Federal Court of Australia

Shepparton Partners Collective Operations Pty Ltd v QAD Inc [2021] FCAFC 206

Appeal from:

QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615

File number(s):

NSD 701 of 2021

Judgment of:

GREENWOOD, JAGOT AND ROFE JJ

Date of judgment:

19 November 2021

Catchwords:

INTELLECTUAL PROPERTY copyright infringement — compensatory damages —additional damages — appeal dismissed

Legislation:

Copyright Act 1968 (Cth) ss 115(2), 115(4)

Cases cited:

QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615; (2021) 159 IPR 285

Division:

General Division

Registry:

New South Wales

National Practice Area:

Intellectual Property

Sub-area:

Copyright and Industrial Designs

Number of paragraphs:

26

Date of hearing:

15 November 2021

Counsel for the Appellant:

Mr D Weinberger

Solicitor for the Appellant:

Chedid Storey Legal

Counsel for the First, Second and Third Respondents:

Mr P Flynn SC with Mr D Larish

Solicitor for the First, Second and Third Respondents:

King & Wood Mallesons

ORDERS

NSD 701 of 2021

BETWEEN:

SHEPPARTON PARTNERS COLLECTIVE OPERATIONS PTY LTD

Appellant

AND:

QAD INC

First Respondent

QAD EUROPE (IRELAND) LTD

Second Respondent

QAD AUSTRALIA PTY LIMITED

Third Respondent

order made by:

GREENWOOD, JAGOT AND ROFE JJ

DATE OF ORDER:

19 NOVEMBER 2021

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The respondents file and serve a proposed costs order accompanied by any affidavits (if necessary) and a written submission not exceeding 3 pages (excluding any attached evidence which is unnecessary to be annexed to an affidavit, such as an offer of compromise or the like) in support within 5 business days.

3.    The appellant either file and serve any proposed costs order in response along with any affidavits (if necessary) and a written submission not exceeding 3 pages (excluding any attached evidence which is unnecessary to be annexed to an affidavit, such as an offer of compromise or the like) in support or a notice that it does not dispute the costs order sought by the respondents within a further 5 business days thereafter.

4.    The respondents file and serve any affidavits and a written submission not exceeding 2 pages in reply within a further 3 business days thereafter.

5.    The issue of costs be determined on the papers.

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

        

REASONS FOR JUDGMENT

THE COURT:

1    This is an appeal against damages.

2    The appeal should be dismissed.

3    The primary judge held that the appellant, Shepparton Partners Collective Operations Pty Ltd (SPC), infringed copyright in the software of the respondents (QAD): QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615; (2021) 159 IPR 285 (referred to below as J) at [123].

4    In respect of compensatory damages under s 115(2) of the Copyright Act 1968 (Cth), the primary held at J [140] that:

…the appropriate amount for damages is $602,208 (excluding GST), or $662,428.80 (including GST), being the amount SPC would have paid to secure a transfer of the licence, together with a year’s maintenance feeI have considered whether QAD would have agreed to transfer the licence for the amount of only $424,392 (excluding GST) and not required payment of a maintenance fee if SPC had negotiated along those lines. I do not think it would have.

5    At J [167]-[169], in assessing additional damages under s 115(4) of the Copyright Act, the primary judge said:

[167]    I accept that a substantial award is appropriate by way of additional damages. The two most significant considerations are the flagrancy of the infringement and considerations of specific and general deterrence. I have taken into account the other matters referred to, but as less significant factors. I accept that there is a connection between the award of compensatory damages and additional damages which should be taken into account.

[169]    Having regard to the matters referred to above, particularly:

(1) the flagrancy of the infringements, the continuing nature of them notwithstanding the commencement of proceedings and the fact that the infringements continued throughout the conduct of the proceedings, during the hearing and after the hearing; and

(2) the need for deterrence,

I consider the appropriate award of additional damages to be $500,000.

6    SPC contends that the primary judge erred in assessing compensatory damages on the basis that the maintenance fee of $177,816 (excluding GST) was not a reasonably foreseeable component of QAD’s loss and thus should not have been included as part of QAD’s loss. SPC also contends that the amount of $177,816 (excluding GST) represents a gross sum when, consistent with principle, compensatory damages are awarded on a net profit basis only (that is, direct and indirect costs of QAD in providing the maintenance service had to be proved by QAD and reduced from its claim). SPC contends that if either of these propositions is correct, then there also should be a pro rata or some other reduction in additional damages because the primary judge said at J [167] that there was a connection between the award of compensatory damages and additional damages that should be taken into account. On this basis, according to SPC, it stands to reason that, without the inclusion of the maintenance fee of $177,816 (excluding GST) or if some lesser maintenance fee only had been included, the additional damages would have been less than $500,000.

7    SPC’s challenge to the inclusion of the full amount of $177,816 (excluding GST) should not be permitted to be raised on appeal.

8    Before the primary judge QAD claimed compensatory damages of $984,059.12, which was QAD’s list price for the infringed software: J [134].

9    SPC submitted to the primary judge that it could not be inferred that SPC would have paid the list price. SPC said:

ultimately we say that the amount of 984,000 in general damage doesn’t represent the damage and the more appropriate way is through the proper counterfactual is the one that your Honour I think was putting to Mr Flynn where the counterparty is not infringing by the – the proper counter fact is that the counterparty is not infringing by accepting the offer.

That would have avoided infringement. That is to say it cannot be that Mr Rifai in any sensible counterfactual would be willing to pay 900,000 but not the 450. And it’s what a reasonable – the – the parties acting reasonably would have done in the position and we say that the proper counterfactual is the one that your Honour put …to Mr Flynn. Not one that would have involved further disputation, but one that would have rationally avoided the infringement. And that was the – that’s the proper measure being the measure that was being proposed both in June and July.

10    The “proper counter-factual” that the primary judge put to Mr Flynn SC, QAD’s senior counsel, was that SPC would have accepted the offer made by QAD on 21 June 2019, recorded at J [20]. The offer included the following condition:

1.    [SPC] shall deliver its irrevocable purchase order for a transfer fee in the amount of AUD 424,392 (excluding GST), together with a maintenance fee in the amount of AUD 177,816 (excluding GST) for the year starting July 1 2019, all as detailed in the attached quote. The maintenance fee includes a credit for one month of maintenance prepaid by [SaleCo 2] for the year ending July 31 2019. These fees shall be paid within 30 days of QAD’s invoice.

11    SPC contends that this is irrelevant as its submission does not reflect the value of QAD’s loss which is to be compensated by the award of damages under s 115(2). This contention is no answer to the problem. Having submitted to the primary judge that the “proper counter-factual” was not SPC accepting QAD’s list price of $984,000, but SPC accepting the offer of 21 June 2019 (a total of $602,208 (excluding GST) or $662,428.80 (including GST)), it is not now open to SPC on appeal to contend that the primary judge erred in accepting SPC’s case. In a case involving an evaluative assessment such as an award of damages, a party cannot be permitted in an appeal to assert error on the part of a primary judge who has accepted that party’s case. To do so involves an impermissible form of approbation and reprobation, inconsistent with the fundamental principle of the finality of litigation including that a party is bound by its conduct of a case at first instance.

12    It is also clear that in submitting that the proper counter-factual was the offer of 21 June 2019, then senior counsel for SPC was identifying a sum which it would have paid to avoid the infringement. That sum was a total of $602,208 (excluding GST) or $662,428.80 (including GST). While the offer was framed as a total comprising two components, a transfer fee together with a maintenance fee, SPC’s point was that it had to be inferred that, but for the infringement, SPC would have accepted that offer – being the total of $602,208 (excluding GST) or $662,428.80 (including GST). This reinforces the point that for SPC now to allege error on the part of the primary judge for accepting its submission is impermissible.

13    The principle that a party is bound by its conduct of a case at first instance does not yield merely because SPC characterises the issue as one of law not able to be met by QAD calling evidence. The reality is that in answer to QAD’s claim for compensatory damages in the sum of $984,000, SPC contended to the primary judge that the damages should be $602,208 (excluding GST) or $662,428.80 (including GST). SPC having done so, and the primary judge having accepted that submission, there is simply no error capable of being corrected on appeal.

14    Further, the submission which SPC made to the primary judge involved a concession that the proper assessment of compensatory damages was $662,428.80 (including GST). That concession having been made, there is no scope on appeal for SPC to assert either that QAD did not prove its loss or that the total amount has to be reduced to reflect the costs QAD would have incurred in providing the maintenance services. Before that could be entertained, SPC would have to apply to withdraw the concession it made below, but has not done so. There is no reason why an application to withdraw the concession would be entertained. SPC was represented below by senior and junior counsel. The concession was put by way of answer to QAD’s claim for $984,000 in compensatory damages. Accordingly, the submission including the concession represents a forensic decision SPC made in the conduct of the hearing below. The fact that the concession was in closing submissions and that QAD does not suggest that it would have called other evidence below in response does not mean that SPC should be permitted to raise the issue on appeal. SPC should not be permitted to take one tactical approach to damages before the primary judge and, having succeeded, another before the appellate court to further chip away at the total award.

15    Even if SPC was permitted to raise its new points on appeal, we would reject them.

16    The concession has not been withdrawn. The concession was able to be relied upon by the primary judge as evidence of the value of QAD’s loss being the total sum of $662,428.80 (including GST). Reliance on a clear concession as obviating the need for other proof involves no error.

17    In any event, the offer of 21 June 2019, properly construed, was evidence of the total sum that QAD would accept in return for the hypothesised license that SPC submitted would avoid the infringement. The fact that the offer involves a total comprising two components, one of which is characterised in the offer as a fee for service, is immaterial. SPC did not accept that offer. But the hypothetical avoidance of infringement would have involved SPC in paying the total amount. In the hypothesised circumstances, where SPC did not accept the offer, it was not necessary for the primary judge to have inferred or, more accurately, speculated that QAD would have incurred a material hypothetical cost in providing the maintenance services and to have made an arbitrary deduction to reflect that cost. The primary judge did not err in not doing so.

18    The argument that the maintenance fee was not a head of loss reasonably foreseeable by SPC is immaterial if, as we consider, SPC’s submission to the primary judge is a concession of the value of QAD’s loss being the total sum of $662,428.80 (including GST).

19    Further, if we were called upon to decide the issue, we would not make any deduction for the hypothetical cost of QAD providing the maintenance services.

20    First, all of the reasons already given expose the inequity that would be involved in permitting SPC to allege error by the primary judge accepting SPC’s case on damages below.

21    Second, to the extent that reasonable foreseeability of a head of loss might be relevant to damages under s 115(2) of the Copyright Act (and we do not say it is), SPC in particular could have reasonably foreseen that the maintenance fee would be part of QAD’s damages, as the vendor of the SPC business had an existing licence with QAD that included a maintenance fee, as disclosed at J [5]. It is not to the point that QAD did not require every licensee to accept a maintenance service at a fee. If the issue is one of reasonable foreseeability, as SPC contends, then SPC knew about the existing licence and therefore must have been able to reasonably foresee at least a real possibility that it too would be required to pay the fee for the maintenance service to be able to use the software. That is sufficient to satisfy any requirement of reasonable foreseeability of the kind of loss in issue.

22    Third, QAD is correct that the evidence about the nature of the maintenance service and QAD’s business would support an inference that those services were able to be provided at no or negligible marginal cost to QAD. QAD was a large entity with multiple customers. The maintenance service was available to all customers. The service was confined in its scope (customers could notify incidents and be provided with support, use a self-service function through information provided by QAD, and would obtain new releases and updates of the software). It would not be inferred that there was any material marginal cost to QAD in providing the service to SPC.

23    SPC’s submissions in the appeal fail to confront all of these considerations.

24    SPC’s challenge to the primary judge’s award of additional damages depends on it succeeding in one or both aspects of its challenge to compensatory damages. If SPC had succeeded in one or both of its challenges to compensatory damages, we would still have rejected its appeal in respect of additional damages. As QAD contends, the primary judge did not suggest at J [167] that the connection between compensatory and additional damages was quantifiable or proportional. As a result, the fact that the primary judge acknowledges such a connection does not mean that if the compensatory damages were reduced, the additional damages also necessarily had to be reduced. Further, the primary judge said at J [169] that the “appropriate award of additional damages is $500,000. It is not possible to identify any particular part or proportion of that award as reflecting the connection between compensatory and additional damages.

25    The evaluation of additional damages involves a broad-brush evaluative process. It is not an arithmetical exercise. It is not capable of disaggregation. If an error of principle has been made, the result if not necessarily the reduction of the amount of additional damages awarded by the primary judge. This is because it is impossible to know what amount of additional damages the primary judge would have imposed if the error had not been made. If we had reduced the compensatory damages, no error of principle would have been exposed in the primary judge’s assessment of additional damages merely because his Honour acknowledged a connection between compensatory and additional damages. If such an error of principle had been exposed, we would have had to assess additional damages for ourselves.

26    For these reasons, the appeal must be dismissed. QAD requested an opportunity to be heard in respect of costs, which we will provide.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Greenwood, Jagot and Rofe.

Associate:

Dated:    19 November 2021