FEDERAL COURT OF AUSTRALIA

Peter Vogel Instruments Pty Ltd v Fairlight.Au Pty Ltd

[2016] FCAFC 172

ORDERS

THE COURT ORDERS:

1.    That the appeal be allowed in part.

2.    That the interlocutory application filed by the first respondent on 2 September 2016 be dismissed.

3.    That the first respondent pay the appellant’s costs of the interlocutory application filed on 2 September 2016.

4.    That the declarations and orders made by the primary judge on 17 December 2015 be set aside and in lieu thereof there be the following declarations and orders:

THE COURT DECLARES THAT:

1.    The applicant validly withdrew the right for the first respondent to use the FAIRLIGHT name and brand pursuant to clause 6(4) of the Development and Licensing Agreement dated 15 August 2010 between the applicant and the first respondent (the “Agreement”) by notice given to the respondents by letter dated 30 May 2012.

2.    From 1 June 2012, by reason of the withdrawal of the right for the first respondent to use the FAIRLIGHT name and brand, the first respondent did not have and does not have any right, licence or authority to use the FAIRLIGHT name and brand with respect to “CMI Products” as defined in the Agreement (except for those already supplied under the Agreement) or any other products or services or otherwise in the course of business.

3.    The first respondent contravened section 120 of the Trade Marks Act 1995 (Cth) by using the FAIRLIGHT trade mark in the course of trade without the licence or authority of the applicant from about March 2011, with respect to applications for use with or in respect of the iPad and iPhone or similar products and in marketing and selling such applications.

4.    The cross-claimant is the owner of the copyright in the software developed by the first respondent pursuant to the Agreement.

5.    The first cross-respondent has, by the sale of two copies of the Dream II programme to third parties after April 2012, infringed the cross-claimant’s copyright.

THE COURT ORDERS THAT:

6.    The Respondents and each of them, whether by themselves, their servants or agents or howsoever otherwise, are restrained from:

(a)    representing in the course of the First Respondent’s business and in connection with the supply or possible supply of the First Respondent’s goods or services that any such goods or services have the sponsorship or approval of the Applicant and/or from representing that the First Respondent has the sponsorship or approval of or is affiliated with the Applicant in the supply of the First Respondent’s goods or services;

(b)    manufacturing, distributing, offering for sale, supplying, selling or causing to be manufactured, distributed, offered for sale, supplied or sold in Australia any goods or services for which the FAIRLIGHT trade mark is registered unless authorised by the Applicant; and

(c)    using, in the course of trade and commerce, the FAIRLIGHT trade mark without the authority or consent of the Applicant.

7.    The Respondents provide the Applicant with all necessary books, records and other information to enable an independent accountant of the Applicant’s choosing to calculate the profits which should be accounted to it for the First Respondent’s breach of the FAIRLIGHT trade mark and for the First Respondent to account to the Applicant for such profits within 21 days of their calculation.

8.    The Respondents deliver up to the Applicant for destruction all products, materials and documents in the possession custody or control of the Respondents bearing the FAIRLIGHT trade mark or any mark that is substantially identical with or deceptively similar thereto other than CMI Products already supplied under the Agreement.

9.    That the proceeding be remitted to a primary judge for the purpose of determining:

(a)    on the evidence adduced at the trial held in December 2014, and subject only to any order of the primary judge allowing further evidence to be adduced, any damages to which the cross-claimant is entitled for repudiation of the Agreement by the cross-respondent and infringement of copyright;

(b)    taking an account of profits to which the applicant may be entitled for infringement of the FAIRLIGHT trade mark;

(c)    the entitlement of the parties to costs on the claim and cross-claim; and

(d)    the disposition of the proceedings.

10.    The Court directs that the parties confer about whether, in light of [88] of the reasons for judgment, any submissions in relation to the costs of the appeal will be made and, if so, then within seven (7) days of the date of these orders, the parties file and exchange any submissions of no more than three (3) pages as to their entitlement to costs of the appeal.

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

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    On 18 August 2010, the appellant, Peter Vogel Instruments Pty Ltd (PVI) and the first respondent, Fairlight.AU Pty Ltd (Fairlight) entered into a “Development and Licensing Agreement” (Agreement). It concerned the grant of a trade mark licence for the use by PVI of the word FAIRLIGHT and the provision by Fairlight to PVI of hardware and software necessary to make computer musical instruments (CMI) that produce synthesised music.

2    The implementation of the Agreement did not proceed smoothly, and on 30 May 2012, Fairlight’s parent company, KFT Investments Pty Ltd (KFT), which is the second respondent in this appeal, sent a letter to PVI purporting to terminate the Agreement (Termination Letter). One of several reasons identified for the termination was that PVI had used the name FAIRLIGHT in a manner that exceeded the license to do so granted under the Agreement. Fairlight contended at trial that it was entitled it to terminate the licence and the Agreement as a whole and also to obtain injunctive relief and damages from PVI and its director, Peter Vogel, for infringement of Fairlight’s trade mark. PVI cross-claimed for, inter alia, wrongful termination.

3    The primary judge found in Fairlight.AU Pty Ltd v Peter Vogel Instruments Pty Ltd (No 3) [2015] FCA 1422 (Judgment) that PVI had acted in breach of the trade mark licence and that as a consequence the Agreement had come to an end. In this appeal, PVI challenges that finding and further contends that the primary judge ought to have found that Fairlight had wrongfully terminated the Agreement and is liable for damages. It also contends that the primary judge incorrectly dismissed its case for copyright infringement.

4    For the reasons set out below, we allow the appeal in part and find that Fairlight did wrongly terminate the Agreement. We also find that Fairlight infringed aspects of PVI’s copyright in software that it supplied to third parties.

THE ISSUES AT TRIAL

5    The proceedings below were conducted under Practice Note CM 8 pursuant to the Fast Track regime of the Federal Court of Australia. By its Fast Track Statement (Statement) filed on 26 November 2012, Fairlight claimed that from about March 2011, PVI had acted in breach of the Agreement by using the FAIRLIGHT Trade Mark in connection with the supply, marketing, provision and sale of applications for iPhones and iPads (Apps). Fairlight contended that it had validly terminated the Agreement by sending the Termination Letter and, as a result, from that date it owed no ongoing obligations under the Agreement to PVI to supply software or hardware products.

6    Fairlight also alleged that PVI had infringed its registered trade mark for FAIRLIGHT (trade mark No 638970) (FAIRLIGHT Trade Mark) and that PVI had engaged in misleading and deceptive conduct in contravention of the Trade Practices Act 1974 (Cth) and the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)) and also engaged in passing-off. Fairlight did not at trial press its claims for misleading and deceptive conduct or passing off. It elected to seek an account of profits in respect of trade mark infringement and also sought orders against Mr Vogel for restraints, declaratory and other relief, including an account of profits, for his involvement in the trade mark infringement.

7    PVI filed a response to Fairlight’s Statement (Response) and also a further amended Fast Track cross-claim (cross-claim). Broadly speaking, PVI’s Response was to deny that the Agreement had been validly terminated and assert that Fairlight had agreed to vary the Agreement to permit it to sell the Apps featuring the FAIRLIGHT Trade Mark. PVI also alleged that various forms of estoppel or acquiescence applied such as to preclude Fairlight from asserting that the Agreement had been terminated. In addition, PVI alleged first, that prior to 30 May 2012 Fairlight had acted in breach of the Agreement by failing to deliver hardware components and delivering incomplete and defective software. Secondly, that by refusing to supply in accordance with the Agreement after May 2012 Fairlight had acted in breach. It sought specific performance of the Agreement. Thirdly, that by licensing third parties to use the “Dream II” software, it had engaged in an infringement of PVI’s copyright. Fourthly, PVI alleged that it was entitled to a perpetual licence to use anything belonging to or controlled by Fairlight necessary for PVI to complete the development or manufacture contemplated by the Agreement. Accordingly, notwithstanding Fairlight’s purported termination, PVI remained at liberty to use the FAIRLIGHT Trade Mark and sell products. Finally, PVI alleged that Fairlight had, in purporting to terminate the Agreement and ceasing to give supply, engaged in unconscionable conduct.

Relevant Findings of the Primary Judge

8    Very few of the primary judge’s findings of fact were in dispute on appeal. The following is a summary of the factual findings and other materials that are relevant to consideration of this appeal.

9    In 1975 Mr Peter Vogel, who is an electronics engineer, co-founded a company called Fairlight Instruments, which developed the world’s first music synthesiser capable of sampling natural or instrumental sounds. It was known as the Fairlight Computer Musical Instrument or Fairlight CMI. In 2009 Mr Vogel decided to build a 30th anniversary commemorative version of the Fairlight CMI. Knowing that Fairlight owned the FAIRLIGHT Trade Mark, at least in Australia, Mr Vogel thought it would be necessary to obtain a license from Fairlight. He entered discussions with Fairlight and ultimately PVI executed the Agreement on 18 August 2010.

10    The Agreement is set out in full at [29] of the Judgment. However, as it is relatively short, and centrally necessary to understanding the issues in this appeal, we also set it out in full below. It is to be noted that as a result of subsequent name changes to the parties, PVI was then called “Fairlight Instruments Pty Ltd” or “FI”. The abbreviated reference in the Agreement to Fairlight is “F.au”. For ease of explanation, in the version of the Agreement set out below, sub-paragraphs denoted in the original as bullet points have been indicated as (1), (2) and so on.

This Agreement is made on 15th August 2010 between:

Fairlight Instruments Pty Ltd (ACN 140 173 397) of 10 Whitney Street, Mona Vale, New South Wales, 2103, Australia (“FI”); and

Fairlight.au Pty Ltd (ACN 104 307 888) of Unit 3/15 Rodborough Road, Frenchs Forest, New South Wales, 2086, Australia (“F.au”).

Background

1.    FI is a corporation established by Peter Vogel to develop and commercialise electronic musical instruments and related products.

2.    F.au is a developer of technology for the audio and film industry.

3.    FI wish to produce:

(1)    a 30 Year anniversary model of the Fairlight CMI referred to as the “CMI-30A” and

(2)    a PC compatible version known as the “Series IV”, referred to collectively as the “CMI Products”.

4.    F.au will provide FI with:

(1)    certain hardware and technologies including customised software development for the CMI Products

(2)    a license for the use of the name “Fairlight” for the CMI Products during the term of this agreement; and

(3)    supply of core components including sound library, on the terms contained in this agreement.

5.    FI will raise the required development funds, manufacture, market and distribute the CMI Products internationally. FI warrants that it has sufficient capital to commit to contract F.au to carry out the development contemplated herein.

Operative provisions

Obligations of FI

6.    FI will pay F.au a total of $200,000 (plus GST) for:

(1)    the development of the Fairlight CMI Software; and

(2)    worldwide use of the “Fairlight” name and brand for marketing purposes for the CMI Products developed and/or marketed by FI pursuant to and during the term of this agreement.

(3)    Use of Fairlight name and brand cannot be sold or transferred to any other party without written agreement by F.au.

(4)    F.au reserves the right to withdraw the right for FI to use the Fairlight name and brand, should the name and brand be used in any way which F.au deem to be damaging to the Fairlight Brand reputation.

7.     FI will make the payment to F.au required by clause 6 by way of four payments, each of $50,000 (plus GST) (total of $200,000) against F.au’s demonstrated meeting of milestones as agreed between the parties before commencement of the development project.

8.    Based around the hardware and software provided to FI by F.au as described herein, FI will package, develop, manufacture and market Fairlight branded musical instruments.

9.    FI will package, develop, manufacture and market Fairlight branded musical instruments at its own cost, pay F.AU a one-off fee for development of the software as specified below, and purchase F.au custom components including Crystal Core and SX-x devices.

10.    FI will develop the necessary components of the CMI Products including the retro keyboard and CMI box ready to accept the F.au boards and software. FI will also undertake all aspects of the marketing of the CMI Products, including but not limited to:

(1)    direct sales;

(2)    sales channel management; and

(3)    promotional activities.

11.    FI will market and sell the CMI Series IV in a “sound-module” form, ie without a keyboard, but as CC-1 and Fairlight CMI software only.

12.    FI will assist in the specification and testing process, and in gathering market feedback.

Obligations of F.au

13.    F.au agrees to produce a software application emulating the sounds and user interface of the Fairlight CMI running on a PC using a CC-1 card.

14.    In addition to hardware and software provided by F.au to FI, F.au will include a licensed version of the Fairlight CMI sound libraries.

15.    F.au will supply the following products and technology to FI for the CMI Products:

(1)    “Fairlight CMI Software” application;

(2)    CC-1 card; and

(3)    SX-8 or similar input/output device.

16.    A detailed specification for the final CMI-30A product will be produced by the parties prior to commencement of development.

17.    F.au agrees to complete the necessary CMI Hardware and Software within four months from order. ‘Order’ being defined as: signed agreement, signed specification of product, signed list of monthly milestones, signed definition of transferred IP, and receipt of first $50K.

18.    F.au reserves the right to extend the 4 month delivery period should FI not make its stage payment in a timely manner.

19.    F.au agrees that in the event that it is unable to supply hardware or software as contracted within a commercially reasonable time, or if an administrator or receiver is appointed to F.au, FI is automatically granted an immediate perpetual, royalty-free licence to use anything belonging to or controlled by F.au necessary for FI to complete the development or manufacturing contemplated by this agreement. This is provided that full payment for any work completed up to that point has been provided by FI to F.au.

Intellectual property rights

20.    Upon receipt of the final payment-from FI, F.au agrees that the software and its source components developed by F.au pursuant to this agreement will transfer to FI. The exact definition of IP to be transferred will be defined in a separate document.

21.    F.au does not own any of the FI business that commercialises the CMI Products and related products and technology.

22.     FI will own the Fairlight CMI Software application and all its specific source code including elements of the Crystal Core source code. There are no other IP implications.

Sale of CMI Products

23.    By default, a CC-1 card sold for use in a CMI system cannot run Dream II software without additional licensing. Likewise, a CC-1 card sold for use in a Dream II system cannot run CMI software without additional licensing.

24.    All licensing will be handled through F.au, with appropriate and timely reporting to FI.

25.    F.au will have the opportunity to purchase Fairlight CMI Software licenses to sell with existing and future F.au products at a price to be negotiated in the order of AUD $1,500.00 per license.

26.    The Parties agree the following cost of components for the CMI-IV, subject to negotiation and based on exchange rates and discount for product volumes:

(1)    Package 1 (CC-1, SX-8) AUD $2,542.00

(2)    Package 2 (CC-1, SX-20) AUD $3,977.00

27.    FI is licensed to offer CMI-30A customers an upgrade path to full Dream II capability, through purchasing a license from F.au at a price to be negotiated, in line with the prevailing list price.

28.    F.au will also be able to market the CMI Products through its distribution channel.

General.

29.    This agreement is governed by the laws of New South Wales, Australia.

30.    All references to “$” are to Australian dollars.

31.    This agreement binds the parties and their successors.

Term

32.    After one year from signing, this agreement can be terminated on three months written notice by F.au if FI fails to purchase from F.au products to a minimum value of $50,000 per annum (calculated annually in arrears, commencing from the date of completion of the development contract contemplated herein).

33.    This agreement can be terminated by FI by giving three months written notice.

34.    Otherwise the agreement is ongoing unless terminated by agreement between the parties.

11    The primary judge found that by virtue of clauses 3, 4 and 6 of the Agreement, PVI was granted a licence to use the FAIRLIGHT Trade Mark worldwide, but only in relation to two products being the “CMI-30A” and the “Series IV”.

12    The primary judge found that during the term of the Agreement, PVI had developed the Apps for the iPhone and iPad which were promoted and sold as CMI under the FAIRLIGHT Trade Mark. These Apps were found to be products in themselves [40] and to replicate the essential functions of the CMI-30A. At [37] the primary judge found:

I can accept that the App may have had a marketing utility for the CMI Products developed and/or manufactured by PVI pursuant to the Agreement, although there was no evidence of this, but if it did, then it was only incidental to its character as a stand-alone product developed and/or manufactured for sale by PVI. The contemporaneous evidence is overwhelming in this regard.

13    For some 18 months after entering into the Agreement, PVI, through Mr Vogel, sought to obtain Fairlight’s consent to vary the Agreement, or to enter into a new agreement, so as to allow PVI to use the FAIRLIGHT Trade Mark in connection with the Apps, in addition to the two specified CMI products. Accordingly, the primary judge inferred that Mr Vogel was well aware of, and accepted, that the licence to use the FAIRLIGHT Trade Mark was confined to the two products and did not extend to the Apps. The primary judge rejected PVI’s contention that Fairlight had entered a binding, oral agreement that permitted PVI to use the FAIRLIGHT Trade Mark in relation to the Apps. That finding is not challenged in this appeal.

14    The primary judge identified correspondence relevant to the issues. In a letter dated 22 May 2012, Mr Vogel ventilated his concerns about the performance of the Agreement. Relevant parts of that letter are reproduced at [60] of the Judgment, although for convenience they are also set out below:

This letter is further to our telephone conversation this afternoon in which you asked me to put the issues down in writing.

BREACH OF DEVELOPMENT AND LICENSING AGREEMENT DATED 15 AUGUST 2010 (copy attached)

We have paid the consideration specified in this contract ($200,000) in full.

Fairlight.au is obliged under the contract (specifically Clause 15) to supply Fairlight Instruments with the application software, CC-1 card and SX12 cards.

You confirmed today that you have instructed staff not to supply us any goods until further notice. I presume this extends to software bug fixes as well. By refusing to supply Fairlight Instruments, Fairlight has breached the contract.

There have been other breaches by Fairlight.au, including, amongst other things, failure to deliver software of a merchantable quality and failure to supply documentation of the software.

The contract initially anticipated that the sound engine CMI code would be implemented firmware on the CC1. This has not happened, with the result that polyphony is limited to 96 as opposed to “least 200” as initially promised and performance is compromised in other ways as well. Although we have so far been amenable to accepting this as a variation to the contract, we reserve the right to insist that the original intention be performed.

We also hereby give notice that Fairlight.au has failed to deliver software and hardware in commercially reasonable time and we reserve our right to exercise our rights under clause 19.

USE OF FAIRLIGHT SOUND LIBRARIES IN APPS

You mentioned today your concern about our use of the Fairlight sound libraries in our IOS apps.

First, we would argue that the licensing Agreement extends to use of the sound library, the app being a promotional gimmick for the CMI-30A. In addition, when we brought out the app in March 2011 we wished to remove any uncertainty there may be about the scope of the licence and we put to Fairlight.au a proposed amendment to that contract, as attached.

Our proposal was that for avoidance of doubt, we would pay Fairlight.au a royalty on sales of any intellectual property which Fairlight claims to own.

Unfortunately, in spite of several requests over the next year, we did not receive a reply to that offer.

Under the circumstances, if challenged we would argue that the app falls within the scope of the CMI-30A contract, a view which is reinforced by Fairlight.au’s acquiescence for more than a year.

Should we be required to defend our position, we would also challenge that Fairlight.au owns copyright to the sound libraries. Although not relevant to the question of ownership, please note that we did not obtain the sound libraries from Fairlight.au (there being multiple other sources from which these are freely available).

…

DEMAND

We sincerely hope that this dispute can be resolved amicably, but unless you remedy the situation as follows we will have no choice but to enforce our rights:

1.    Payment of monies owed, within 7 days,

2.    Replacement of 3x CC-1 cards loaned, within 7 days.

3.    Supply of 5 x CC-1/SX12 for the usual price, within 7 days.

4.    Correction of software bugs as reported to date, work to commence immediately and to be completed progressively over 30 days.

5.    Supply of professional standard documentation for software already delivered, existing documentation to be delivered immediately and to be completed progressively over 30 days.

6.    A response to the aforementioned request for variation of the licensing agreement to permit use of the Fairlight name for all our musical instruments in return for a royalty, within 7 days.

Unless this matter is resolved expeditiously, we will enforce our rights under the contract and otherwise. As well as seeking a refund of the money paid, we will seek damages for loss of profits due to Fairlight.au’s breaches.

15    In response, Fairlight (via its parent company KFT), sent the Termination Letter. Parts of this letter are extracted in the Judgment at [59]. The extract set out below includes some additional material:

…

Your letter and the actions of FI in relation to a number of issues clearly show that FI is in breach of the Agreement as well as having infringed a number of F.Au’s intellectual and other property rights.

This allows F.Au to terminate the agreement for that breach. For the sake of clarity, the absence of a term dealing with a breach of FI does not mean that the agreement cannot be terminated.

…

In relation to the iPad/iPhone App., the Agreement provides a licence to use the Fairlight name and brand for the CMI Products. We note that this does not refer to or cover the iPad/iPhone App. That is a breach of the agreement.

The licence is also limited to CMI products. FI has gone well beyond what is permitted. We note that you have used it in your business name and are using it for purposes beyond applying it to products. This is a breach of the Agreement.

The use of the sound libraries is a blatant and flagrant breach of the agreement. Your argument is not only self-serving but without any merit whatsoever. The use of the sound libraries is a breach of not only the agreement but also F.Au’s intellectual property rights. The app contains neither hardware nor software of F.Au and cannot therefore be marketed as a Fairlight product.

F.Au reserves its rights to a full accounting of all monies or other benefits derived by FI in relation to the use of the sound libraries.

You have offered a royalty to “remove any uncertainty”. Respectfully, this is a disingenuous response to what you clearly appreciate to be a breach of the agreement. The reason we did not respond is because it was not acceptable. That F.Au did not respond to your offer does not mean F.Au acquiesced. It did not.

In this regard, we also note that this application and use of the Fairlight name and brand damages the Fairlight brand and reputation and is otherwise also misleading and deceptive conduct and is a misrepresentation under the Competition and Consumer Act as it suggests an association and endorsement by F.Au which does not exist. It also amounts to passing off. This is a breach of the Agreement.

…

In response to your request for permission to use the Fairlight name in all FI’s musical instruments, the answer is no.

Further, other than for product currently provided, by reason of the clear breaches on the part of FI of the Agreement, you are to undertake to immediately cease using the Fairlight name in any way.

For the sake of clarity this means you must not:

(a)    Use the Fairlight name or any derivation of it in relation to any products or services provided by FI other than those products already manufactured or to be sold;

(b)    Continue to use the Fairlight name or any derivation of it in relation to the business of FI

(c)    Continue to use the Fairlight name or any derivation of it in relation to the iPad app

(d)    Continue to use the Fairlight name or any derivation of it in the name of FI i.e., you must change the name of Fairlight Instruments Pty Ltd

(e)    Continue to use the Fairlight name or any derivation of it in or on any printed or other media including web sites, Facebook pages, Twitter accounts or otherwise

If you fail to provide this undertaking by the close of business [on] 1 June, 2012 action will be taken to prevent FI from doing so without further notice.

F.Au otherwise reserves all of its rights.

…

16    The primary judge found at [73] that provided that there were reasonable grounds for Fairlight’s view, Fairlight was entitled by clause 6 of the Agreement to withdraw the licence to use the FAIRLIGHT Trade Mark in the event that it deemed its use by PVI in the Apps to be damaging to the brand. On appeal there was some controversy about the correct characterisation of his Honour’s findings and so it is convenient to reproduce the paragraphs central to his reasoning at [71] – [76] (emphasis added):

71.    Fairlight submitted that, by the 30 May letter, Fairlight, as a matter of substance, exercised its rights under cl 6 of the Agreement and withdrew the use of the Fairlight mark, on (at least) the basis that Fairlight deemed the use of the Fairlight mark for Apps to be damaging to the Fairlight Brand reputation. According to Fairlight, it mattered not that the use of the Fairlight mark was for a non-contractual purpose. The right to withdraw the license arose if the Fairlight mark was used “in any way”. According to Fairlight, it would be perverse if cl 6 allowed the Fairlight mark to be withdrawn for an authorised use but not for an unauthorised one. That must be right.

72.    Fairlight further submitted that the substantive effect of Fairlight having validly withdrawn the use of the Fairlight mark from PVI on 30 May 2012 was that the Agreement was terminated. According to Fairlight, that is because, in circumstances where the use of the Fairlight mark had been withdrawn from PVI, the Agreement had no more “work” to do. The argument proceeded along the following lines. All of the obligations set out in the Agreement hinged upon the licence to use the Fairlight mark for Fairlight branded instruments. The Agreement was fundamentally based around Fairlight licensing the use of the Fairlight mark to PVI for the purpose of marketing the CMI Products. Once the licence to use the Fairlight mark was withdrawn, there was no continuing obligation on PVI to purchase Fairlight custom components, principally because PVI would no longer be packaging, developing manufacturing and marketing Fairlight branded musical instruments. When the right to use the Fairlight mark was withdrawn the obligation on PVI to sell Fairlight branded products also evaporated. Without the licence, the Agreement came to an end.

73.    Mr Kepper expressed the view in the 30 May 2012 letter that he thought the use of the Fairlight mark for Apps was damaging its brand. Fairlight submitted that whether Mr Kepper was correct or incorrect in that view is of no moment. Fairlight was entitled by cl 6 of the Agreement to withdraw the licence to use the Fairlight mark in the event that it deemed its use by PVI to be damaging its brand. Provided there were reasonable grounds for Fairlight’s view, I would not disagree.

74.    Fairlight further submitted that the 30 May letter was a contemporaneous business record. That is not in dispute. Fairlight points out that, to the extent it is relevant, that view was also shared by Mr Fibaek, as is evident from his cross-examination, although, for reasons already mentioned, I attach little weight to Mr Fibaek’s evidence. It was also the view that was held by Mr Kathriner, a witness called by Fairlight with experience in marketing. Mr Kathriner testified as to the market to which Fairlight wished to project its image and reputation and considered that an app that disseminated that reputation and branding into a different market was damaging to the market perception of Fairlight’s target market, namely, audio engineers and businesses engaged in high-end post-production audio.

75.    Fairlight also pointed out that, even though Mr Heberden’s view is no substitute for Fairlight’s right to form its own view, Mr Heberden’s expert evidence suggests that there was a proper basis for the view Mr Kepper expressed in the 30 May letter.

76.    The Court was invited to find that, on 30 May 2012, Fairlight validly withdrew the use of the Fairlight mark from PVI pursuant to cl 6 of the Agreement and that the Agreement was, as a consequence, terminated. I accept that invitation and make that finding.

17    We consider that the acceptance by the primary judge of the invitation set out in [76] to find that Fairlight validly withdrew the use of the FAIRLIGHT Trade Mark, and as a consequence the termination of the Agreement, necessarily carried with it:

(a)    acceptance by the primary judge of the propositions put by Fairlight (as summarised by his Honour at [72]) to the effect that once the licence to use the FAIRLIGHT Trade Mark was withdrawn, the Agreement came to an end; and

(b)    acceptance by the primary judge that there were reasonable grounds for Fairlight’s view that the use of the FAIRLIGHT Trade Mark for the Apps was damaging its brand, based on the evidence summarised in [74] and [75].

18    In relation to Fairlight’s allegations of trade mark infringement, the primary judge found at [93] that given that the Agreement did not extend to the use of the FAIRLIGHT Trade Mark in relation to the Apps, by using the mark for Apps from 22 March 2011, PVI contravened section 120 of the Trade Marks Act 1995 (Cth). His Honour rejected the submission that Mr Vogel should be personally liable for the infringement on the basis that he was the controlling mind and will of PVI.

19    Having made these findings, the primary judge rejected PVI’s allegations that Fairlight had acted in breach of the Agreement, first, for the supply of deficient software, and secondly, for alleged delays in the supply of the required software. The primary judge also rejected PVI’s cross-claim arising from its allegation that it was entitled to damages arising from the unlawful termination by Fairlight of the Agreement. The primary judge also rejected PVI’s cross-claim for infringement of copyright. We address the copyright findings made by his Honour separately below.

THE APPEAL

The grounds of appeal

20    The grounds of appeal that were ultimately pressed by PVI are as follows:

1.    The primary judge erred in finding (at [76]) that the present first respondent’s revocation of the licence under cl.6 of the agreement between each of the appellant and present first respondent dated 15 August 2010 (Agreement) by letter dated 30 May 2012 had the legal effect of terminating the Agreement, and making the declarations at orders 1 and 2, on the following grounds:

(a)    the construction of the Agreement found by the primary judge was not open to his Honour because, regardless of the use of a name and independently thereof, the present first respondent was under a contractual obligation to deliver hardware and software to the appellant (and had at least purported to deliver some of those products, as found (at [116]), and the appellant could have continued to assemble, market, and sell instruments under a different brand if it chose so to do, as noted by the primary judge (at [99]);

…

3.    The primary judge erred in finding (at [93]) that the appellant infringed the Trade Mark by using the Trade Mark with respect to applications for use with or in respect of the iPad and iPhone or similar products (Apps) and making the declaration at order 3(b), on the following grounds:

(a)    having first found (at [37]) that the Apps may have had a marketing utility for the CMI Products developed and/or manufactured by PVI, the primary judge thereafter erred in giving any weight to the finding that the Apps could have a use as products in themselves;

(b)    the only finding open to the primary judge was that the licence granted by cl.6 of the Agreement was engaged and authorised the appellant’s use of the Trade Mark; …

…

4.    The primary judge erred in dismissing the appellant’s cross-claim for breach of contract by failing to find that the present first respondent had breached the Agreement, on the following grounds:

(a)    the primary judge erred in finding that there is no evidence that the software delivered to the appellant by the present first respondent under the Agreement was deficient, and in so doing:

(i)    erred by finding (at [116]) that there was no evidence that the appellant had complained about the deficiencies in the software delivered by the present first respondent during the period when the appellant was making payments pursuant to the Agreement, when there was evidence of such complaints in evidence;

(ii)    failed to properly consider the present first respondent’s failure to deliver necessary components of the software; and

(iii)    failed to properly consider the difference between the delivery by the present first respondent’s of that software’s object code and its failure to deliver the source code of that software;

(b)    the primary judge failed to properly consider the delay by the present first respondent in delivering software and hardware in light of separate evidence that the present first respondent was in fact refusing to deliver such software and hardware to the appellant at all, despite the present first respondent receiving the agreed sum, as found (at [1] and [116]); and

(c)    the primary judge ought to have found that the present first respondent breached the Agreement by failing to deliver hardware and software products for which the appellant had paid, and was therefore liable to the appellant in damages.

5.    The primary judge erred in dismissing the appellant’s claim of copyright infringement by:

(a)    finding (at [128]) that there was no basis for the appellant to claim ownership of any intellectual property by virtue of clauses 20 and/or 22 of the Agreement by reason of the parties’ failure to define the relevant intellectual property in a separate document, and in so doing failing to consider that:

(i)    cl.20 of the Agreement provided for all software and its source components developed by the present first respondent pursuant to the Agreement to be assigned to the appellant upon final payment, which payment was found to have been made in April 2012 (see [1]); and

(ii)    cl.22 of the Agreement provided that the Fairlight CMI Software application including its source code and elements of the Crystal Core source code would be assigned to, or alternatively vest in, the appellant upon the creation of that code;

(b)    failing to properly consider admissions by the present Respondents, in evidence and the present Respondents’ Response to Amended Fast-Track Cross-Claim, that the appellant was the holder of the copyright subsisting in the relevant source code;

(c)    failing to properly consider admissions by the present Respondents, in evidence, that the present first respondent had reproduced all of the relevant source code of which the appellant was the copyright holder; and

(d)    failing to properly consider evidence that the present first respondent’s reproduction took place with the knowledge and, by reason of the present second respondent’s control of the present first respondent and subsequent failure to prevent the present first respondent from committing infringing acts, authorisation of the present second respondent.

…

7.    The primary judge erred in granting the relief set out in orders 4, 5, 6, 7, 8, and 9 because such orders were made to give effect to findings which were, by reason of the grounds set out herein, erroneous.

8.    Further or alternatively, the primary judge erred in making order 6 by reason of the primary judge’s failure to restrict the scope of that order to products, materials and documents which were found to have infringed the Trade Mark.

THE AGREEMENT

21    The resolution of a number of the grounds of appeal turns upon the correct construction of the Agreement. The question central to Ground 1 is whether the primary judge was correct to conclude that, once the licence to use the FAIRLIGHT Trade Mark was withdrawn, the Agreement came to an end. Ground 3 concerns the application of the trade mark licence in clause 6, and Ground 5 challenges the correctness of the primary judge’s finding at [128] that PVI had failed to establish that it was the owner of copyright under the Agreement. Accordingly, it is convenient first to consider the construction of the Agreement insofar as it is relevant to these issues and then to examine the grounds of appeal.

Legal principles

22    There was no dispute on appeal regarding the correct approach as to the construction of the Agreement. We respectfully adopt the approach set out in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35] (citations omitted):

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, 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”.

Consideration of the Agreement

23    The section of the Agreement entitled “Background” recites the wish on the part of PVI to produce two products (clause 3): (1) a 30 year anniversary model of the Fairlight CMI referred to as the CMI-30A, and (2) a PC compatible version known as the “Series IV”. These two products are referred to collectively as the “CMI Products”. In our view the defined term does not compel the conclusion that the “CMI Products” are branded with the FAIRLIGHT Trade Mark. Contrary to Fairlight’s submission, the identification in (1) of a 30 year anniversary model of the Fairlight CMI does not do so, and nor does the reference in (2) to the “Series IV”.

24    In this context the Background recites that Fairlight will provide PVI with three things (Clause 4): (1) certain hardware and technologies including customised software development for the CMI Products; (2) a licence for the use of the name “Fairlight” for the CMI Products; and (3) supply of core components including sound library.

25    The grant of a licence to use the FAIRLIGHT Trade Mark for the CMI Products in (2) is indicative that the CMI Products are not necessarily to be sold under that name. It indicates that CMI Products may be sold bearing the FAIRLIGHT Trade Mark, but that this is optional. In this context, items (1) and (3) indicate that separately, and in addition to a trade mark licence, the Agreement will involve the supply to PVI of products and technology.

26    Within the “Operative Provisions”, clause 6 requires PVI to pay a total of $200,000 (plus GST) for two things: (1) the development of the customised software for the CMI Products; and (2) the worldwide use of the “Fairlight” name and brand for marketing purposes. It then imposes two limitations upon PVI’s rights so acquired. It cannot sell or transfer the right without Fairlight’s consent (clause 6(3)) and, by clause 6(4):

[Fairlight] reserves the right to withdraw the right for [PVI] to use the Fairlight name and brand, should the name and brand be used in any way which [Fairlight] deem [sic] to be damaging to the Fairlight Brand reputation.

27    The language of clause 6(2) is permissive. PVI is not required to use the FAIRLIGHT Trade Mark on or in relation to the CMI Products, but if it does, then Fairlight may monitor that use and withdraw the licence if the conditions in clause 6(4) are satisfied.

28    The Agreement distinguishes between the legal rights conferred in respect of the software, and those in relation to the hardware.

29    In relation to the software, PVI’s obligation under clause 6(1) is to pay $200,000 for, among other things, the “development of the Fairlight CMI Software” (emphasis added). Similarly, clause 7 refers to the “development project” of clause 6 and (earlier) clause 4(1) refers to the provision by Fairlight to PVI of “customised software development” (emphasis added) for the CMI Products. Later, clause 32 (termination by Fairlight) identifies that the time from which target minimum purchase amounts Fairlight products is to be calculated commence from “completion of the development contract contemplated herein”, which is plainly a reference to the software development component of the Agreement.

30    The payment milestones referred to in clause 7 reflect stages of development of the software that were to be completed by the time of payment of the each instalment, the details of which were agreed by the parties and which were ultimately performed such that, as the primary judge observed, PVI made each of the payments. Clause 13 identifies Fairlight’s obligation to produce a software application emulating the sounds and user interface of the Fairlight CMI. Clause 15(1) relevantly repeats that obligation in respect of the CMI Products. Clause 17 obliges Fairlight to complete the necessary CMI hardware and software within four months from order, “order” being defined as including a signed list of monthly milestones and receipt of the first $50,000.

31    Significantly, clause 20 provides that upon receipt of the final payment of $50,000, Fairlight agrees that the software and its source components developed by Fairlight under the Agreement would transfer to PVI. It further provides that “the exact definition of IP to be transferred will be defined in a separate document”.

32    There was no dispute between the parties that the “transfer” contemplated in clause 20 was of the copyright in the software so developed (Ground 5 of this appeal concerns allegations of copyright infringement and issues pertinent to that ground are discussed in more detail below).

33    Clause 21 provides that “[Fairlight] does not own any of the [PVI] business that commercialises the CMI Products and related products and technology”. When read together with the assignment in clause 20, it is seen that clause 21 contemplates that PVI will be free to utilise the software that Fairlight has developed for it. The language of clause 21 does not circumscribe the use to which PVI may put the software. It does not impose a limitation that such software may only be used in products that utilise the FAIRLIGHT Trade Mark.

34    Clause 22 provides that PVI will “own the Fairlight CMI Software application and all its specific source code including elements of the Crystal Core source code”.

35    In our view, the language of clause 20 makes tolerably clear that the intellectual property rights to be transferred are those that flow from the payment of $200,000. Namely, the software that PVI commissioned Fairlight to develop. The unfulfilled requirement that the “exact” definition of intellectual property to be transferred will be defined in a separate document, does not diminish the clarity of the meaning that is conveyed. To the extent that there is any doubt, the language of clause 22 signifies the parties’ contractual intention that one outcome of the Agreement will be that PVI will end up owning the copyright in the software developed for it upon payment of $200,000.

36    This intention is further reflected in the later clauses of the Agreement under the heading “Sale of CMI Products”.

37    Clause 23 begins by a recital that “… a CC-1 card sold for use in a CMI system cannot run Dream II software without additional licensing”. Clauses 24 and 25 go on to provide:

24.    All licensing will be handled through [Fairlight], with appropriate and timely reporting to [PVI].

25.    [Fairlight] will have the opportunity to purchase Fairlight CMI Software licenses to sell with existing and future [Fairlight] products at a price to be negotiated in the order of AUD $1,500 per license.

38    Clause 28 of the Agreement provides that Fairlight “will also be able to market the CMI Products through its distribution channel” (emphasis added). This indicates that the parties intended that each would provide the other with the opportunity to distribute products that were to arise from the development of the software.

39    The requirements of clauses 24 and 25 signify the contractual intention of both parties that the software produced by Fairlight, as part of the development project, would be owned by PVI.

40    Two matters of present significance emerge from the materials identified above in relation to clauses 20 – 28.

41    First, it is apparent that at the time that the Agreement was entered, the parties contemplated that the entirety of the software created as part of the development project would pass to PVI upon payment of the required $200,000. However, to accommodate Fairlight’s desire to sell product containing the software, PVI agreed to a licence-back arrangement on terms set out in clauses 23 – 25.

42    Secondly, the software assignment and the licence-back arrangement had no necessary connection to the trade mark licence conferred in clause 6 and the withdrawal of that licence had no bearing on the operation of clauses 23 – 25 and 28. This is because the supply of a licence-back by PVI to Fairlight of the software (at a contemplated fee) involved no use by PVI of any licence to use the FAIRLIGHT Trade Mark, as Fairlight itself (as the trade mark owner) was plainly able to use that name as it chose. Similarly, the ability of Fairlight to market the CMI products required no licence on its part to use the FAIRLIGHT Trade Mark. Accordingly, it is difficult to see how the termination of the trade mark licence would affect this aspect of the Agreement.

43    As PVI put it in its submissions on appeal, the Agreement gave PVI the right to earn royalties from the inclusion of the software in Fairlight’s own products.

44    As to the hardware, we have noted above that in clause 4 it was contemplated that Fairlight would provide PVI with certain hardware. That hardware is identified in clause 15(2) and (3) as including the “CC-1” (Crystal Core) card and “SX-8 or similar input/output device”. Clause 26 provides agreed costs for these components (subject to negotiation and based on exchange rates and discount for product volumes) being:

(1)    Package 1 (CC-1, SX-8) AUD $2,542.00

(2)    Package 2 (CC-1, SX-20) AUD $3,977.00

45    The Agreement concludes with a section entitled “Term” which includes the following three clauses of significance:

32.    After one year from signing, this agreement can be terminated on three months written notice by [Fairlight] if [PVI] fails to purchase from [Fairlight] products to a minimum value of $50,000 per annum (calculated annually in arrears, commencing from the date of completion of the development contract contemplated herein).

33.    This agreement can be terminated by [PVI] by giving three months written notice.

34.    Otherwise the agreement is ongoing unless terminated by agreement between the parties.

46    It is notable that clause 32 expressly provides for termination of the Agreement by Fairlight, but on the limited basis that PVI fails to purchase Fairlight “products” to a minimum value of $50,000. The following points may be made about this.

47    The presence of an explicit mechanism for the termination of the Agreement in clauses 32 – 34 militates against an entitlement on the part of Fairlight to terminate the Agreement in the event that the trade mark licence is terminated in accordance with clause 6(4). The right to terminate under clause 32 is limited to the circumstance that PVI fails to purchase the minimum value of hardware “products”, being those items of hardware identified in clause 26. It would be inconsistent with the intention of the parties evinced by clause 32 if the exercise of the termination of licence right in clause 6(4) also necessarily brought the Agreement to an end.

48    By contrast to the limited right of termination provided to Fairlight in clause 32, clause 33 provides PVI with an open right to terminate the Agreement upon the giving of three months’ written notice.

49    We now turn to the grounds of appeal.

Ground 1: Termination of the Agreement

The Submissions

50    PVI submits that the primary judge incorrectly concluded at [76] and [72] that once Fairlight had validly exercised its right to terminate the trade mark licence for the use of the word FAIRLIGHT, the Agreement had no more work to do. PVI submits that such a finding was not available to his Honour, because it ignores the fact that the Agreement was not merely an intellectual property licence, but was concerned more generally with the supply of products to which the licence in clause 6 was merely incidental and not co-terminus. As a consequence, even if the trade mark licence was validly terminated in accordance with clause 6(4), the balance of the Agreement continued to operate, first, because under it Fairlight was required to supply the hardware and software for which PVI had paid, and the Agreement merely restricted PVI from marketing assembled products under the FAIRLIGHT Trade Mark, and secondly, because the Agreement gave PVI the right to earn royalties from the inclusion of the software in Fairlight’s own products; clauses 25 and 28.

51    Fairlight defends the primary judge’s reasoning at [72] and [76], and contends that the Agreement, construed in a commercially common sense way, compels the conclusion that the Agreement was at an end. Fairlight submits that the Agreement should be read as if the reference to “CMI Products” meant “the CMI products branded FAIRLIGHT” and that PVI accepted the risk that if the trade mark licence conferred within clause 6 was terminated, then, subject only to the provision of the software, the Agreement would come to an end. In this context Fairlight draws specific attention to clauses 8 and 9, which refer to the FAIRLIGHT branded product. Fairlight emphasises that the bargain entered by the parties did not involve agreement that PVI would be able to sell non-FAIRLIGHT branded instruments. As a result of the valid termination of the trade mark licence, Fairlight contends that, as his Honour found, the Agreement had no further work to do, because the software had been paid for and delivered to PVI. There was, Fairlight submitted, effectively a termination of the Agreement by discharge.

Consideration of Ground 1

52    The crucial finding was the primary judge’s acceptance at [76] of the following proposition at [72]:

… All of the obligations set out in the Agreement hinged upon the licence to use the Fairlight mark for Fairlight branded instruments. The Agreement was fundamentally based around Fairlight licensing the use of the Fairlight mark to PVI for the purpose of marketing the CMI Products. Once the licence to use the Fairlight mark was withdrawn, there was no continuing obligation on PVI to purchase Fairlight custom components, principally because PVI would no longer be packaging, developing manufacturing and marketing Fairlight branded musical instruments. When the right to use the Fairlight mark was withdrawn the obligation on PVI to sell Fairlight branded products also evaporated. Without the licence, the Agreement came to an end.

53    Examination of the terms of the Agreement indicates that this was not a correct conclusion, in that other rights and obligations were conferred by the Agreement separate to the trade mark licence.

54    The following points lead us to the conclusion that once the licence to use the FAIRLIGHT Trade Mark was terminated, there remained continuing rights and obligations between the parties such that the Agreement did not come to an end.

55    First, we find that the Agreement contained no limitation which prevented the sale of computer musical instruments, components of which were supplied by Fairlight under the Agreement, which were not branded with the FAIRLIGHT Trade Mark. In this respect, we do not accept that the defined term “CMI products” in clause 3 meant “the CMI products branded FAIRLIGHT”. Further, there was no language of limitation on the use of products which are not branded FAIRLIGHT contained in the Agreement. The ability to withdraw the trade mark licence at Fairlight’s will in clause 6(4) protected Fairlight’s commercial interest in maintaining the integrity of its brand. But the terms reflect a wider commercial purpose, beyond a mere trade mark licence. Software was specifically developed for PVI and hardware was to be sold to PVI.

56    Secondly, by virtue of the licence-back arrangement in clauses 23 – 25 and 28, PVI was provided with a right to earn royalties from the inclusion of the software in Fairlight’s own products. This aspect of the Agreement was plainly intended to have operation separate to the trade mark licence.

57    Thirdly, clause 15 imposes an obligation on Fairlight to supply not only the software but also the hardware in the form of the CC-1 card and the SX-8 or similar device upon the placement of an order by PVI. Clause 26 indicates a mechanism for agreed prices for that hardware. The terms of the Agreement do not oblige PVI to use that hardware in FAIRLIGHT branded products. Clause 3 distinguishes between two models of CMI products and collectively names them “CMI Products”. Clauses 8 and 9 identify obligations on the part of PVI to develop, manufacture and market FAIRLIGHT branded instruments, whereas clauses 10 and 11 are not so limited. No clause of the Agreement otherwise confines the use of the hardware to a FAIRLIGHT branded product. The obligation upon Fairlight to supply such products remained ongoing.

58    Fourthly, clauses 32 – 34 provide a comprehensive regime for the termination of the Agreement by each of the parties. The evident contractual intention of clause 32 is that the entitlement of Fairlight to terminate the Agreement after the delivery of the software is confined to the failure on the part of PVI to achieve a minimum sales target of the “CMI Products”, and as a result, a failure to purchase the minimum value of hardware from Fairlight. This regime is inconsistent with the proposition that after the termination in clause 6(4) of the trade mark licence, the Agreement as a whole comes to an end.

59    Fifthly, it is evident from the terms of the Agreement that the bargain between the parties was that PVI would fund the development of the CMI software so that it would be able to produce the computer music instruments in a form that suited it. Having acquired the software, PVI would have a potentially longstanding arrangement to purchase the hardware from Fairlight on a per unit basis, and at an agreed cost. Whilst the production of an anniversary version of the Fairlight’s CMI with FAIRLIGHT Trade Mark branding was one aim of the Agreement, the terms of the Agreement are not consistent with that being the sole objective. Indeed, the payment of $200,000 for the development and assignment of the software would suggest that a broader range of products than the 30th anniversary version was contemplated by both parties. This is reflected by the recital in clause 3.

60    For these reasons we conclude, with respect, that the primary judge’s acceptance at [76] of Fairlight’s submission that the substantive effect of the termination of the trade mark licence was that the Agreement had no more work to do was incorrect. Accordingly, the declaration made in [1] of his Honour’s orders of 17 December 2015 (Orders) should be set aside.

Ground 3: Was Fairlight entitled to terminate the trade mark licence in clause 6?

61    The relevant issue in relation to this ground of appeal is whether the primary judge was correct to conclude that the licence to use the FAIRLIGHT Trade Mark conferred by clause 6 of the Agreement was validly terminated. If it was not, then it would follow that the primary judge’s conclusion at [93], that PVI had infringed the FAIRLIGHT Trade Mark, was incorrect.

62    As noted above, clause 6(4) reserves to Fairlight an entitlement to withdraw the licence for PVI to use the FAIRLIGHT Trade Mark should the name and brand be used in any way which Fairlight deems to be damaging to its brand and reputation. The right to use the FAIRLIGHT Trade Mark conferred in clause 6(2) is for:

Worldwide use of the “Fairlight” name and brand for marketing purposes for the CMI Products…

63    PVI contended that the primary judge’s finding at [37] that the Apps “may have had a marketing utility for the CMI Products” was sufficient to resolve the issue in its favour. The promotion and sale of the Apps was for “marketing purposes”. The licence conferred in clause 6(2) did not require that the use be solely for marketing purposes. It followed that the licence permitted PVI’s conduct.

64    PVI’s argument would lead to the curious result that the sale of products which were not contemplated within the terms of the Agreement would nevertheless fall within the licence granted, apparently on the basis that any promotion or sale under the FAIRLIGHT name can be passed off as being for “marketing purposes”. Such a construction would (as PVI accepted) render nugatory the words “for marketing purposes” and supplant them with “for any purposes”.

65    In our view PVI’s argument should be rejected. A sensible construction of clause 6(2) limits the permission granted by that clause to the use of the trade mark solely for marketing purposes.

66    The primary judge found that the Apps were stand-alone products developed for sale by PVI. They were products to which the FAIRLIGHT Trade Mark had been applied in a manner which his Honour found Fairlight could reasonably conclude was damaging to its brand. His Honour found that the primary purpose of the Apps was to derive revenue from their sales, and the App itself was a product outside the scope of the trade mark licence.

67    In our view this reflects the bargain struck between the parties. We conclude that the appellant has not demonstrated error on the part of the primary judge and this ground of appeal is rejected. As a consequence, no basis has been established to disturb the primary judge’s findings of trade mark infringement by PVI.

Ground 4: Breach by Fairlight

68    The arguments advanced by PVI in relation to Ground 4 were limited to the proposition, set out in the chapeau to Ground 4, that if this Court finds that the Agreement did not come to an end as a result of the termination of the trade mark licence, then by refusing to perform the Agreement after the Termination Letter, Fairlight repudiated the Agreement and was liable to pay damages. Senior counsel for PVI, Mr Green SC, accepted that if this were the case, the appropriate course would be for the matter to be remitted to a primary judge for the assessment of damages.

69    Fairlight opposed this course and contended that in the event that Ground 1 is upheld, this Court should nevertheless decline to remit the matter to a primary judge because insurmountable difficulties are faced by PVI in establishing any causal connection between losses allegedly incurred as a result of the valid termination of the trade mark licence and losses arising as a result of the failure by Fairlight to perform the Agreement after sending the Termination Letter. The remitter would be an exercise in futility.

70    Fairlight validly terminated the trade mark licence. However, PVI’s conduct did not bring the Agreement to an end. Fairlight’s assertion that it did and its refusal to perform the Agreement was a repudiation of the Agreement which, it seems, was accepted by PVI. As we understand it, the hearing before the primary judge was conducted on the basis that this was one of several possible outcomes of the trial. As it happened, given his conclusions, the primary judge did not consider it necessary to determine the question of damages in the light of his findings as to termination. In our view, it would not be convenient or appropriate for an appellate court to review and determine the questions of fact necessary to make an assessment of damages in the present case. It is appropriate for the matter to be remitted to a primary judge to make such determinations as she or he considers appropriate in relation to the question of damages. It may well be that, as Fairlight submits, PVI cannot establish loss. That, however, is a matter properly for a primary judge. We would envisage that as to this issue the judge would proceed on the basis of the evidence as it stands, but out of an abundance of caution, we have reserved a discretion in the primary judge in our order.

Ground 5: Infringement of copyright

71    The primary judge’s reasons at [125] – [137] included the following findings relevant to this ground:

(a)    that the Agreement in clauses 20 and 22 did not operate to convey copyright in the software developed by Fairlight pursuant to the Agreement;

(b)    that no other evidence adduced at trial established PVI’s entitlement to ownership of the software;

(c)    that there was no evidence that Fairlight had, without the licence of PVI, reproduced a substantial part of any copyright work owned by PVI; and

(d)    that PVI had failed to supply any evidence of sales or copying by Fairlight such that it would allow the Court to award damages as a consequence of the alleged infringement.

72    PVI contests each of these findings. A further relevant finding, which PVI does not contest, is that by April 2012, PVI had made all of the payments totalling $200,000 which were required by clauses 6 and 7 of the Agreement.

73    PVI submits that the Agreement sufficiently operated as an assignment of Fairlight’s future copyright, which is permissible pursuant to section 197 of the Copyright Act 1968 (Cth). It submits that evidence of ownership beyond the terms of the Agreement was present in the form of admissions made by the respondent, particularly when read in context with the evidence of the Chief Technical Officer of Fairlight, Mr Fibaek, to the effect first, that the software had been assigned to PVI, and secondly, that this software had been reproduced by Fairlight.

74    Fairlight contended that clauses 20 and 22 of the Agreement were insufficient to convey title to PVI given the second sentence of clause 20 which said “[t]he exact definition of IP to be transferred will be defined in a separate document”. It submitted that the purpose of the “exact definition” was to make clear that generic or third party proprietary software, not written by Fairlight, was to be identified as not included within the assignment. For this purpose a further document was required to complete the terms of the copyright assignment. Fairlight further submitted that the admissions made in the defence to the cross-claim were inadequate to discharge the onus upon PVI to prove either ownership or substantiality of reproduction necessary to establish copyright infringement.

Consideration

75    In our view, this ground of appeal should be upheld.

76    First, as a matter of construction, as we have noted above, there is no doubt that the parties had a clear intention that such software as Fairlight developed for the project was assigned to PVI upon receipt of the final payment of $200,000. That payment was made in April 2012. On a factual level, the need for exact definition arose because certain third party or generic software may have been necessary to complete the project. There is no doubt, as a matter of fact, that whatever third party or generic software was to be excluded from the software assigned was an insignificant aspect of the bargain being struck by the parties. They agreed that all software created by Fairlight for PVI was assigned to it, and the terms of clauses 23 – 25 indicated that the parties were content to nominate a fee for the licence-back (“about $1,500 per license”). In our view the mechanical step of identifying that software did not preclude the completion of the assignment of the software which originally lay in the hands of Fairlight.

77    Secondly, in its cross claim, PVI alleged that Fairlight had sold the software known as the “Sound Design Sampler (SDS)” which included software, the copyright in which had been transferred to PVI pursuant to the Agreement.

78    In [24(c)] of its defence to the cross-claim, Fairlight admitted that:

(i)    Fairlight’s SDS included source code written for the CMI-30A;

(ii)    Fairlight has provided a small number of SDS units and/or licences to third parties.

(iii)    By letter dated 1 June 2012 from… [PVI , it said]:

“We would like [Fairlight] to continue to use our CMI code in their SDS products. This is also mutually beneficial.”

(iv)    In the circumstances set out in the preceding subparagraph, at all relevant times [PVI] knew of and authorised Fairlight’s use and reproduction of CMI source code written for the CMI-30A project in Fairlight’s SDS products;

…

79    The pleading went on to assert that in the circumstances PVI was “estopped and precluded” from saying that its copyright had been infringed, because PVI had authorised that reproduction.

80    Further, the evidence of Mr Fibaek served to clarify that the “small number” of SDS units or licences provided to third parties (referred to in (ii) above) included two licences supplied by Fairlight after April 2012 (being the date upon which the copyright assignment took effect). His evidence confirmed that the Dream II product included the SDS software.

81    Mr Fibaek went on at [12]:

Peter Vogel was aware that Fairlight had incorporated the CMI-30A code in Version 3.2 of Dream II, which incorporation in [sic, is] consistent with clause 25 of the Licence Agreement which provided that Fairlight could purchase CMI-30A software licences from Peter Vogel Instruments for ‘in the order of’ $1500 per licence.

(emphasis added)

82    In our view, these admissions indicate that there was no factual dispute at trial that Fairlight had reproduced the entirety of the CMI-30A software in the SDS product, and that Fairlight accepted that, by virtue of clause 25 of the Agreement (or the later offer by PVI in its letter of 1 June 2012) it was obliged to pay a licence fee in the order of $1,500 in respect of that software.

83    The consequence is that, by virtue of the evidence and admissions that we have identified above, PVI has succeeded in establishing that Fairlight had reproduced the SDS software in the two products identified, thereby infringing that work. Accordingly, in our view Ground 5 is made out.

84    This may be a pyrrhic victory for PVI. It concedes that the quantification of its damages might be as little as $3,000, although it contends that it is also entitled to additional damages.

DISPOSITION

85    We have found that the primary judge was correct to hold that Fairlight was entitled to exercise its right to terminate the trade mark licence under clause 6(4) of the Agreement, but that the consequence of that termination was not that the Agreement otherwise ceased to have effect. To the extent that Fairlight failed or refused to meet its obligations after sending the Termination Letter, PVI may be entitled to damages. Further, we have found that the primary judge erred in finding that the Agreement was ineffective to assign copyright in the software created by Fairlight to PVI. He also erred in failing to find that Fairlight had infringed that copyright by the sale of two CMI-30A products after April 2012.

86    As a consequence of our findings, it is apparent that the appellant has had partial success in its appeal. Subject to the comments that we make below, we consider that the Orders should be set aside and in lieu thereof there should be the following:

THE COURT DECLARES THAT:

1.    The applicant validly withdrew the right for the first respondent to use the FAIRLIGHT name and brand pursuant to clause 6(4) of the Development and Licensing Agreement dated 15 August 2010 between the applicant and the first respondent (the “Agreement”) by notice given to the respondents by letter dated 30 May 2012.

2.    From 1 June 2012, by reason of the withdrawal of the right for the first respondent to use the FAIRLIGHT name and brand, the first respondent did not have and does not have any right, licence or authority to use the FAIRLIGHT name and brand with respect to “CMI Products” as defined in the Agreement (except for those already supplied under the Agreement) or any other products or services or otherwise in the course of business.

3.    The first respondent contravened section 120 of the Trade Marks Act 1995 (Cth) by using the FAIRLIGHT trade mark in the course of trade without the licence or authority of the applicant from about March 2011, with respect to applications for use with or in respect of the iPad and iPhone or similar products and in marketing and selling such applications.

4.    The cross-claimant is the owner of the copyright in the software developed by the first respondent pursuant to the Agreement.

5.    The first cross-respondent has, by the sale of two copies of the Dream II programme to third parties after April 2012, infringed the cross-claimant’s copyright.

THE COURT ORDERS THAT:

6.    The Respondents and each of them, whether by themselves, their servants or agents or howsoever otherwise, are restrained from:

(a)    representing in the course of the First Respondent’s business and in connection with the supply or possible supply of the First Respondent’s goods or services that any such goods or services have the sponsorship or approval of the Applicant and/or from representing that the First Respondent has the sponsorship or approval of or is affiliated with the Applicant in the supply of the First Respondent’s goods or services;

(b)    manufacturing, distributing, offering for sale, supplying, selling or causing to be manufactured, distributed, offered for sale, supplied or sold in Australia any goods or services for which the FAIRLIGHT trade mark is registered unless authorised by the Applicant; and

(c)    using, in the course of trade and commerce, the FAIRLIGHT trade mark without the authority or consent of the Applicant.

7.    The Respondents provide the Applicant with all necessary books, records and other information to enable an independent accountant of the Applicant’s choosing to calculate the profits which should be accounted to it for the First Respondent’s breach of the FAIRLIGHT trade mark and for the First Respondent to account to the Applicant for such profits within 21 days of their calculation.

8.    The Respondents deliver up to the Applicant for destruction all products, materials and documents in the possession custody or control of the Respondents bearing the FAIRLIGHT trade mark or any mark that is substantially identical with or deceptively similar thereto other than CMI Products already supplied under the Agreement.

9.    That the proceeding be remitted to a primary judge for the purpose of determining:

(a)    on the evidence adduced at the trial held in December 2014, and subject only to any order of the primary judge allowing further evidence to be adduced, any damages to which the cross-claimant is entitled for repudiation of the Agreement by the cross-respondent and infringement of copyright;

(b)    taking an account of profits to which the applicant may be entitled for infringement of the FAIRLIGHT trade mark;

(c)    the entitlement of the parties to costs on the claim and cross-claim; and

(d)    the disposition of the proceedings.

87    The relief sought by the appellant in relation to the various orders of the primary judge can be distilled into three issues: (i) the revocation of the trade mark licence (upon which the appellant was unsuccessful), (ii) the copyright infringement (upon which the appellant was successful), and (iii) the repudiation of the Agreement by Fairlight (upon which the appellant was successful, although it may not ultimately be able to prove any damages or profits). The second issue did not occupy much time. The third issue was a major issue on appeal. 

88    Our preliminary view is that the respondents should pay 50% of the appellant’s costs of the appeal. If the parties disagree with this preliminary view concerning the costs of the appeal, they should have an opportunity to address the Court. Accordingly, we direct that the parties confer about whether any submissions will be made and, if so, then within seven (7) days of the date of these orders, the parties file and exchange any necessary submissions of no more than three (3) pages as to their entitlement to costs of the appeal.

APPLICATION FOR LEAVE TO FILE A NOTICE OF CONTENTION

89    During oral argument, senior counsel for Fairlight foreshadowed an application for leave to file a notice of contention and at the conclusion of the hearing, leave was granted for Fairlight to file such an application and for the parties to file submissions.

90    The draft notice of contention is in the following terms:

The primary judge ought to have found that the contract was validly terminated by the First Respondent, in addition to the basis on which the primary judge made that finding, on the basis that the unauthorised use by the Appellant of the Fairlight brand in the Apps was repudiatory conduct, or a renunciation of the contract, entitling the First Respondent to terminate the Agreement.

(The interlocutory application filed was supported by an affidavit of Jennifer Rozea, the solicitor with the conduct of the proceedings on behalf of Fairlight).

91    The application for leave is necessary because of Federal Court Rules 2011 (Cth) (Federal Court Rules) rule 36.24 which provides that if a respondent does not want to cross-appeal from any part of a judgment, but it contends that the judgment should be affirmed on grounds other than those relied on by the Court appealed from, it must, within 21 days after the notice of appeal is served, file a notice of contention. Obviously enough, the notice was not filed within the appropriate time. There is no specific provision for extending the time for filing a notice of contention (unlike the position in relation to a notice of appeal or cross-appeal which rules 36.05 and 36.23 respectively address) and, as PVI correctly points out, any extension of time must be pursuant to the general power in rule 1.39 to extend or shorten a time fixed by the Federal Court Rules.

92    We consider that the grant of an extension will be governed by familiar considerations applicable to discretionary matters concerning case management. Any such assessment necessarily involves many potentially competing considerations in light of the overarching purpose set out in section 37M of the Federal Court of Australia Act 1976 (Cth), being to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The significance of case management principles in determining the outcome of interlocutory applications is now widely accepted; Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at [111] – [114]; Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46; (2013) 250 CLR 303 at [51], [52], [56], [57]; Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 at [45].

93    In considering the current application, the relevant considerations include the delay in bringing forth the notice of contention, the explanation given for the delay and the prejudice likely to be suffered as a consequence of it. A principal consideration to be taken into account is the interest of the proper administration of justice and the need to ensure that a decision has been made in a procedurally fair way and in accordance with law; SZMTJ v Minister for Immigration and Citizenship (No 2) [2009] FCA 486; (2009) 232 FCR 282 at [17] (per Flick J).

94    Taking into account these matters, we are of the view that the application should be refused.

95    It is apparent that Fairlight did not substantially conduct its case below on the basis that PVI had, by selling the Apps, repudiated the Agreement. It appears to be common ground that Fairlight did not raise repudiation in its pleadings. The primary case advanced by Fairlight in its pleadings, at trial, was that by the Termination Letter, Fairlight had validly terminated the trade mark licence pursuant to clause 6(4) of the Agreement.

96    The analysis that the primary judge was required to conduct concerning PVI’s behaviour in selling the Apps was, as noted by his Honour at [73], [74], whether Fairlight was entitled by clause 6(4) to withdraw the licence on the basis of its view of PVI’s conduct. That approach accorded with Fairlight’s pleaded case. The pleaded approach was reinforced on the first day of the trial when Fairlight supplied the primary judge and PVI with a list of issues. Paragraph 6 of that list provided as follows:

Alternatively, of [sic, if] the answer to four is “no” did Fairlight terminate the licence at common law on the basis of:

•    PVI’s breach of a condition or a sufficiently serious intermediate term;

•    PVI’s repudiation of an obligation?

97    In context, the “licence” referred to was the FAIRLIGHT Trade Mark licence, not the “Agreement” (which was referred to in the statement of issues as the “Licence Agreement”). Only in submissions provided by Fairlight at the conclusion of the hearing and after the evidence was concluded was unequivocal reference made to an alternative case being “[w]hether pursuant to clause 6 or by exercise of a common law right the Agreement was lawfully terminated on 30 May 2012” (emphasis added). In these circumstances it is to be doubted that the issue of repudiation of the Agreement was live between the parties at trial; Fairlight made no application to amend its pleading, PVI was represented by a litigant in person (Mr Vogel), and the point was first raised after evidence had closed.

98    On appeal, Fairlight chose to defend the primary judge’s reasons by refuting the arguments raised in the notice of appeal. The current argument sought to be raised was only developed in response to questions from the Court.

99    Fairlight’s explanation for raising the notice of contention now is set out in its submissions:

… due to the brevity of the submissions made by the First Respondent to the primary judge at trial about repudiation, in the morass of documentation, the matter was not the subject of the First Respondent’s focus prior to the issue being raised by Justice Edelman during the course of hearing of this appeal.

100    Fairlight further submits that no substantial injustice would arise because it wishes to rely on the same evidence of wrong-doing by PVI (the unauthorised sale of the Apps), and the primary judge’s findings in relation to that sale at [34], [41], [80], [81] and [93].

101    However, in our view it is of some significance that arguments advanced on appeal should have been advanced clearly at first instance. Normally a party will be bound in a way which its case is conducted at trial. In University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 60 ALR 68 at [7], Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ observed:

It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principles to allow a party, after a case has been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

See also Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7 and Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [37], [38].

102    PVI contends that the argument that Fairlight now seeks to advance was neither pleaded nor the subject of sufficient argument before the primary judge and that allowing Fairlight to articulate it now would prejudice PVI. It is our view that the argument was raised below, but obliquely and only after evidence was complete.

103    In its application for leave, Fairlight relied on the submissions made in oral argument in substantive support of its proposed contention. Senior counsel for Fairlight, Mr Sirtes, put the argument as follows:

… the agreement was specific as to what it entitled the Fairlight name to be married to, and it was very specific in relation to the CMI Products and what they were, and to go into the marketplace with a product that had nothing to do with this agreement, and to market it to the marketplace as a Fairlight branded product, we say, was something that went plainly beyond the very limited terms of this, and we say – we say was repudiatory, or was such a serious matter as to entitle the agreement to be terminated.

104    We have found that PVI`s contention that the primary judge`s conclusion that Fairlight was entitled to terminate the trade mark licence pursuant to clause 6 was erroneous must be rejected. However, we accept PVI`s contention that the primary judge`s conclusion that the withdrawal of the trade mark licence of itself brought the Agreement to an end was erroneous. The contention that Fairlight now wishes to raise, that is, that PVI`s conduct in selling the Apps amounted to repudiatory conduct, requires a different analysis from determining whether the withdrawal of the trade mark licence of itself brought the Agreement to an end or, as the primary judge put it, terminated the Agreement.

105    This is apparent from Fairlight’s reliance on the decision of the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 at [44] (citations omitted):

… The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations. It may be termed renunciation. The test is whether the conduct of the one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.

106    The primary judge did not consider whether or not, on the facts of this case, PVI had, by selling the Apps, renounced the contract within the terms of the authority cited above. Accordingly, we do not accept the seductive submission advanced by Fairlight that the notice of contention can be resolved by having regard purely to existing findings made by the primary judge. Further, in our view it is entirely likely that PVI would have conducted its case differently below, had it been on notice from the outset that Fairlight relied on repudiation of the Agreement, rather than the purported termination of the trade mark licence alone.

107    For these reasons, we are of the view that Fairlight’s interlocutory application should be refused and that Fairlight should pay the costs thereof.

Associate:

Dated:    9 December 2016