CATCHWORDS

COPYRIGHT - groundless threats of action for infringement of copyright - threats conceded to be groundless - proceedings by respondent (the applicant for relief) delayed until proceedings involving the making of similar threats by the appellant to another person concluded - whether damage suffered by respondent flowed from threats or only from other proceedings.

Copyright Act 1968, s.202

Avel Pty Limited v Intercontinental Grain Exports Pty Limited

No. NG600 of 1995

CORAM:    Sheppard, Beazley and Tamberlin JJ

PLACE:    Sydney

DATE:     4 April 1996

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)    No. NG600 of 1995

GENERAL DIVISION                  )

          ON APPEAL FROM THE JUDGMENT OF A JUDGE OF

                      THE FEDERAL COURT

                        BETWEEN:  AVEL PTY LIMITED

                                      Appellant

                        AND:      INTERCONTINENTAL GRAIN

                                  EXPORTS PTY LIMITED

                                      Respondent

                      MINUTES OF ORDER

CORAM:    Sheppard, Beazley and Tamberlin JJ

PLACE:    Sydney

DATE:     4 April 1996

THE COURT ORDERS THAT:

1.   The appeal be dismissed.

2.   The cross-appeal be dismissed.

3.   The appellant pay the respondent's costs of the appeal.

4.   There be no order as to the costs of the cross-appeal.

NOTE:     Settlement and entry of orders is dealt with in

          Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)    No. NG600 of 1995

GENERAL DIVISION                  )

          ON APPEAL FROM THE JUDGMENT OF A JUDGE OF

                      THE FEDERAL COURT

                        BETWEEN:  AVEL PTY LIMITED

                                      Appellant

                        AND:      INTERCONTINENTAL GRAIN

                                  EXPORTS PTY LIMITED

                                      Respondent

CORAM:    Sheppard, Beazley and Tamberlin JJ

PLACE:    Sydney

DATE:     4 April 1996

                    REASONS FOR JUDGMENT

THE COURT:  This appeal raises a question concerning the ambit of the operation of s.202 of the Copyright Act 1968 ("the Act").  Subsections (1) and (2) of s.202 are as follows:

     "(1)Where a person, by means of circulars, advertisements or otherwise, threatens a person with an action or proceeding in respect of an infringement of copyright, then, whether the person making the threats is or is not the owner of the copyright or an exclusive licensee, a person aggrieved may bring an action against the first-mentioned person and may obtain a declaration to the effect that the threats are unjustifiable, and an injunction against the continuance of the threats, and may recover such damages (if any) as he or she has sustained, unless the first-mentioned person satisfies the court that the acts in respect of which the action or proceeding was threatened constituted, or, if done, would constitute, an infringement of copyright.

     (2)  The mere notification of the existence of a copyright does not constitute a threat of an action or proceeding within the meaning of this section."

     The threats in question were contained in two letters written by the appellant's solicitors to Zaccaria Games ("Zaccaria") on 12 January 1988 and Coin Play Sales Pty Ltd ("Coin Play") on 8 February 1988.  The two companies carry on business as retailers of amusement games referred to in the trade as pinball amusement games.  A well-known manufacturer of such games is Williams Electronics Games Inc. of Chicago in the United States of America.  It claims to own the copyright in a number of games.  Prior to the dates of the letters, the respondent had imported certain games manufactured by Williams directly from the United States.  The importation was carried out without the consent of either Williams or the appellant which claimed to be the exclusive licensee of Williams' copyright in a number of games in Australia.  The respondent sold some of the games to retailers including Zaccaria and Coin Play.

     The letter written to Zaccaria by the appellant's solicitors was, so far as relevant as follows:

     "We act for Avel Pty. Limited which trades as Leisure and Allied Industries.

     Our client is the exclusive distributor in Australia of various pinball amusement games, designed and manufactured by Williams Electronics Games Inc., and known as 'Pinbot', 'Road Kings', and 'Comet'.  As such our client has the exclusive right within Australia to import, advertise and sell the games.

     It has come to our client's attention that you have on display at your premises for sales purposes the following games:-

          Williams Pinbot - serial number 54012773

          Williams Road Kings - serial number 54249970

          Williams Road Kings - serial number 54247880

          Williams Comet - serial number 54068431.

     Pursuant to the provisions of the Copyright Act 1968 Williams is the copyright owner of, inter alia, the computer software incorporated in the games and the artistic works contained in the games.  Our client is entitled to protect that copyright within Australia.

     We are further instructed that the abovementioned games, offered by you for sale, were not imported into Australia with the consent of Williams or our client.  It is our view that, your actions in proceeding to advertise and offer for sale the games, constitutes an infringement of both our clients' rights and also the rights of Williams in the games."

     Undertakings were requested which included an undertaking that the games be withdrawn from sale and delivered up to the appellant.  Zaccaria was asked to provide details of the names of persons who had purchased the games.  In response to the letter Zaccaria wrote to the respondent on 18 January 1988 saying that it regretted that certain Williams pinball machines which it had agreed to purchase in December 1987 would have to be returned.  The machines were identified.  It was said that the company was unaware that any breach of the law was involved.  The arrangements made with the respondent to purchase the games were cancelled "due to the pending Legal proceedings being commenced against our Company."

     The second letter was in similar terms but referred to the provisions of the Act in more detail.  It set out the terms of ss. 37 and 38 which deal respectively with infringement by importation for sale or hire and infringement by sale including the sale of an imported article.  As in the case of Zaccaria, the games sold to Coin Play were returned to the respondent.

     The appellant submitted that the threatening letters from the appellant to Zaccaria and Coin Play did not refer to all of the machines that were returned by those companies and did not justify the return of all the machines.  However, on a fair reading of those letters, the companies did not act unreasonably in deciding to return all the machines in their possession, and to order no more until the question of infringement was resolved.  From a practical view point, the decision to return the machines and not to order any further machines pending resolution of the dispute, was reasonable having regard to the nature and extent of the threat as it was likely to have reasonably been understood by those in the business of supplying the machines.

     At about this time Mr Cowan, who was the managing director of the respondent and also the first applicant at first instance, was informed by a company, Multicoin Amusements Pty Ltd, that it was in dispute with the appellant and had retained a solicitor.  It should be mentioned that the proceedings brought by Mr Cowan were dismissed.  He has not been joined as a party to this appeal.

     Mr Cowan was asked whether he wished to contribute to the cost.  After the opinion was obtained, although Mr Cowan said that he was anxious to join in any litigation, he had decided, after legal advice, to await the outcome of the litigation before proceeding with his own matter.  He kept in contact by telephone and by letters with Multicoin's solicitor and was regularly informed by him that the appellant was maintaining that it had the exclusive right to the games. 

     The Multicoin proceedings were commenced in the Supreme Court of Queensland pursuant to the provisions of s.202 of the Act on 22 June 1988.  The appellant counter-claimed for threatened infringement of copyright.  The appellant was successful in that Court in both its defence and on its counter-claim for threatened infringement of copyright.  On 20 December 1989 the Full Court of this Court (Lockhart, Wilcox and Spender JJ) allowed an appeal from the judgment of the Supreme Court ((1990) AIPC ¶90-646).  The orders made by the Supreme Court were set aside.  A declaration was made that the conduct of the appellant in threatening the plaintiffs in the action in the Supreme Court, i.e. Multicoin, with an action in respect of an infringement of copyright was unjustifiable.  The appellant was restrained from renewing or repeating any threat to institute an action or proceeding against Multicoin in respect of an infringement of copyright concerning used Williams pinball machines.  Judgments were ordered to be entered in favour of Multicoin for damages.  Essentially it was decided that the appellant was not the exclusive licensee of Williams and therefore had no standing to bring an action for infringement of copyright; see ss.115 and 119 of the Act and also the definition of "exclusive licensee" in s.10 thereof.  The Full Court ordered that the counter-claim be dismissed.  The appellant appealed to the High Court but the appeal was, by majority, dismissed; see Avel Pty Limited v Multicoin Amusements Pty Limited (1990) 171 CLR 88.   The judgment of the High Court was given in December 1990 so that the threat made by the appellant and the litigation involving Multicoin extended for a period of over three years commencing in or about December 1987 and concluding at the end of 1990.

     This appeal is brought from the judgment of a judge of this Court (Wilcox J).  Before him the appellant admitted liability so that the only question for his Honour was the amount of the damages to which the respondent was entitled.  His Honour ordered that judgment be entered in favour of the respondent in the sum of $335,033.  The amount was made up as follows:

     In his concluding remarks, his Honour said:

     "Consistently with his submissions in relation to the October 1987 shipment, Mr Cashion [then of counsel for the appellant] submits that the respondent's threats did not affect the later importation of used Williams' machines other than the four models referred to in the letters [the letters of 12 January 1988 and 8 February 1988 earlier referred to].  As with the October 1987 shipment, however, I think the market was not so discriminating as that.  I accept Mr Cowan's evidence that, from a practical point of view, it was likely to prove impossible to trade profitably in Williams' machines until the termination of the Multicoin litigation.  I also accept Mr Cowan's evidence that, absent the threats and litigation, he would have imported further Williams' machines in the period 1988-1990.  There is independent evidence that during this period, used Williams' machines were both available from America and in demand in Australia."

     His Honour assessed damages for lost future consignments on the basis that one container load of machines would have been imported towards the end of each of the years 1988, 1989 and 1990 in time for the Christmas holiday trading period.  He accepted a gross profit of $50,978 per shipment.  He allowed interest at 15 per cent per annum on the 1988 shipment for three years and nine months, interest on the 1989 shipment for two years and nine months and interest on the 1990 shipment for one year and nine months.  The appellant complains that the award of damages is far too high.  It also seeks a reduction of the amount awarded for interest.  By its cross-appeal, the respondent seeks an increased award for interest to take into account the period from 1 July 1993 to 27 July 1995, the date of his Honour's judgment.  Wilcox J had stopped interest running on 30 June 1993 because he thought that the respondent had been slow in prosecuting the proceedings.

     The principal submissions made by counsel on behalf of the appellant were:-

     (a)  upon the proper construction of s.202 of the Act a person aggrieved is only entitled to recover damages sustained by him as a consequence of the unjustifiable threat the subject of the proceedings;

     (b)  the primary judge failed to limit the damages award to those losses caused by the demands to Zaccaria and Coin Play;

     (c)  instead he wrongly calculated the damages award as the amount of losses purportedly sustained by the respondent by the pendency of an unrelated set of proceedings in which the appellant was not a party, referred to in the submissions as "the Multicoin proceedings"; and

     (d)  the damages which were sustained by the respondent as a consequence of the two demands as distinct from the Multicoin proceedings were a proportion of its loss on the 1987 shipment.

     Counsel for the appellant also submitted that the primary judge erred in making a number of findings of fact which flowed from the primary error regarding the role of the Multicoin proceedings and further, that there was an error in determining the period in respect of which interest ought to be paid on the damages.

     As earlier remarked, the submissions raise questions concerning the ambit of the operation of s.202.  The grounds of appeal involve questions of law and questions of fact.  At the heart of the matter is a question of causation.

     In order to deal with these submissions, which are resisted by counsel for the respondent, it is necessary to say a little concerning the background of s.202.  As Professor Ricketson in his work, The Law of Intellectual Property, 1984, remarked (para. [2.33] at 32), given the high cost of defending an action for infringement of an intellectual property right, the owner of such a right will frequently be able to deter an actual or potential infringer by a simple threat of infringement proceedings.  Such a threat, however, may also have the same effect on a person whose activities do not infringe, but who is unprepared to face the costs and time involved in establishing this.  As a result, a threat of an infringement action may enable the owner of an intellectual property right to frighten away competitors or to damage such persons less directly by threatening to sue their customers or suppliers.  This potential for abuse has been recognised for a long time in patents, trade marks and copyright legislation.  Currently, reference may be made to s.128 of the Patents Act 1990 (see formerly s.121 of the Patents Act 1952), s.124 of the Trade Marks Act 1955 (see now s.129 of the Trade Marks Act 1995, not yet in force) and, of course, s.202 of the Act here in question.  It would appear that the earliest of the provisions was enacted in legislation relating to patents.  The earliest English Act was the Act of 1883 referred to in Terrell on the Law of Patents, 14th ed. (1994), in para. 11.01 et seq at 349.  The current English provision is s.70 of the Patents Act 1977 (UK).  In some cases it will be difficult to determine whether or not the conduct of a defendant amounts to a threat.  In Challender v Royal (1887) 4 RPC 363 Bowen LJ said (at 375):

     "Everybody, it seems to me, has still a right to issue a general warning to pirates not to pirate, and to infringers not to infringe, and to warn the public that the patent to which the patentee is entitled, and under which he claims, is one which he intends to enforce.

     But my language must not be misunderstood on this point.  It does not follow that because a threat is so worded as in mere language apparently and grammatically to apply only to the future that, therefore, it may not be in any particular case in substance, and, in fact, applicable to what has been done.  Supposing, for a moment, that a manufacturer is making and issuing machines which the patentee considers to be infringements of his patent; if with reference to that act done, or to those machines made, the patentee endeavours to guard himself against this section by merely issuing a threat in the air, it seems to me he would not escape if the true gist of what he has done is to apply that threat to a particular person and to a particular act."

     In Skinner & Co v Perry (1893) 10 RPC 1 at 8, Bowen LJ said:

     "The legislature desires that threats of patent action shall not hang over a man's head; that the sword of Damocles, in such a case, should either not be suspended or should fall at once..."

     In the Avel case in the High Court, Dawson J referred to s.121 of the Patents Act 1952.  He adopted what had been said by von Doussa J in Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443 at 448 namely:

     "Section 121 provides the statutory machinery to enable the party threatened to bring down the sword.  The provisions of s.121 give no right to a patentee to make a threat.  The purpose of the section, on the contrary, is to provide a statutory remedy for a person against whom a threat is made by a patentee who embarks on 'self help' measures instead of enforcing his claimed monopoly by instituting proceedings for infringement."

     Because of the admission of liability made by the appellant, we are not, in this case, concerned with the question of what will and what will not amount to a threat for the purposes of the section.  The two letters are to be regarded as threats falling within s.202 of the Act.  Plainly enough, when one comes to the question of damages, damages will not be recoverable unless they flow from the threats.

     The difficulty in this case is to place the litigation to which the respondent was not a party in its proper place in the context of all that occurred in the relevant period.  The essential difference between the parties is in relation to that matter.  On the one hand, counsel for the appellant seeks to attribute the greater part of the respondent's damage to the existence of the litigation and a comparatively minor part to the threats contained in the two letters.  Counsel for the respondent, on the other hand, submits that the Multicoin proceedings were "only a reflection of yet another facet of the challenge by the appellant to the sale by others of used Williams' pinball machines."  Counsel referred to a portion of the passage earlier quoted from his Honour's judgment in which he said that he accepted Mr Cowan's evidence that, from a practical point of view, it was likely to prove impossible to trade profitably in Williams' machines until the termination of the Multicoin litigation.

     A statement made by Mr Cowan in one of his affidavits that there was uncertainty in the market place generally as to the position in terms of used Williams' pinball games was rejected but he was permitted to say that he deliberately waited until the conclusion of the proceedings to review his position in terms of the importation of used pinball games.  He said that he had not imported other games during the period because they were of "grossly inferior quality".  Furthermore, he would have been competing with Williams' games, "acknowledged as the best available at the time".  He said that the conclusion of the proceedings failed to clarify the matter in the market place.  This was apparently because, after the termination of the litigation, the appellant claimed that it had overcome the problem which emerged in the litigation and was in fact then the exclusive licensee of the copyright in Australia.  In the course of Mr Cowan's re-examination he gave the following evidence:

     "In relation to the period from 1992 to the present day I think your evidence was that you had not imported any used pin-ball machines made by Williams?---Correct.........  There was still doubt then - there is still doubt there whether you could.  I mean, the damage was done back in 88 and Zaccaria wouldn't touch them and even Coin Play and most of the - there's a reluctance and I wasn't going to take a business decision to bring in machines that would get confiscated or possibility of threats again."

     His Honour accepted Mr Cowan's evidence.  The effect of it was to relate the whole problem back to the threats contained in the two letters written in 1988.

     One matter relied upon by counsel for the respondent which should be mentioned is the failure of the then counsel for the appellant to cross-examine two witnesses called on behalf of the respondent, Mr Tester and Mr Patan as to the effect on them of the threats made to the respondent.  Mr Tester was the manager of Zaccaria Games in 1988.  He said that he had no further dealings with Mr Cowan after the return of the machines consequent upon the letter written in 1988.  He said that he was not interested in purchasing any further machines whilst there existed allegations that Mr Cowan was not entitled to sell the pinball machines.  Later he said that he left the employ of Zaccaria Games at the end of 1988.  However, he continued to have contact with the industry in his capacity as Chairman of the New South Wales Amusement Machine Operators Association.  He said that the market levelled out "slightly" in 1989 and 1990 and that Zaccaria Games would have continued to acquire used Williams' pinball games from the respondent but he was unable to say how many.  He added that the sources from which used Williams' games could be acquired during the period were "very restrictive."  Apart from the respondent there was only the appellant.  He said, "The threats made by and on behalf of Avel Pty Limited at the time effectively limited those sources."

     Mr Patan was the general manager of Coin Play Sales Pty Ltd.  He said that he became aware, after learning of the letter of 8 February 1988, "both directly and through the industry", of certain pending litigation in Queensland involving the appellant and Multicoin Amusements Pty Ltd.  He said that during the period Coin Play chose not to purchase any such games.  He added that, "even today there is still a degree of uncertainty with regard to the status of those used pinball games."  He said that had there been no such dispute, Coin Play would have continued to deal with and acquire used Williams' games from Mr Cowan.

     The evidence of both Mr Tester and Mr Patan was unchallenged in any material respect.

     Another factor which we think should be given weight is that the Multicoin proceedings were commenced by Multicoin and not by the appellant.  They, like these proceedings, were proceedings under s.202 of the Act.  They were not primarily proceedings in which the appellant sought to obtain relief for threatened infringement of the Williams' copyright of which it claimed to be the exclusive licensee in Australia.  It is true that it sought to maintain that position in the counter-claim which it brought and which failed.  But throughout it acted defensively allowing a situation to develop in which Multicoin sought damages for groundless threats of legal proceedings and it was successful in obtaining damages following the appeal to the Full Federal Court, see Multicoin Amusements Pty Limited v Avel Pty Limited (1990) AIPR ¶90-646.

     Ultimately the question to be decided is a question of fact.  His Honour had the evidence to which we have referred and a good deal more.  He analysed the evidence carefully.  His judgment does not disclose any error of principle.  He was well aware of the need to ensure that any damages which were awarded were damages which flowed from the threats which were made and not from any extraneous cause.  We agree with the submission made by counsel on behalf of the respondent, that the proceedings were but an aspect of a course of conduct engaged in by the appellant in relation to sales of Williams' games by persons other than the appellant.  It stands to reason that threats against others would tend to increase the effect of threats against particular parties.  The making of numerous threats against numbers of persons in the trade would have a greater effect than the making of threats against only one or two of them.  The course of conduct embarked upon by the appellant seems likely to have been deliberately intended to bring about a situation in which all trade in Williams' machines by persons other than the appellant itself would be brought to a halt and this without resort to the Court at all.  This is the very matter which s.202 of the Act is designed to remedy.  Its purpose is to discourage persons taking the law into their own hands and to encourage them to refer matters to the Courts.  The appellant did not do this.  It brought its counter-claim for threatened infringement only when it was sued.

     It would be a curious result if the appellant were allowed a reduction of damages otherwise payable to the respondent as the result of litigation initiated against it by Multicoin.  That litigation arose from unjustified threats concerning the same machines.  These proceedings were successful and damages were awarded to Multicoin.  To reduce the respondent's damages as a result of the Multicoin proceedings would in effect be to confer an advantage by sidewind on the appellant as a result of its unjustified threats to Multicoin.

     We think it is impossible to unravel the events of the relevant period by singling out the proceedings as one cause of the respondent's loss and the letters as another.  We think that to attempt to do so is an exercise in unreality.  The respondent's customers were threatened and that in itself had an effect on the respondent's business.  That effect was magnified by other similar threats made by the appellant.  The fact that the respondent's loss stemmed from the entirety of this state of affairs is no reason to deny it adequate compensation for a loss which was brought about by a calculated course of conduct on the part of the appellant.  Subject to the matter of interest, we would therefore dismiss the appeal.

     That leaves the question of interest.  The parties are in difference about the award of interest in relation to the period for which it was awarded.  The appellant contends that his Honour's discretion miscarried because he allowed interest from about the time of the letters until 1993.  This was notwithstanding the fact that the respondent had not commenced proceedings until 1991 after the decision of the High Court in the Multicoin proceedings was known and three years after the threatening letters were sent.  We do not consider that the respondent acted at all unreasonably in awaiting the outcome of the litigation.  Indeed we cannot see what point there would have been in it commencing an action until it knew the outcome.  To have done so would have unnecessarily proliferated litigation about similar matters.  Courts before which such litigation came would almost certainly have adjourned it until the Multicoin proceedings were concluded.  The position would have been no different from what it in fact was.  We would therefore reject the appellant's submissions on this aspect of this case.

     The respondent contends that his Honour was in error in cutting off interest in 1993.  Instead, so the respondent submits, he should have allowed interest for the period up to the date of his judgment in 1995.  The respondent complains that his Honour did not give it an opportunity of being heard on the matter and contends that, if his Honour had, it would have led evidence to explain the delay which occurred between the institution of the proceedings and their conclusion some four years later.  We see the force of this but his Honour was seized of the whole of the facts and circumstances of the case.  Having reflected on the matter, we do not consider that any miscarriage of his Honour's discretion is established.  We would therefore dismiss the respondent's cross appeal.

     The costs of the appeal should be paid by the appellant.  The hearing was not materially lengthened by the respondent's cross appeal.  We think the appropriate order in relation to it is that there be no costs of it.  In the result the appeal is dismissed with costs.  The cross appeal is dismissed.  We make no order as to the costs of it.

     I certify that this and the eighteen (18) preceding pages are a true copy of the reasons for judgment herein of the Court.

     Associate

     Dated:  4 April 1996

                         APPEARANCES

Counsel for the Appellant:        Mr T.K. Tobin QC

                                  Mr R.J. Webb

Solicitors for the Appellant:         Kemp Strang & Chippindall

Counsel for the Respondent:       Mr C.J. Stevens QC

                                  Mr P.T. Taylor

Solicitors for the Respondent:    Rockcliffs

Date of Hearing:                  14 February 1996

Place of Hearing:                 Sydney

Date of Judgment:                 4 April 1996