FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - misuse of market power - identification of the relevant market - whether respondents have a substantial degree of power in that market - whether conduct by the respondents represents an exercise of market power for a proscribed purpose

TRADE PRACTICES - restrictive trade practices - contracts, arrangements or understandings - whether provisions of a licence agreement likely to have the effect of substantially lessening competition - whether provisions of the licence agreement were exclusionary provisions

Trade Practices Act 1974 (Cth), ss 45(2)(b), 46, 52, 53(g), 75B, 82(2), 87(1CA)(b), 4E, 4D

IAN DAVID MORWOOD, COMPUTERAD AUSTRALIA PTY LIMITED (FORMERLY COMPUTERAD PTY LIMITED) v CHEMDATA PTY LIMITED, AMFAC PTY LIMITED, IMS AUSTRALIA PTY LIMITED, EDWARD LLEWELLYN CROOK, COLIN RAYMOND TRAVENA, JOHN MICHAEL GREEN, PHILIP THOMSON, BRUCE MICHAEL McCONOCHIE, JAMES SUTTON HARRISON SNR, GWENDA MARY HARRISON, GRAEME PAUL HARRISON, ROBERT STANLEY RICHARDS, THE DUN AND BRADSTREET CORPORATION

NG 731 of 1994

LOCKHART J

SYDNEY

12 MARCH 1998

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.         The application be dismissed.

2.         The applicants pay the costs of the respondents of the proceeding including reserved costs, if any.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Ian David Morwood (“Morwood”) and ComputerAd Australia Pty Limited (“ComputerAd”) sue Chemdata Pty Limited (“Chemdata”) for alleged contraventions of ss 45, 46, 52 and 53 of the Trade Practices Act 1974 (“the Act”).  Morwood and ComputerAd also sue Amfac Pty Limited (“Amfac”), IMS Australia Pty Limited (“IMS”), The Dun and Bradstreet Corporation (“Dun and Bradstreet”), four directors of Chemdata, four directors of Amfac and an employee of Chemdata as persons directly or indirectly knowingly concerned in the alleged contraventions of the Act by Chemdata within the meaning of s 75B of the Act.  The directors of Chemdata who are sued are the fourth, fifth, sixth and seventh respondents: Edward Llewellyn Crook, Colin Raymond Trevena, John Michael Green and Philip Thomson.  The directors of Amfac who are sued are the eighth, ninth, tenth and eleventh respondents: Bruce Michael McConochie,  James Sutton Harrison Snr, Gwenda Mary Harrison and Graeme Paul Harrison.  The twelfth respondent, Robert Stanley Richards, is sued either as an employee of Chemdata or, as the second further amended statement of claim alleges in para. 45(viii), as a person ‘actively involved’ with Chemdata and Amfac.  The twelfth respondent is alleged to have been directly or indirectly knowingly concerned in the contraventions by Chemdata of Part IV of the Act.  I shall sometimes refer to Chemdata and Amfac together as “Amfac Chemdata”.

Amfac is being sued, not only as being directly or indirectly knowingly concerned in the contraventions of Chemdata under s 75B of the Act, but also as having engaged in conduct, together with Chemdata, contrary to ss 46 and 45 of the Act; but the precise allegations and the precise basis on which Amfac is being sued apart from s 75B is not clear from the second further amended statement of claim dated 6 October 1995.  That document was further amended pursuant to leave granted by the Court during the course of the hearing on 7 July 1997 and on 20 October 1997.  I shall refer to the second further amended statement of claim together with the amendments made during the course of the hearing simply as the statement of claim.

Mr Morwood is a shareholder and director of ComputerAd.  Chemdata, Amfac and IMS are all companies formed within Australia.  Since February 1994 Chemdata and Amfac have been wholly owned subsidiaries of IMS.

The applicants allege that since 25 February 1994 three of the four directors of Chemdata and three of the five directors of Amfac have been IMS nominees and that through them IMS controls the board of directors of Chemdata and Amfac.  Although the respondents admit that there is a degree of commonality between certain of the directors of Chemdata and Amfac, they otherwise dispute the claim made by Mr Morwood, in particular about control by IMS of the board of directors of Chemdata and Amfac.

The applicants allege that since 1988 IMS has been a wholly owned subsidiary of Dun and Bradstreet, a corporation incorporated in the State of Connecticut, USA.  That allegation is denied by the respondents in their defence.

The allegations made in the statement of claim include the following:-

·      Since at least 1985 pharmacists in Australia have used computer software in the course of dispensing prescribed drugs (this is described as “dispensary software”).  By 1988 most pharmacists in Australia used dispensary software for this purpose.

·      There is and has been since 1985 a market in Australia for the supply of dispensary software to pharmacists (described as the “dispensary software market”).

·      At all material times since 1988 Chemdata has had a substantial degree of power in the dispensary software market within Australia.

·      Amfac is and has been since 1988 a major supplier of computer hardware to retail pharmacists in Australia.

·      The use of dispensary software, including Chemdata’s software, enables pharmacists to record and collect information concerning each prescription dispensed (described as “prescription data”).

·      There is and has been at all material times a market in Australia for the provision of prescription data for reward to interested persons, especially pharmaceutical manufacturers (described as the “prescription data market”).

·      IMS has and has had at all material times a substantial degree of power in the prescription data market within Australia.

·      Since about 1988 Chemdata has granted to all retail pharmacists to whom it supplied its dispensary software (the “Chemdata software”) a non-exclusive, non-transferable licence to use the Chemdata software (the “Chemdata licence”).

·      It is an express term of the Chemdata licence that a licensee pharmacist would:

            *          keep all information recorded on Chemdata software confidential and secret (clause 8(a));

            *          not use information recorded on Chemdata software for any purpose other than that for which it was acquired and not disclose or otherwise use that information for his own benefit or a third party’s benefit without the prior written consent of Chemdata (clause 8(b)); and

            *          not add to, amend or make alterations to the Chemdata software (clause 8(d)).

·      ComputerAd has developed or caused to be developed to its specifications and is the proprietor of, or holder of a perpetual licence to make copies of and distribute, computer software which functions as a computerized continuing education, communications and marketing system for pharmacists and which also functions as a means of collecting and recording prescription data (described as the “ComputerAd system”).

·      There is a market in Australia for the supply to interested persons, especially pharmaceutical manufacturers, of opportunities to market products and services to pharmacists either directly or indirectly by:

            (a)        means of computerized messages advertising those products and services; and/or

            (b)        sponsoring computerized continuing education packages written for and directed to pharmacists. 

(This market is described in the alternative in the statement of claim.)

·      The ComputerAd system is designed to and can interact with the particular dispensary software run by a pharmacist, including the Chemdata software, in a way which does not add to, amend, make any alteration to, or inhibit in any way the operation of that dispensary software, including the Chemdata software.

·      Chemdata has since 1988 been in a position to prevent or attempt to prevent the operation and commercial viability of the ComputerAd system.

·      Since October 1988 Chemdata has in fact prevented and continues to prevent the operation and the commercial viability of the ComputerAd system by:

            (a)        refusing to deal with ComputerAd on a commercial or any other basis in relation to distribution and operation of the ComputerAd system;

            (b)        threatening to prevent pharmacists from using the ComputerAd system by resort to contractual rights purportedly arising under the Chemdata licence;

            (c)        threatening to prevent pharmacists from using the ComputerAd system by resort to intellectual property rights, in particular, copyright in the Chemdata software, alleged to be infringed by the operation of the ComputerAd system;

            (d)        threatening to disable the operation of the ComputerAd system by moving the location of the National Health Scheme (“NHS”) number as it appears in the Chemdata software;

            (e)        failing to withdraw the refusal to deal set out in (a) above and the threats set out in (b), (c) and (d) above.

·      The ComputerAd system does not infringe any copyright of Chemdata in the Chemdata software.

·      Chemdata has, contrary to s 46(1)(b) and (c) of the Act, taken advantage of its substantial degree of power in the dispensary software market for the purpose of preventing entry by ComputerAd into one or other or all of the markets pleaded in the statement of claim (except the dispensary software market) and from engaging in competitive conduct in one or other or all of those markets.

·      By relying upon its contractual rights under the Chemdata licence, Chemdata is in breach of s 45(2)(b) of the Act by giving effect to a provision of a contract which is likely to have the effect of substantially lessening competition in the relevant markets and is also in breach of s 45 by giving effect to an exclusionary provision, namely, its contractual rights mentioned earlier.

·      Chemdata and Amfac, controlled by IMS, are preventing potential competitors to IMS from competing in the Australian prescription market.

·      ComputerAd has suffered loss and damage by reason of the conduct mentioned earlier. 

·      If Chemdata informs licensees under the Chemdata licence that they will be in breach of the Chemdata licence by using the ComputerAd system, Chemdata will engage in conduct that is misleading or deceptive and therefore contrary to s 52 of the Act and also will have made a false or misleading representation concerning the existence or effect of a right contrary to s 53(g) of the Act.

All material allegations made in the statement of claim are either denied by the respondents or put in issue.

The evidence was given by affidavits supplemented by cross-examination of some of the deponents.  Six persons swore affidavits on behalf of the applicants and twelve witnesses did so on behalf of the respondents. Some of the witnesses for the applicants were cross-examined; but no deponents whose affidavits were read by the respondents were cross-examined.  The evidence of one witness called by the applicants, namely, Richard Maxwell Adams, was taken by videolink from London.

Mr Morwood represented himself throughout the case including the final hearing.  He is not a lawyer.  ComputerAd was represented throughout the case including the final hearing by Mr Lee, a Sydney solicitor.  Mr Lee assisted Mr Morwood during the course of the matter including the final hearing; and when Mr Morwood gave oral evidence I allowed Mr Lee to represent him.

Although Mr Morwood is not a lawyer and does not hold any legal qualifications he represented himself ably.  He has a full knowledge of the facts of the case and seems to me to grasp the legal issues.  Obviously he has had the benefit of advice from Mr Lee and I encouraged Mr Lee to assist him during the course of the case.  I did my best to help Mr Morwood in the conduct of his case to the extent that a judge can properly assist a party appearing in person.

When Mr Morwood and Mr Lee told me that they did not propose to cross-examine any of the witnesses of the respondent I pointed out to Mr Morwood the possible consequences and implications of adopting that course.  Mr Morwood claimed to understand what I said; but nevertheless adhered to his course of not cross-examining witnesses.  Mr Morwood not only conducted his case ably, but he did so at all times with courtesy.

The respondents were represented by senior and junior counsel who, although presenting their clients’ case forcefully, at no stage sought to take advantage of Mr Morwood.

The parties prepared a document headed ‘Summary of Major Issues in Dispute’ which recited fourteen issues.  It is convenient if I state the issues as recorded in that document.  They are as follows:

“1.       Did ComputerAd develop software capable of performing the functions of continuing education, communications and a marketing system for pharmacists and which also functioned as a means of collecting and recording prescription data and what were its features and capabilities?

2.         What were ComputerAd’s plans for that system and what did they do in furtherance of those plans?

3.         What proposals did ComputerAd put to Chemdata?

4.         Is there a separate dispensary software market?  If so, what goods and services comprise that market?

5.         Did Chemdata have a substantial degree of power in a “dispensary software” market from 1988 to date?

6.         What were the terms of the Chemdata licence?

7.         Has Chemdata prevented the operation and commercial viability of the ComputerAd system by:

            (a)        its conduct generally; or

            (b)        by reliance on certain terms of the Chemdata licence?

8.         Why did Chemdata not enter into an arrangement with ComputerAd to commercialise the ComputerAd system?

9.         Was any conduct of Chemdata carried out for the purpose of preventing the entry of ComputerAd into “prescription data” or “pharmacy computer marketing opportunities” markets, or for the purpose of deterring or preventing ComputerAd from engaging in competitive conduct in those markets?

10.       Does the Chemdata licence contain exclusionary provisions and, as part of this issue:

            (a)        are pharmacists and Chemdata competitors or potential competitors in the “prescription data” market;

            (b)        what was the purpose of the terms of the Chemdata licence;

            (c)        to what extent are those terms exempt from the provisions of section 45 by virtue of section 51(3)(a) of the Trade Practices Act?

11.       Did Chemdata breach sections 52 and 53(g) of the Trade Practices Act by making representations in relation to their software licences which were misleading or deceptive?

12.       Did ComputerAd suffer any loss by any conduct of the respondents in breach of the Trade Practices Act?

13.       Were any of the second to 13th respondents knowingly involved in any breaches of the Trade Practices Act by Chemdata?

14.       Were the proceedings commenced within the three year limitation period (to be considered separately for each joinder date)?”

The fourteenth issue arises from paragraph 19 of the defence where the respondents, except for IMS, assert that each of the causes of action pleaded by the applicants accrued more than three years before 27 October 1994 being the date on which this proceeding commenced, and are therefore incompetent by reason of s 82(2) and s 87(1CA)(b) of the Act.  IMS asserts that each of the causes of action pleaded by the applicants accrued more than three years before 6 October 1995 being the date on which IMS was joined as a respondent to the proceeding and are therefore incompetent by reason of the same statutory provisions.  The applicants deny these assertions.

It occurred to me when the hearing commenced that it might be possible to try the limitation of action questions separately from the rest of the case with a view to saving time and expense; but this was not a course embraced by the parties; and understandably so, because substantial factual issues would have to be resolved in order to raise the questions of law, including Mr Morwood’s knowledge and awareness of facts, which underlie the causes of action.

Before making my findings of fact I must deal with the question of Mr Morwood’s credibility.  I do so with some regret, but it is necessary to resolve this question.  I formed the view that Mr Morwood is an unreliable witness.  He is keenly aware of all the relevant issues in the case and in my opinion tailored his evidence to suit the interests of the applicants.  When critical conversations are involved I do not accept his evidence; and I accept the evidence of the witnesses for the respondents.  His evidence is in many respects inconsistent with contemporaneous documents and not in accord with the probabilities.  However, in my view Mr Morwood is not a man who went into the witness box to deliberately tell lies.  But he has lived with this case for so long that he has convinced himself that what he says is true.

Facts

The concept of ComputerAd was conceived by Robert Richards (“Richards”), a practising pharmacist in Melbourne, and then developed by him together with David McDougall (“McDougall”) in mid 1986.  In so far as the ComputerAd concept has ever existed in the form of a computer system or programme, it was owned by Wayne Green (“Green”).  Green devised the source code and programme for the ComputerAd system.  He was not called to give evidence.  Green offered the source code to ComputerAd on 23 May 1990, but ComputerAd never acquired it.  In May 1986 Richards engaged Green to write a demonstration programme of the concept for $480.

ComputerAd was incorporated on 30 December 1986.  The original shareholders were McDougall; Ultimate Idea Pty Limited (“Ultimate Idea”), a family company of Richards; and Stancraft Pty Limited (“Stancraft”), a company controlled by Morwood through his daughters.  On 8 January 1987 Stancraft entered into an agreement with McDougall and Ultimate Idea to ensure that Ultimate Idea and McDougall’s shareholding would for the future be protected and maintained at 10%.  By written agreement of 20 January 1987 McDougall and Richards sold all their interests in the ComputerAd concept to ComputerAd for $65,000.  Only the first instalment of the purchase price was paid.

Morwood was made bankrupt on 12 August 1986.  From at least that time onwards he controlled the affairs of various companies, including Stancraft and Deshono Pty Limited (“Deshono”), by arranging for the appointment of his daughters as directors.  Indeed, Morwood’s daughters were appointed to the boards of Stancraft and Deshono in June and August 1986 immediately before his bankruptcy.  Through these companies and nominees, Morwood at all relevant times played the key role in the management of the affairs of ComputerAd.

Between 1987 and 1992, various patent applications were lodged by ComputerAd with the Australian Patent Office in respect of the ComputerAd system.  These applications were all unsuccessful.  ComputerAd had been informed in 1986 by its patent attorney that there would be considerable difficulties in obtaining a patent for the ComputerAd concept.  The senior examiner of patents reported that the application was not for a manner of new manufacture.  Other objections were raised by the Patent Office and no patent was ever granted.  There has been no communication between ComputerAd and the Patent Office since 24 February 1992 with respect to the ComputerAd system.

Green retained possession of the source code for the ComputerAd system.  The expert witnesses agreed that it is essential to have access to the source code in order to make any adjustments or modifications to a computer programme.  This meant that ComputerAd could not make any modifications to whatever software it did possess had it ever attempted to create an “add on” programme that was compatible with the Chemdata software; and that ComputerAd had no ability to make any necessary changes to its own programme without Green’s co-operation.  Green was not called as a witness and no explanation was given by the applicants for this failure.

The first relevant contact between ComputerAd on the one hand and Amfac and Chemdata on the other occurred at a meeting on 8 January 1987.  This meeting was attended by all the then suppliers of pharmacy dispensary software.  At that time Amfac and Chemdata were separate entities, although Amfac distributed Chemdata software with its computers.  Those two companies later entered into a joint venture.  The meeting was attended by Morwood and other representatives of ComputerAd and by Edward Crook (“Crook”), the fourth respondent, on behalf of Chemdata.  While not the subject of any allegations in the pleadings or in the affidavits of Morwood and McDougall, during oral evidence it was stated by both men that Crook had said at the meeting of 8 January 1987 that he would regard any attempt to develop ComputerAd as a breach of Chemdata’s copyright and that he [Crook] (and therefore Chemdata) would “take all means to protect that user base and that relationship”.  In my view, no such statement was made.  Crook made no threats or statements to the effect that Chemdata would take whatever means it could to prevent the ComputerAd system from interacting with the Chemdata software.

After the meeting of 8 January 1987 Morwood and Richards (and later in 1988 Morwood together with a number of highly paid executives of ComputerAd) sought to increase interest in the marketplace in the ComputerAd concept and to generate commitments from pharmaceutical companies to advertise on the proposed ComputerAd system.  What Morwood was attempting to do was to raise venture capital for an untried concept.  Neither ComputerAd nor Morwood had in 1987, or indeed at any other time, any firm contractual arrangement with anybody for the launch of the ComputerAd concept.

There is no evidence that Morwood approached any orthodox lender to fund the venture. 

In March 1988 ComputerAd borrowed $300,000 from Barry Allen (“Allen”), a Sydney plumber who later became a director of ComputerAd.  This money was spent on the payment of salaries and expenses for Morwood and others.  The money and other smaller sums which were invested with ComputerAd were exhausted by January 1989; and in the meantime ComputerAd had not generated any real interest in its potential product from pharmaceutical companies or potential investors.

Green had been involved in the development of the software for the ComputerAd concept since 1986.  No-one else associated with ComputerAd had the requisite skills to do this.  During 1988 ComputerAd engaged Green of Multi-Key Computer Systems Pty Limited (“Multi-Key”) to develop two programmes.  One was for an “add on” computer programme, or TSR, to interact with existing dispensary software programmes; the other was for an integrated programme containing both the ComputerAd concept and the dispensary software programme. 

The terms of Green’s engagement were contained in a written agreement of 8 February 1989.  The provisions of the agreement are not entirely clear; but Multi-Key retained the source code for whatever programmes were produced by it, and ComputerAd had the right to purchase the source code later if it chose to do so.

Green produced a prototype programme which was tested by a pharmacy dispensary software supplier known as Medrecord.  The Medrecord trials took place in late 1988.  The tests failed. Indeed Ms Parr, who gave evidence, said that the trial was a disaster in respect of the sites where APC3 computers were being used and the trial was terminated.  Her evidence was not challenged.  Morwood and David Khisty, who was ComputerAd’s marketing director at the time, gave unsatisfactory evidence which was at times contradictory about the trials in respect of the APC3 sites.  The tests showed that the programme was incompatible with at least Medrecord’s APC3 software.  Medrecord cancelled the trial.  A letter was in evidence signed by Mr Alan Purnell of Medrecord dated 14 February 1989 which was somewhat laudatory of the ComputerAd system and the Medrecord trial.  There was in evidence a report by Mr McCormack (an expert forensic analyst), a report that was unchallenged, confirming that the letter was created by a photocopy “cut and paste” process.  Plainly the letter was a forgery.

The applicants produced no ComputerAd programme to the Court which is said to constitute the ComputerAd system.  The only programme before the Court was a simulation programme produced on subpoena by Dr Ortiz.  It is completely unclear as to whether or not any working ComputerAd programme does exist.  I am not satisfied that it does exist.

Also, at no time either before or after 1989 has ComputerAd ever had, or even made the subject of trials, a software “add on” programme which could interact with the Chemdata software.  Indeed, a software programme of the kind postulated by ComputerAd, as a memory resident “TSR” based on “NHS” numbers, is in fact incompatible with the Chemdata software.  For any TSR to operate with the Chemdata software would be very difficult to achieve and ComputerAd’s problems are compounded by the fact that it does not own the source code for the software developed by Green.

From at least February 1989 ComputerAd has been in severe financial difficulties and probably insolvent.  Almost simultaneously with the loan by Allen to ComputerAd, Morwood organized the employment of Messrs Ireland, Khisty and Wilson and also arranged for payment to Deshono in respect of his own services.  The salary packages were generous.  It is hardly surprising that within some nine months all of Allen’s investment had been spent and ComputerAd had no funds in its bank account.  By February 1989 plainly ComputerAd had no commercial future.  The funds advanced by Allen had been used and ComputerAd was therefore unable to retain the services of Messrs Ireland, Khisty and Wilson.  The Medrecord trial had failed.  ComputerAd did not own the source code to its software, nor did it have the funds to acquire the source code from Green.  Hence it was not in a position to make changes to the programme from the demonstration version costing $480 which had first been supplied by Green.

Very little interest had been generated by ComputerAd amongst the pharmaceutical companies.  It had failed to launch a product which disillusioned even the supporters who had expressed some interest.  As at February 1989 ComputerAd had no assets, but did owe substantial debts to persons such as Allen.  Morwood conceded that this assessment of ComputerAd’s financial position was correct.  Since February 1989 ComputerAd has been a dormant or defunct company and was deregistered by the Australian Securities Commission in 1993 and only restored for the purpose of bringing these proceedings.

As at February 1989, when ComputerAd became dormant, it had a computer programme which had failed and for which it did not own the source code.  That was owned by Green.  Green offered to sell the source code to ComputerAd on 23 May 1990 for $35,000 but the offer was not accepted.

An important element of the applicants’ case was that there was alleged to have been a threat made by Crook at a meeting between Morwood and Crook in October 1988.  This is the sole basis for the contention by the applicant that Chemdata has been in “continuous breach” of s 46 of the Act since October 1988.  Different versions of what occurred at that meeting are given by Morwood and Crook, and also by Bruce McConochie (“McConochie”) who stated that he believed he was present during the meeting, whose evidence supports Crook’s version.  Crook did not make any threat to Morwood during that discussion to take steps to prevent the ComputerAd system from working with the Chemdata system.

Morwood subsequently sent a letter dated 27 October 1988 to McConochie offering to negotiate a draft software licence.  The letter is inconsistent with Morwood believing that there had been any threat made by Crook in respect of ComputerAd.

From March 1989 onwards Morwood obtained further funding for the development of the ComputerAd concept by entering into joint venture arrangements in Canada, the United States and the United Kingdom.  ComputerAd contributed nothing to these joint ventures other than the concept itself, whilst the joint venture parties contributed substantial sums of money.  All joint ventures failed.  No progress was made with the development of the ComputerAd concept; and it appears that the joint venture partners lost the substantial sums of money which they had invested.

In December 1990 Chemdata acquired the business of Data Design-Hisoft Pty Limited (“DDH”).  Before then, each of Chemdata and DDH supplied about 40% of Australian pharmacies with dispensary software.

Early in 1991 Morwood had a discussion with a neighbour of his, Richard Adams (“Adams”), of Walsh International (Australia) Pty Limited (“Walsh”), about the ComputerAd concept.  It appears that Adams was attracted to the ComputerAd concept.  Walsh is part of an international group of companies which specializes in the collection and sale of medical and drug use information.  Following the discussion, Adams met with Crook on 1 March 1991 and a presentation was made by Morwood and Adams to the Amfac Chemdata board on 3 or 4 April 1991. 

The discussions between Adams and Morwood ultimately led to some form of arrangement in principle being agreed between the two of them to jointly exploit the ComputerAd concept.  Adams assumed that he could use Morwood and ComputerAd to obtain entree to Amfac Chemdata; and this was an important element in Adams’ interest in the ComputerAd concept.  The proposal advanced during 1991 to Amfac Chemdata was for a business arrangement between Walsh and Amfac Chemdata.  The proposal envisaged Walsh entering into subsidiary arrangements with ComputerAd, as a result of which Walsh, and not ComputerAd, would develop the ComputerAd concept with Amfac Chemdata.  It is important to note that Walsh could not have obtained title to any ComputerAd software because ComputerAd did not own it.  The Walsh proposal was discussed at a number of meetings in early 1991, including the presentation to the Amfac Chemdata board on 3 or 4 April 1991.  Ultimately no business arrangement was entered into between Walsh and Amfac Chemdata, and the arrangements between Walsh and ComputerAd were terminated by letter from Walsh of 1 July 1992.

During late 1991 and early 1992 Amfac Chemdata and Lockie Computers Pty Limited (“Lockie”) engaged Richards to develop and conduct a pilot test of a feature called “Druglink” or “Pharmacon”.  This feature, assuming it were to be developed and approved, was to be a companion selling and advertising feature to be incorporated into the Chemdata and Lockie programmes.  The trial was abandoned by November 1992 and the feature was never incorporated into the Chemdata software.

The development of Druglink led to correspondence being sent by ComputerAd to Amfac Chemdata on 14 October 1991 and from ComputerAd’s solicitors to Richards on 7 May 1992.  Amfac Chemdata responded by asserting its right to deal with Richards and to develop the Druglink software; and it set out its position in letters from its solicitors to ComputerAd of 29 October 1991 and to ComputerAd’s solicitors of 6 June 1992.  Also, Amfac Chemdata denied that ComputerAd had any intellectual property rights in the “concept” which were capable of protection.  The letter of 6 June 1992 was not, contrary to the suggestion of the applicants, a constructive refusal to deal with ComputerAd.  Indeed, before the commencement of this proceeding ComputerAd never made such an allegation to Amfac Chemdata.  I agree with the submission of counsel for the respondents that the letter of 6 June 1992 was a challenge to ComputerAd to “put up” or “shut up” in relation to its claim of intellectual property rights concerning the ComputerAd concept.  ComputerAd did not reply to the letter and did not commence any legal proceedings to vindicate its intellectual property claim.

The applicants’ case was that the respondents engaged in a campaign of deception in relation to Richards and Druglink.  The allegations in my view are without foundation.

Some months before the incorporation of ComputerAd, Richards had been in contact with the Pharmacy Guild of Australia which had expressed concerns on a number of aspects concerning the ComputerAd concept.  The Pharmacy Guild was troubled by ethical questions arising from the display of information by the ComputerAd system whilst pharmacists were engaged in the dispensing process.  The ethical considerations do not appear to have been resolved.

The Pharmacy Board of Victoria at all times considered that the presence of companion selling advertisements which would be displayed during the dispensing process was contrary to good professional practice by pharmacists.  The Pharmacy Board of Victoria has never resiled from that view.  It appears that the Pharmacy Board of Victoria is generally followed in its decisions by other pharmacy boards; and it expressly stated its disapproval of the ComputerAd concept after seeing a demonstration of it and as outlined in its letter of 21 February 1989.

There was no contact between ComputerAd and Amfac Chemdata between 6 June 1992 and the commencement of this proceeding.  There was no conduct by Amfac Chemdata or its directors or officers during the period 1986 to the present time which involved a refusal to deal, or a threatened refusal to deal, by Chemdata or Amfac Chemdata in respect of ComputerAd.

Findings

Essential to the applicants’ claim under s 46 of the Act is the existence of a dispensary software market and Amfac Chemdata having a substantial degree of market power in that market. 

Even if the relevant market were the dispensary software market, barriers to entry to that market were either non-existent or minimal.  Expert evidence led by the applicants established that the only two ingredients, apart from money, required for the production of dispensary software were the involvement of a pharmacist who had certain specialist knowledge about drugs and other details to be entered into the database and a computer programmer who could design or adapt a suitable computer database product.  The alleged “dispensary software market” in fact comprises a number of suppliers who have entered the market, which demonstrates the potential of other persons to similarly enter the market.  Those suppliers are: the Tasmanian Users Group (a co-operative of about 50 Tasmanian pharmacists), Kronos, Minfos, Feros Riley, Simple Retail and Possim.

The applicants relied upon references in some internal business documents of the respondents to the market as being the dispensary software market.  But these references do not establish that a dispensary software market exists within the meaning of s 4E of the Act.  The term “market” was used in literature by the respondents concerning the concept of “marketing”, which is a different concept to economic analysis and substitutability, barriers to entry and the like.

The applicants also assert that a “prescription data market” exists in Australia.  The evidence to support this case of the applicants is minimal.  No trade evidence was called which might enable the Court to consider whether the alleged market exists, and no economist was called by the applicants to give evidence.  Nor did the applicants cross-examine any of the respondents’ witnesses.  The applicants’ case that the prescription data market is of great importance and value to the pharmaceutical industry is not supported by the evidence and is in fact denied by Mr de Morentin who evidence is unchallenged.

Having heard and read the evidence, including the evidence of the experts, in my opinion the appropriate market relevant to ss 46 and 4E of the Act is the market for business database software or business stock control software.  The market thus encompasses database software or stock control software available to a broad spectrum of industries and professions of which the pharmacy profession is but one example.  Amfac Chemdata only supplies dispensary software; and in my opinion it did not possess a substantial degree of market power in the relevant market.

In any event, there was no conduct by Chemdata or Amfac Chemdata whereby they took advantage of whatever market power they did possess to prevent the entry of ComputerAd into any market or to deter or prevent ComputerAd from engaging in competitive conduct in any market.  In my opinion, the directors of Chemdata at all times acted to maintain their business reputation and the professional standing of their company and its computer software.  There was no purpose proscribed by Part 4 of the Act on the part of Chemdata or Amfac Chemdata or their directors in relation to ComputerAd or the ComputerAd system.

The applicants claim that clauses 8(a), (b) and (d) of the Chemdata licence agreement are in breach of ss 45(2)(b) and 4D of the Act.  These claims are without foundation.  They proceed on a misconstruction by the applicants of those terms which I referred to earlier.

Clause 8(a) has the effect of maintaining confidentiality of the software which is licensed to individual pharmacists.  Plainly there are business justifications for this clause requiring that the software be kept confidential.

Clause 8(b) imposes a “use and confidentiality” restriction upon the pharmacist’s licence.  What I have said in the last paragraph applies also to this point.

Clause 8(d) has the effect of maintaining the integrity of the software licensed by Chemdata to the individual pharmacist.  The subclause has a sound business effect of allocating risk between Chemdata and the individual pharmacist.  The clause essentially prevents tampering with the software itself, thus maintaining the integrity of the Chemdata software.

Chemdata owns the copyright in its software and compilation copyright in its databases and interaction tables which are supplied with the software.  The Chemdata licence agreement is not a contract, arrangement or understanding between competitors.  Clauses 8(a), (b) and (d) of that licence agreement do not have any anti-competitive purpose; their purpose and effect is to protect the copyright and confidential information of Chemdata in its software.  The clauses are reasonably said to give that protection to Chemdata.

I am satisfied that Chemdata does not, by reason of the Chemdata licence, own data keyed in by pharmacists in relation to patient details for drugs dispensed and that it has never represented itself as doing so.  Chemdata did participate in the purchase of data for processing as part of the Drug Utilisation Sub-Committee trial, which was organized by the Department of Health and the Pharmacy Guild of Australia.

Even if the Court had been prepared to make findings that there was a relevant contravention of Part IV of the Act (whichit is not), it has not been established that any of the second to thirteenth respondents had any knowledge of the essential facts constituting the alleged contravention of Part IV.

Neither Dun and Bradstreet nor IMS had any role or involvement directly or indirectly with ComputerAd or the dealings by Amfac Chemdata with ComputerAd.  The case must fail against them.

Additionally, in so far as the causes of action alleged by the applicants arose before 27 October 1991 in my opinion they are statute barred by ss 82(2) and 87(1CA) of the Act.

Reliance was placed by the applicants upon the role played by Dr Michael Ortiz (“Ortiz”) with respect to the ComputerAd concept.  Ortiz was apparently retained by ComputerAd in 1989.  It appears that he is still owed $2,250 for the services rendered by him, but the precise basis on which he was remunerated is not clear.  Although he was apparently involved with some technical aspects of the development of the ComputerAd system, he was not called by the applicants.  The only software produced at the hearing in respect of the ComputerAd system was that produced on subpoena by Ortiz.  It was demonstrated to the Court on 23 June 1997 (exhibit 28).  John Green (“John Green”), the sixth respondent, examined the disk produced by Ortiz and concluded that it was not designed as a working dispensary system, but was a demonstration module for promotional purposes.  There is no evidence from any witness about what the Ortiz disk is or indeed who produced the software on it.  There is no direct evidence that it was in fact produced by Green.

The applicants led no supplementary evidence following the display on 23 June.  Nor was any evidence given as to how the disk came into Ortiz’s possession.

The applicants’ case depends upon the assumption that the ComputerAd system, being the “add on” or memory resident software, can “interact” with the Chemdata software without the need for any amendment, alteration or modification.  The basic problem with this assertion by the applicants is that there is no software available to prove that such an interaction is possible; and no evidence exists that any such interaction could or has occurred.  John Green swore an affidavit stating that it was simply not possible for the two programmes to have interacted as suggested by the applicants.  I accept this evidence. 

The correct conclusion to which the Court can come on the evidence is that the programmes could never have worked together, and indeed John Green was not challenged on this evidence.  It is to be remembered also that neither Green nor Ortiz was called and that Dr Whale, a witness called by the applicants, expressed no opinion on this subject.  Also, the Chemdata programme was a complex programme.  It was being constantly changed and its displays updated to take into account changes in government policy and the requirements of professional bodies, particularly concerning ethical matters.  It is in the realm of speculation to assert that the ComputerAd system could ever have operated as a successful “add on” to the Chemdata software; and the Court certainly cannot make this assumption.  The claims by the applicants about the ComputerAd system must fail.

I have already dealt with the credit of Morwood; but an analysis of his evidence and conduct generally and the relevant documents reveals that he has expressed sometimes quite untenable propositions and that at other times his evidence is characterized by half truths which give a very different impression about what in fact occurred.  It is interesting to note that he contributed no money to ComputerAd throughout the entire time of his involvement with it.  Indeed, he persuaded third parties, Messrs Allen and Speck, to advance substantial funds to ComputerAd, a significant portion of which was paid to Deshono, controlled by Morwood.  Morwood also organized or engineered the issue of 9,000 shares in ComputerAd to himself, which would give him the overwhelming share of any judgment sum recovered by him in this proceeding.  In this respect it must be noted that ComputerAd’s claim exceeds $1 billion.  Morwood paid no cash whatever to ComputerAd for the issue of these shares, relying instead upon some undocumented set-off of moneys said to be owing to him by the company.

Morwood conceded that he had not one contemporaneous note of any of his meetings or dealings with any of the respondents. 

I accept as correct the submission of the respondents that there was no conduct which represented an exercise by Chemdata of any market power, so that no enquiry into purpose arises.  But if it does, then the evidence relied upon by the applicants concerning the Crook threats and the letter of 6 June 1992 fails to establish its case.  I accept Crook’s evidence that he had no proscribed purpose or that he did anything wrong so far as the applicants were concerned at the 1988 meeting and thereafter.  In relation to the 6 June 1992 letter, each of the directors of Chemdata and Amfac Chemdata expressly denied having a proscribed purpose and none of them was cross-examined about that evidence.  I accept their denials.

There was a lot of evidence led by the respondents concerning the legitimate concerns and reservations held by various directors of Amfac Chemdata about the applicants and the ComputerAd concept.  It may be summarized as follows:

·      Certain Amfac Chemdata directors were concerned about the unresolved ethical issues associated with the disruption to the dispensing process caused by the implementation of the ComputerAd programme.

·      As an external programme, the ComputerAd system had the potential to disrupt the pharmacist’s operation of the pharmacy dispensary programme.

·      The Amfac Chemdata directors did not wish to have their good reputation in the area of service support tarnished by their service line being swamped with calls associated with problems arising from the operation of the ComputerAd system or its interaction with the Chemdata software.

·      The Amfac Chemdata directors were concerned about the failure of ComputerAd to demonstrate its financial viability.

·      There were other concerns expressed by the directors of Amfac Chemdata about the therapeutic inadequacies and inappropriateness of the ComputerAd advertisements, as well as concerns about the financial capacity of any organization of which Morwood was the principal.  Also, other issues were of greater importance to Amfac Chemdata during the relevant period.

I accept this evidence.

The applicants failed to establish any proscribed purpose of Chemdata or Amfac Chemdata, certainly not IMS.

The applicants’ case based on s 52 and s 53(g) must also fail in view of my earlier findings.

Conclusion

I have considered all the submissions made on behalf of the applicants and dealt with those which were their core submissions.  There is no substance in the case for the applicants.  The application must be dismissed with costs.

The respondents have sought an order for indemnity costs, but I am not persuaded that the respondents have established the necessary foundation for the making of such an order.

Orders

The application is dismissed.  The applicants must pay the costs of the respondents of the proceeding including reserved costs, if any.

Associate:

Dated:              12 March 1998