would have known this when he copied the Taken Material.

72    Third, in her first affidavit affirmed 24 February 2012 Ms Vella gave evidence that at various times Mr Koudstaal had said words to the effect of:

    “I have taken code from everywhere I have worked, I take code with me, that’s just normal, a lot of us do it”;

    “my main role at APS is to work on the drill program and I look at the Leica code to see if it will help me fix what I am doing at APS”;

    “at APS we talk about Leica and how they do things and think we should do that. It is business processes it is just general”.

73    In her fourth affidavit affirmed 17 July 2013 Ms Vella denied Mr Koudstaal’s assertions that he had told her after he left Leica Australia and/or on 24 January 2013 that he was checking source code or other work he had done for the purposes of Leica Australia. At paragraph 3 of that affidavit Ms Vella deposed:

Rather, I distinctly and very clearly remember that he said words to the effect that he was going through the Leica source code to assist him in work he was doing at APS.

At no stage on 24 January 2012, or at any other time, has Mr Koudstaal told me that he was concerned about the quality of work he did with Leica.

74    In my view Ms Vella was a credible witness. In particular, I note that Ms Vella was clearly conflicted by, on the one hand, her friendship with Mr Koudstaal, and on the other hand her loyalty to her employer and her view that Mr Koudstaal had acted wrongly “in the corporate sense”. I accept her statement that she was very clear in her recollection of her conversations with Mr Koudstaal and that, while she could not recall the precise words he used, she clearly recollected the effect of the words he had used. To the extent that Ms Vella’s evidence conflicts with that of Mr Koudstaal, I prefer Ms Vella’s evidence. I have formed this view particularly in light of the contradictory claims of Mr Koudstaal during the proceedings – including, for example, his claim that he had been authorised to download some of all of the Taken Material and which was subsequently abandoned by him.

75    Finally, I am satisfied that Mr Koudstaal’s motivation in operating the Virtual Machines over the Australia Day weekend in 2012 related at least partly to his work at APS. The notes of Mr Koudstaal’s meeting with SMP Mining on 23 January 2012, when he was apparently discussing Leica products, and his notes of the following day referable to both Leica and APS products, were manifestly contemporaneous with his access to Leica products during that period. I consider it likely that Mr Koudstaal accessed those Leica products as a reference point for work he was undertaking at APS, even if he also looked at the material out of curiosity given issues possibly raised concerning the Indonesian bug fix. In this respect he has breached the obligations he owed Leica imposed by s 183(1).

APPROPRIATE ORDERS

76    At the conclusion of the trial I asked the parties to produce a form of orders sought. The applicants sought the following orders:

1.    It be declared that the first respondent has infringed the applicants’ copyright in Leica’s material by reproducing in a material form the whole or a substantial part of Leica’s material, without the licence, consent or authority of the applicants.

2.    It be declared that the first respondent has wrongfully used and disclosed confidential information of the applicants, in breach of his equitable obligation to keep confidential the Confidential Leica material, by his unauthorised reproduction of the Confidential Leica material during his employment with the first applicant, and his unauthorised reproduction, possession and use of that material after the conclusion of his employment with the first applicant, including for purposes of his employment with the second respondent.

3.    It be declared that the first respondent has acted in breach of clauses 5.2(a), 5.2(b), 5.2(e), 5.2(f), 6.1(a) and 8.7 of his employment agreement with the first applicant, by his unauthorised reproduction of Leica’s material during his employment with the first applicant, and his unauthorised reproduction, possession and use of Leica’s material after the conclusion of his employment with the first applicant.

4.    It be declared that the first respondent has improperly used information obtained, because he had been an employee of the first applicant, to gain an advantage for himself and the second respondent, in contravention of his obligation under s 183(1) of the Corporations Act 2001 (Cth).

5.    The first respondent, whether by himself, his servants, agents or otherwise howsoever, be permanently restrained from:

(a)    keeping, storing, or reproducing in a material form, without the licence of the applicants, the whole or any part of Leica’s material;

(b)    using or reproducing in any way any document or part of a document, or information contained in any document electronically stored on the hard drive of any computer in his power, possession or control, which is either a copy or a substantial copy made directly or indirectly from source code, other software or any document in the possession of any of the applicants at the date of termination of the first respondent’s employment on 3 November 2011;

(c)    using, publishing, communicating or disclosing in any way, any of Leica’s material, or any other confidential information (as defined in clause 6.1 of the first respondent’s employment agreement with the first applicant) of the applicants or any of them;

(d)    authorising, procuring or inducing others to do any of the acts that he is so restrained from doing by Orders 5(a)-(c) hereof.

6.    Within seven (7) days after the date of this Order, the first respondent shall deliver up to the first applicant’s solicitors:

(a)    all software, computer files, documents or other property of the first applicant; and

(b)    all copies of Leica’s material, and any other confidential information of the applicants,

which are in the possession or under the control of the First respondent or any of his current or former legal representatives.

7.    All copies of Leica’s material (or part thereof) presently held by the Court pursuant to Order of this Court, or otherwise, be released to the first applicant’s solicitors.

8.    The first respondent shall pay to the applicants compensatory damages for infringement of the applicants’ copyright pursuant to s 115(2) of the Copyright Act 1968 (Cth), and breach of the first respondent’s employment agreement, and compensation for breach of the first respondent’s equitable obligation of confidence, in the sum of AUD40,000.00.

9.    The first respondent shall pay to the applicant additional damages for infringement of the applicants’ copyright, pursuant to s 115(4) of the Copyright Act 1968 (Cth), in the sum of AUD250,000.00.

10.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), the first respondent shall pay to the applicants interest upon compensatory damages of $40,000.00 (calculated in accordance with Practice Note CM16) for the period from 2 November 2011 to 11 April 2014 in the sum of $7,153.15, plus interest on that sum of $40,000.00 at 6.5% pa from 12 April 2014 to the date of judgment.

11.    The first respondent shall pay the applicants’ costs of and incidental to this proceeding, including reserved costs.

77    The applicants filed detailed submissions in support of these draft orders.

78    On 15 April 2014 Mr Koudstaal sought the following orders:

•    A declaration that I did not disclose any confidential Leica material to any other party, including the former Second Respondent (APS).

•    A declaration that I did not use Leica material to gain advantage or benefit, and that I did not use Leica material at APS to gain advantage or benefit.

•    A declaration that APS is not using and has not used Leica material for APS’ advantage.

•    I would like my costs paid by the Applicants for that part of the proceedings regarding unsubstantiated and false claims that I used Leica material to gain advantage or disclosed Leica material to any other party.

•    I have no objection to paragraphs 5, 6, 7 of the Applicants proposed orders, which deal with the delivery of Leica material to the Applicants’ solicitors and restraint of use of Leica material without licence or permission.

•    Some sort of fine payable to the Applicants would seem appropriate for copying the Applicants’ material to an external hard disk, and then copying from that external hard disk to my laptop. However the sum or $40,000 as stated by the applicants seems vastly excessive given that the Applicants have suffered no damage as a result of the copying and their material has not been used or given to anyone else.

79    No further submissions were prepared by Mr Koudstaal, other than those made orally at the hearing.

Declarations

80    A declaration in terms of that sought by the applicants in their draft order 1 is, in my view, appropriate. Certainly Mr Koudstaal does not appear to oppose a declaration that he has infringed the applicants’ copyright as a result of his actions.

81    A declaration in terms of that sought by the applicants in their draft order 2 is similarly in my view appropriate. While there may be no real evidence that Mr Koudstaal has disclosed the Taken Material to APS, nonetheless I am satisfied that a reason for him copying the Taken Material was for him to use in his employment with APS should it suit him, and indeed I consider it likely that it suited him on the Australia Day weekend of 2012.

82    For reasons I have already given, I am satisfied that a declaration in terms of that sought by the applicants in their draft order 3 is appropriate.

83    In relation to the declaration sought by the applicants in their draft order 4, I am prepared to make this order sought. While I am not satisfied that Mr Koudstaal at any point actually disclosed to APS the Taken Material or any part of it, in my view the evidence demonstrates that his purpose in copying the Taken Material was to benefit himself and potentially as a result, APS. Certainly the reproduction of the Taken Materials between 24 January 2012 and 27 January 2012 was not to benefit the applicants, but on balance was more likely for Mr Koudstaal to benefit himself in respect of his work with APS.

Restraint and delivery of property

84    Mr Koudstaal does not oppose orders in terms of those in draft orders 5, 6 and 7 as submitted by the applicants. In my view these orders are appropriate subject to one qualification. I note that Mr Koudstaal is not legally represented, and has not been legally represented for some time. In their draft order 6, the applicants seek an order that Mr Koudstaal produce material which in his possession, or under his control or that of “any of his current or former legal representatives”. Mr Koudstaal’s former legal representatives are strangers to these proceedings and there are obvious difficulties associated with ordering third parties to deliver up property to parties to litigation: cf Leetham v Leetham [2011] NSWSC 201. However it is also clear that any documents in the possession of former legal representatives of Mr Koudstaal which were received by them from, for example, the applicants in the course of their retainer, must be returned (if not already): Wentworth v de Montfort (1988) 15 NSWLR 348 at 355 per Hope JA and see the discussion at Dal Pont GE, Lawyer’s Professional Responsibility (5th ed, Thomson Reuters, 2013) at [3.220]. On the material before me, it is appropriate to confine the terms of this order sought by the applicants to material in Mr Koudstaal’s possession and under Mr Koudstaal’s control, which extends to his former legal representatives to the extent that he is able to instruct them to deliver up material to the first applicant’s solicitors.

Damages

85    In this case it appears that the applicants have elected not to seek an account of profits in respect of their equitable claims against Mr Koudstaal. Rather they seek orders for damages under subs 115(2) and (4) of the Copyright Act although they combine their claim under s 115(2) with other claims for compensation. These provisions are as follows:

Actions for infringement

…

(2)    Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

…

(4)    Where, in an action under this section:

(a)    an infringement of copyright is established; and

(b)    the court is satisfied that it is proper to do so, having regard to:

(i)    the flagrancy of the infringement; and

(ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

(ii)    whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

(iii)    any benefit shown to have accrued to the defendant by reason of the infringement; and

(iv)    all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

Compensatory damages under section 115(2) Copyright Act, damages for breach of the employment agreement and compensation for breach of the equitable obligation of confidence

86    The applicants seek an order for damages and compensation in the following terms:

The first respondent shall pay to the applicants compensatory damages for infringement of the applicants’ copyright pursuant to s 115(2) of the Copyright Act 1968 (Cth), and breach of the first respondent’s employment agreement, and compensation for breach of the first respondent’s equitable obligation of confidence, in the sum of AUD40,000.00

87    This sum is opposed by Mr Koudstaal as “vastly excessive” in the circumstances.

88    The applicants submit in summary as follows:

    The Taken Materials constituted the core of its business.

    The Taken Materials were in the hands of a competitor’s employee which he accessed at a time when he was employed by that competitor and the applicants have suffered damage as a result.

    In particular, the applicants relied on the affidavits of Mr Stephen Roberts, the Chief Executive Officer and Director of the first applicant and the third applicant (affirmed 31 May 2013) and Mr Colin Webb, the Assistant General Counsel of Hexagon Group (sworn 5 June 2013).

    An appropriate award of compensatory damages is in the range $25,000-$40,000.

89    Relevant principles in respect of compensatory damages are helpfully summarised in Lahore J, Copyright and Designs (LexisNexis Butterworths, subscription service) at [36,220] et seq. They include the following:

    The copyright owner can claim loss it has suffered as a result of the infringement of its copyright (A V Jennings Ltd v Bogdan [2009] FCA 307 at [90]; Interfirm Comparison (Aust) Pty Limited v Law Society of New South Wales (1975) 6 ALR 445 at 446; Bailey v Namol Pty Limited (1994) 53 FCR 102 at 111; Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 at [25]).

    The appropriate quantum of damages is, so far as possible, “that sum of money which will put the injured party in the same position as he would have been in if he had not sustained the wrong”: Bailey v Namol at 110; Seafolly Pty Ltd v Fewstone Pty Ltd [2014] FCA 321 at [510].

    Otherwise damages can be “at large” and the Court can award such damages as a jury may award: Fenning Film Services Ltd v Wolverhampton Walsall & District Cinemas Ltd [1914] 3 KB 1171 at 1174; Nominet UK v Diverse Internet Pty Ltd (No 2) (2005) 68 IPR 131 at [49]. The Courts have also observed that damages should be assessed “liberally”: Bailey v Namol at 111; Seafolly at [506]. An example of such an approach is where the applicant has no previous practice of licensing, the grant of a licence to the infringer would have been inconceivable, and the applicant cannot prove any specific loss of a commercial opportunity as a result of the infringement: Spotless Group Ltd v Blanco Catering Pty Ltd (2011) 93 IPR 235.

    Damages under s 115(2) are not intended to punish the infringer.

    It is relevant to take the approach of assessing damages by way of “licence fee” if the applicant and the respondent are in competition: Eagle Rock Entertainment Ltd v Caisley (2005) 66 IPR 554 at [11]-[12].

    If the applicant cannot prove any loss arising from the infringement it may be entitled to an award of nominal damages: Allam v Aristocrat Technologies Australia Pty Ltd (2012) 95 IPR 242 at [414]; MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1999) 43 IPR 275 at 281; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633.

    As Black CJ and Jacobson J observed in Aristocrat Technologies at [35]:

If a court finds that damage has occurred it must do its best to quantify the loss, even if some degree of speculation and guess work is involved: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183 (Sheppard, Morling and Wilcox JJ). But, as their Honours emphasised, this principle applies only where a court finds that loss or damage has occurred; it is not enough merely to show wrongful conduct by a defendant. See also the observations of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83.

90    In this case, the inconvenience the applicants has suffered as a result of the commencement of these proceedings can be properly compensated by an order for costs. Other than this inconvenience, and the natural anxiety officers of the applicants may have suffered at the prospect that source code at the heart of their business had fallen into the hands of a competitor, I am unable to identify damage other than nominal damage suffered by the applicants in respect of Mr Koudstaal’s infringement of their copyright in the Taken Material.

91    In this case the applicants have submitted that the licence fee approach is not appropriate. In my view this is correct. The applicants would never have permitted Mr Koudstaal to copy source code which was, in fact, central to their business, particularly since Mr Koudstaal was leaving their employment to join a competitor. They would never have permitted him to take the Taken Materials under any circumstances (cf Aristocrat Technologies at [27]). However:

    notwithstanding that I have had regard to the evidence of Mr Roberts and Mr Webb as submitted by the applicants, the only conclusions I can draw from that evidence is that the Taken Materials are valuable and possibly unique products developed by the applicants who, if any loss was suffered, would have shared loss suffered. That value and uniqueness does not alone entitle the applicants to damages as against Mr Koudstaal in these circumstances.

    there is no evidence before me that the value of the applicants’ source code or associated materials has diminished by the conduct of Mr Koudstaal. There is, for example, no evidence that the applicants cannot continue to use the Taken Materials in the manner in which they were using them prior to the events discussed in this judgment (cf discussion of Blackburn CJ in Australasian Performing Right Association Ltd v Grebo Trading Co Pty Ltd (1978) 23 ACTR 30 at 31).

    While it appears possible that Mr Koudstaal used the Leica source code as a reference point during the period 24 January 2012 - 26 January 2012 when he operated the Virtual Machines, I am unable to identify any loss which occurred to the applicants as a result of these events. Certainly there is no evidence that, for example, the applicants have lost either profits or market share, or any of their customers to APS (or anyone else) as a result of Mr Koudstaal’s conduct.

    Finally, even if Mr Koudstaal did use Leica’s source code as a reference point there is no material before the Court to show the extent of its use or whether that use had any impact at all on Mr Koudstaal’s work with APS to Leica’s detriment.

92    It is incumbent on the Court to do its best to quantify loss to an applicant whose copyright is infringed, but only if damage can be demonstrated. No damage has been demonstrated by the applicants, who bear this burden: Aristocrat Technologies at [100]-[101]; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at 266. The loss in respect of which the applicants claim $40,000 is purely speculative. Rather, the applicants’ claim against Mr Koudstaal under s 115(2) in respect of his actions could more properly be characterised as a claim for conversion because of his unauthorised use of and access to the Taken Materials: cf Sutherland Publishing Co v Caxton Publishing Co [1936] Ch 323 at 338; Columbia Pictures Industries Inc and Tri-Star Pictures Inc v Stephen Richard Luckins (1996) 34 IPR 504 at [35]-[38]. In this case however the applicants have not made a claim for damages in conversion, and I do not consider that such a claim is encompassed by their existing claims.

93    Finally, while the draft order of the applicants in respect of compensatory damages also contemplates damages for breach of Mr Koudstaal’s employment contract as well as equitable compensation for breach of confidence, no submission is made by the applicants that I should separately assess damages for breach of Mr Koudstaal’s employment contract or compensation for breach of his equitable obligation of confidentiality, and I do not do so. Indeed, this is not surprising in light of authorities including Interfirm where Bowen CJ in Equity observed at 447 that the damages claimed by the plaintiff in that case were not cumulative for the breaches of copyright and of confidence.

94    In my view damage suffered by the applicants in this case was nominal. I consider that the appropriate award of compensatory damages is $1.00.

Additional damages under section 115(4) Copyright Act

95    The situation is, however, somewhat different in respect of the applicants’ claim for additional damages under s 115(4) of the Copyright Act.

96    In Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 103 Tamberlin J described “flagrancy” within the meaning of s 115(4) in the following terms:

In ordinary usage “flagrancy” connotes conduct which could probably be described as “glaring, notorious, scandalous” or “blatant.” See the New Shorter Oxford English Dictionary, 1993 at 965.

Copinger and Skone-James on Copyright 13th edn 1991 at 344 state that:

Flagrancy implies scandalous conduct, deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay.

In Prior v Lansdowne Press Pty Ltd [1977] VR 65, Gowans J, in considering a claim for additional damages under s 115(4) of the Act, said at 70:

I have come to the conclusion that the evidence as to the publication shows primarily a case of mistake and perhaps carelessness, but it does not show a case of flagrancy, or calculated disregard of the plaintiff’s rights or cynical pursuit of benefit, or other matter justifying the award of additional damages beyond what is required for compensation.

(Emphasis added.)

97    In this case Mr Koudstaal knew that the Taken Materials were the core of the applicants’ business, but deliberately and over a sustained period of time copied them to his own device, removed them from the applicants’ premises, falsely stated that he had returned all property of the applicants, and reviewed them at his leisure and for his own purposes. In doing so, Mr Koudstaal completely disregarded the rights of the applicants, which rights he has conceded. In this context I consider it of little moment that Mr Koudstaal felt he had some “ownership” in respect of the source code or that he justified his actions in copying the applicants’ software on the basis that “everyone did it”.

98    I am satisfied that Mr Koudstaal’s infringement of the applicants’ copyright was flagrant within the meaning of s 115(4)(i).

99    In assessing the applicants’ claim for additional damages I am also of the view that there is a need to deter similar infringements of copyright. Again, the fact that Mr Koudstaal was of the view that downloading large tranches of the applicants’ software in the last days of his employment was commonplace does not vindicate his actions when there was no benefit to the applicants from such conduct. Indeed, if such activities are commonplace, in my view there is even more reason to set damages at a level to act as a deterrent to similar conduct. In my view the element described in s 115(4)(ia) is of particular relevance in this case.

100    Section 115(4)(ib) refers to the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright. In this case it appears that Mr Koudstaal was reasonably co-operative with the applicants, although there is some question concerning the deletion of material from his laptop described by Mr Ghosh in his report of 9 June 2012, which Mr Koudstaal explains as ensuring that no personal material or material belonging to his new employer should inappropriately fall into the hands of the applicants. There is also evidence before the Court, however, that Mr Koudstaal operated a Virtual Machine containing the applicants’ software over the Australia Day weekend in 2012, prior to being informed by the applicants of their infringement claim. In my view despite Mr Koudstaal’s cooperation, the evidence is that he was prepared to continue to access the applicants’ material for reasons of his own. To that extent s 115(4)(ib) is also relevant.

101    In the circumstances I do not consider s 115(4)(ii) relevant.

102    In relation to s 115(4)(iii) I consider that having the applicants’ source code available as a reference point at a time when he was employed by APS is a tangible benefit accruing to Mr Koudstaal, and relevant for the purpose of considering whether the applicants have substantiated a case for additional damages.

103    I am, however, also of the view that there are a number of other relevant matters in this case within the meaning of s 115(4)(iv), namely:

    The clear and warranted anxiety of senior officers of the applicants that software upon which their business depends was in the hands of a former employee who had left to perform a similar role for a competitor. In my view the conduct of Mr Koudstaal in this respect warrants additional damages being awarded against him;

    On the other hand, the fact that Mr Koudstaal is an individual rather than a corporation, who appears to earn his living as a salaried employee, and who does not appear to have benefitted financially from the infringement.

    The fact that Mr Koudstaal expressed remorse for his conduct.

104    The applicants seek an award of additional damages in the amount of $250,000. In my view this sum is excessive. I am of the view that a more appropriate award of additional damages against Mr Koudstaal pursuant to s 115(4) is $50,000. In this respect while each case must be decided on its own merits, I note other cases in which the Courts have made additional damages awards against individuals in similar amounts (Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 310; Deckers Outdoor Corporation Inc v Farley (No 5) (2009) 262 ALR 53; Australasian Performing Right Association Ltd v Riceboy Pty Ltd [2011] FMCA 942).

Costs

105    The applicants have sought an order that Mr Koudstaal pay their costs, including reserved costs to be taxed if not otherwise agreed. Mr Koudstaal has not opposed an order in these terms. In my view an order that costs follow the event is appropriate in these circumstances.

Associate:

Dated:    22 October 2014