FEDERAL COURT OF AUSTRALIA

Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852

COPYRIGHT – copyright in computer software – infringement – counterfeit copies obtained by investigators and under Anton Piller orders – copies of software sold consistently at below market rates – inference that these copies were also counterfeit – liability of joint tortfeasors – whether director and general manager procured or directed infringements

TRADE MARKS – marks in respect of software, computer mice and computer manuals – infringement – infringing products obtained by investigators and under Anton Piller order – liability of joint tortfeasors – whether director and general manager procured or directed infringements

TRADE PRACTICES – misleading or deceptive conduct – whether sale of products which infringed copyright and trade marks of applicant constituted misleading or deceptive conduct – likely assumptions by purchasers as to quality of goods, guarantees by applicant and quiet enjoyment of infringing products – whether director or general manager were persons involved in misleading or deceptive conduct

DAMAGES – liability under Copyright Act 1968 (Cth) s 115(2) – whether “licence fee” approach appropriate – liability under s 115(4) – flagrancy of infringement

INJUNCTIONS – whether injunctions in broad terms should be granted against “dishonest” or “untrustworthy” respondents

Copyright Act 1968 (Cth) ss 38, 115, 126

Trade Marks Act 1995 (Cth) s 120

Trade Practices Act 1974 (Cth) ss 52, 53, 75B

Federal Court Rules O18 r 2

Raben Footwear v Polygram Records (1997) 75 FCR 88, referred to

Microsoft v Auschina Polaris (1996) 71 FCR 231, followed

Henley Arch v Clarendon Homes (1998) 41 IPR 443, cited

Polygram Records Pty Ltd v Monash Records (Australia) Pty Ltd (1985) 10 FCR 332, considered

Wheeler Grace & Pierucci v Wright (1989) 16 IPR 189, followed

Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, considered

Microsoft Corporation v ATIFO Pty Ltd (1997) 38 IPR 643, cited

Bailey v Namol (1994) 53 FCR 102, cited

Canterbury Park Race Course Co Ltd v Hopkins (1932) 49 WN (NSW) 27,

Coflexip SA v Stolt Comex Seaway MS Limited [1999] FSR 473, cited

Microsoft Corporation v Plato Technology Limited [1999] FSR 834, cited

MICROSOFT CORPORATION & ORS v GOODVIEW ELECTRONICS PTY LIMITED (ACN 077-222-096) (trading as GOLDEN SQUARE COMPUTER WHOLESALES CO) & ORS

N 145 of 1999

BRANSON J

SYDNEY

15 DECEMBER 2000

THE COURT ORDERS THAT:

1.                  The applicants bring in short minutes of order which reflect these reasons for decision.

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

REASONS FOR JUDGMENT

THE PARTIES

1                     The first applicant (“Microsoft Corporation”) is a corporation incorporated under the laws of the State of Washington in the United States of America.  It carried on the business of manufacturing, marketing and distributing computer programs (“the Microsoft Programs”).

2                     The second applicant (“Microsoft Pty Ltd”) is an Australian company which is a subsidiary of Microsoft Corporation.  It provides marketing and technical support in Australia on behalf of Microsoft Corporation in respect of the Microsoft Programs.  It is an authorised user of the Microsoft Trade Marks.

3                     The third applicant (“Microsoft Licensing”), a corporation incorporated under the laws of the State of Nevada in the United States of America, is also a subsidiary of Microsoft Corporation.  It has, since 31 December 1997, been Microsoft Corporation’s exclusive worldwide licensee with respect to “OEM distribution” of certain of the Microsoft Programs.  “OEM distribution” means distribution of copies of the Microsoft Programs to and by original equipment manufacturers or assemblers of computer systems as integral elements of the computer systems manufactured or assembled by them.

4                     The first respondent (“Goodview Electronics”) and the second respondent (“Mr Liu”) admit that, since at least 30 January 1997, Goodview Electronics has carried on the business of selling computer products under the name “Golden Square Computer Wholesales Co” at 73 Mark Street, North Melbourne, Victoria.  Goodview Electronics and Mr Liu admit that Mr Liu was a director of Goodview Electronics between 1 June 1998 and 17 March 1999.  Mr Liu admits that he was, over the same period, the marketing manager of Goodview Electronics.

5                     The third respondent (“Golden Square”) is an Australian company which has also carried on business from 73 Mark Street, North Melbourne.  The fourth respondent (“Mr Tsui”) is the general manager of Goodview Electronics and Golden Square.

HISTORY OF THE PROCEEDING

6                     The original application and statement of claim were filed on 19 February 1999.  At this time the parties to the proceeding were the first and second applicant and the first and second respondent.  On 9 April 1999, an appearance and a defence were filed on behalf of the first respondent.

7                     The defence filed on behalf of Goodview Electronics asserted that Mr Liu had resigned as a director and secretary of Goodview Electronics “on or about 17 March 1999”.  The defence further asserted that Goodview Electronics –

“was registered as a member of [Microsoft Corporation’s] program for distribution of Genuine Microsoft OEM [original equipment manufacturer] products and was thereby entitled to market, distribute and supply [Microsoft Corporation’s] … products purchased for resale from [Microsoft Corporation’s] authorised distributors in Australia ….”

8                     The defence contained a denial that Goodview Electronics had sold, distributed or supplied copies of Microsoft’s products which constituted an infringement of Microsoft’s copyright and an assertion, in the alternative that, if it had, it was not aware, and had no reasonable ground for suspecting, any infringement of the copyright of Microsoft.

9                     On 23 April 1999, Microsoft moved the Court ex parte for an Anton Piller order.  On that day I indicated that I was not persuaded that the case made by Microsoft was of the exceptional character necessary to justify the making of an Anton Piller order.

10                  On 28 April 1999 Microsoft, having given notice to the respondents, moved for an order that Goodview Electronics, by Mr Liu or another officer, file and serve an affidavit identifying, amongst other things, the name and address of any person other than the authorised distributors referred to in Goodview Electronics’ defence from whom any Microsoft products were acquired; the quantity of infringing Microsoft product acquired from them; and the persons and companies to whom Goodview Electronics had supplied such products and the quantities so supplied.  There was no appearance on that day on behalf of either Goodview Electronics or Mr Liu.  Indeed, there has not been an appearance on behalf of any respondent on any occasion that this matter has been listed before the Court.  I made the order sought.  It has never been complied with.

11                  On 12 May 1999, a notice was filed in the Court that the solicitors for Goodview Electronics had ceased to act for the company.

12                  On 13 May 1999, upon Microsoft giving an undertaking as to damages in a usual form, I made interlocutory injunctions restraining the respondents from, in effect, infringing Microsoft’s trade marks and Microsoft’s copyright in the Microsoft Programs.

13                  On 10 June 1999, Microsoft again moved the Court for an Anton Piller order relying on events which had occurred since my earlier refusal to make such an order.  On that day I made the order sought upon certain stringent undertakings given by Microsoft and Microsoft’s solicitor respectively.  The order was executed on 15 June 1999 and a report provided to the Court by an independent supervising solicitor.

14                  On 17 June 1999, leave was granted to Microsoft to join Golden Square and Mr Tsui as respondents to this proceeding.  An amended application and an amended statement of claim were filed on 23 June 1999 naming Golden Square and Mr Tsui as respondents.

15                  On 9 August 1999, an appearance was filed by a firm of solicitors on behalf of Mr Liu and on 13 September 1999 a defence was filed on behalf of Mr Liu.  The defence, with only minor exceptions, consists entirely of failures to admit, failures to plead and denials.  The exceptions are admissions as to the business of Goodview Electronics and that Mr Liu was a director and the marketing manager of Goodview Electronics from 1 June 1998 to 17 March 1999.

16                  On 6 October 1999, I ordered that this matter be listed for hearing on 7 March 2000 and directed that the evidence in chief of all witnesses at trial to be given by affidavit.  I fixed a timetable for the exchange of affidavits and for the taking of other pre-trial steps.  As there had to that date been no appearance on behalf of any respondent on any occasion that the matter had been listed before the Court, I further ordered that, if when the proceeding was called on for trial, any party was absent, the Court would, without prejudice to the right of any party to apply to have the order varied, order that the trial proceed generally.

17                  On 18 October 1999 a notice of appearance was filed by a firm of solicitors on behalf of Golden Square.  No defence was filed on behalf of Golden Square.

18                  When the matter was called on for trial on 7 March 2000 there was again no appearance by any respondent.  Microsoft sought and was granted leave to further amend the application and statement of claim.  However, to ensure fairness to the respondents, such leave was granted on the basis that the hearing date would be vacated and the matter relisted for hearing on 7 September 2000.  Consequential directions as to service and other matters were made.  A further amended application and a further amended statement of claim joining Microsoft Licensing were filed on 8 March 2000.

19                  The matter was again called on for trial on 7 September 2000 and again no respondent appeared.  I ordered that the trial proceed generally.

Copyright claimS

20                  By para 18 of the further amended statement of claim (hereafter “the Statement of Claim”) Microsoft has pleaded:

“[Goodview Electronics] without the licence of [Microsoft Corporation] has in the course of carrying on business and from time to time:

(a)               sold, or by way of trade offered or exposed for sale; and

(b)               distributed or supplied for the purpose of trade to an extent that prejudicially affects the Applicants

copies of one or more of the Microsoft Programs or a substantial part of the Microsoft Programs in circumstances where:

(i)                 the making of the copies constituted an infringement of [Microsoft Corporation’s] copyright in the Microsoft Programs; and

(ii)               [Goodview Electronics] knew or ought reasonably to have known the matters referred to in subparagraph (i) above.”

21                  Particulars of this pleading are set out in the Statement of Claim.  I do not consider it necessary to incorporate the particulars in these reasons for judgment.  The computer programs which comprise the “Microsoft Programs” within the meaning of the Statement of Claim are identified in a schedule to the Statement of Claim.  Again I do not consider it necessary to reproduce that schedule in these reasons for judgment.

22                  By para 20 of the Statement of Claim, Microsoft has pleaded that Mr Tsui authorised, directed and procured the acts of Goodview Electronics pleaded in para 18.  By para 21 of the Statement of Claim, Microsoft has pleaded that:

“Further or in the alternative, [Mr Liu] acted in concert with [Goodview Electronics] and [Mr Tsiu] and with a common design to carry out the conduct referred to in paragraph 18.”

By para 22 of the Statement of Claim, Microsoft has pleaded that Mr Liu and Mr Tsui are each liable as joint tortfeasors with Goodview Electronics for the conduct pleaded in para 18.

23                  By para 23 of the Statement of Claim, Microsoft has pleaded that Golden Square, without the licence of Microsoft Corporation:

“has in the course of carrying on business and from time to time:

(a)               sold, or by way of trade offered or exposed for sale; and

(b)               distributed or supplied for the purpose of trade to an extent that prejudicially affects the Applicants

copies of one or more of the Microsoft Programs or a substantial part of the Microsoft Programs in circumstances where:

(i)                 the making of the copies constituted an infringement of [Microsoft Corporation’s] copyright in the Microsoft Programs; and

(ii)               [Goodview Electronics] knew or ought reasonably to have known the matters referred to in subparagraph (i) above.”

Again particulars of this pleading are set out in the Statement of Claim but I do not consider it necessary to set them out here.

24                  By para 25 of the Statement of Claim, Microsoft has pleaded that Mr Tsui authorised, directed or procured the acts of Golden Square pleaded in para 23, and by para 26 Microsoft has pleaded that Mr Tsui acted in concert with Golden Square and with a common design to carry out the conduct referred to in para 23.  By para 27 of the Statement of Claim, Microsoft has pleaded that Mr Tsui is liable as a joint tortfeasor with Golden Square for the conduct pleaded in para 23.

25                  The Statement of Claim particularises grounds upon which Microsoft alleges that all of the pleaded infringements of the copyright of Microsoft Corporation were flagrant.

Ownership of the Copyright

26                  Section 126 of the Copyright Act 1968 (Cth) (“the Copyright Act”) provides:

“In an action brought by virtue of this Part:

(a)               copyright shall be presumed to subsist in the work or other subject-matter to which the action relates if the defendant does not put in issue the question whether copyright subsists in the work or other subject-matter; and

(b)               where the subsistence of the copyright is established – the plaintiff shall be presumed to be the owner of the copyright if he or she claims to be the owner of the copyright and the defendant does not put in issue the question of his or her ownership.”

27                  Neither Golden Square nor Mr Tsui has filed a defence.  They have thus not put in issue the question whether copyright subsists in the Microsoft Programs or the question of Microsoft’s ownership of the copyright.  As against each of them Microsoft is presumed to be the owner of copyright in the Microsoft Programs.

28                  Goodview Electronics and Mr Liu have respectively filed defences.  Neither of them has admitted the allegations in the Statement of Claim that the Microsoft Programs are original literary works in which copyright subsists and that Microsoft Corporation is the owner of copyright in the Microsoft Programs.  However, Microsoft has served Notices to Admit Facts in accordance with Form 25 on Goodview Electronics and Mr Liu.  The notice served on Goodview Electronics required it to admit, amongst other things, that the Microsoft Programs are original literary works in which copyright subsists and that the Microsoft Corporation is the owner of the copyright in the Microsoft Programs.  The notice served on Mr Liu required him to admit, amongst other things, that the computer programs known as Microsoft Windows 95 and Microsoft Windows 98 (“Windows 9x Programs”) are original literary works in which copyright subsists and that Microsoft Corporation is the owner of the copyright in the Windows 9x Programs.

29                  Order 18 rule 2 of the Federal Court Rules, so far as is here relevant, provides:

“(1)     A party to a proceeding may, by notice in accordance with Form 25 served on another party, require him to admit, for the purposes of the proceeding only, the facts or documents specified in the notice.

(2)           If, as to any fact or document specified in the notice, the party on whom the notice is served does not, within 14 days after service, serve, on the party serving the notice to admit facts or documents, a notice in accordance with Form 26 disputing that fact or document, that fact or document shall, for the purpose of the proceeding, be admitted by the party on whom the notice to admit facts or documents is served in favour of the party serving the notice.”

30                  Neither Goodview Electronics or Mr Liu served on Microsoft a notice disputing the above facts.  The respective facts are thus, for the purpose of this proceeding, admitted by Goodview Electronics or Mr Liu as the case may be.

Copyright Infringement – Goodview Electronics

31                  Section 38(1) of the Copyright Act provides:

“38. (1)     Subject to Division 3, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, in Australia, and without the licence of the owner of the copyright:

(a)        sells, lets for hire, or by way of trade offers or exposes for sale or hire, an article; or

(b)               by way of trade exhibits an article in public;

if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement.”

32                  The deemed admissions of Goodview Electronics, which flow from its failure to serve upon Microsoft a notice disputing the facts which the notice that was served on it required it to admit, are sufficient to demonstrate infringement under s 38 by Goodview Electronics.  However, there is also direct and indirect evidence of particular sales of products by Goodview Electronics which amount to breach of copyright.

33                  That evidence, which being unchallenged I accept, includes that between 25 May 1998 and 29 September 1998 Goodview Electronics supplied 6 copies of Windows 95 to an investigator.  These copies of Windows 95 were examined by an employee of Microsoft, Ms Fabrick, who is trained to detect unlicensed Microsoft products including counterfeits.  Unlicensed Microsoft products may be either infringing copies of a product or counterfeit copies.  Infringing copies take only the substance of the original, whereas counterfeit copies are manufactured in the get-up of the original.  The copies of Windows 95 purchased by the investigator each contained Certificates of Authenticity and purported to be original copies.  The evidence from Ms Fabrick was that there are a number of marks by which genuine Certificates of Authenticity can be identified.  These include an Intaglio print, a latent image within the Microsoft logo, a metallic holographic thread embedded into the paper of the certificate, a serialised barcode and a watermark in the image of Augusta Ada Byron.  After inspection by Ms Fabrick, it was her evidence that the copies obtained were not made with Microsoft’s permission and were counterfeit.

34                  Following the execution of the Anton Piller order referred to above, records were obtained from the offices of Goodview Electronics which recorded cash purchases of copies of Windows 95.  The unit price for these cash purchases ranged between $60 and $85.  This was significantly below the prevailing market price at which genuine copies of Windows 95 were being sold and also below the price paid by Microsoft’s authorised distributors.  I am willing to infer that Goodview Electronics knew the market price for genuine copies of Windows 95.  I consider that this inference can be drawn from records of Goodview Electronics which demonstrate purchases by Goodview Electronics of genuine copies of Windows 95 from authorised distributors at market rates, from the price at which Goodview Electronics advertised Windows 95 for sale and from the scale of Goodview Electronics’ operations.  I also consider it reasonable to infer that copies of Windows 95 obtained on a regular basis at a price far below the prevailing market rate are likely to be counterfeit.  This inference is strengthened by the actual sale of counterfeit copies referred to above.  Finally, it is reasonable to infer that the copies of Windows 95 which the records of Goodview Electronics show as having been purchased for cash were then sold to Goodview Electronics’ customers.

35                  When considering whether Goodview Electronics had the actual or constructive knowledge required by s 38 of the Copyright Act, it is clear now that the test is an objective one, albeit that regard may be had to the knowledge, capacity and circumstances of the particular respondent (see Raben Footwear v Polygram Records (1997) 75 FCR 88 at 91 where Burchett J dealt with the substantially similar provisions in s 103).  As a result of the price discrepancy between the market price for genuine copies and the price at which copies were obtained for cash by Goodview Electronics, it can be inferred that Goodview Electronics knew or ought reasonably to have known that the copies obtained for cash were counterfeit.  By selling these copies, Goodview Electronics was in breach of s 38.

Copyright Infringement – Golden Square

36                  Golden Square is a company occupying the same premises that Goodview Electronics had previously occupied at 73 Mark Street, North Melbourne.  Golden Square was trading under substantially the same name as Goodview Electronics.  At the time of its incorporation, the directors of Golden Square were the same as the directors of Goodview Electronics.  Golden Square was also served with a Notice to Admit Facts dated 28 September 1999.  These facts were undisputed and are sufficient to establish copyright infringement.  Evidence gathered under the Anton Piller order also support a finding of copyright infringement.

37                  Various products purporting to be Microsoft products were removed from the premises of Golden Square as a result of the Anton Piller order and were subsequently identified as counterfeit.  It is reasonable to infer that these products were intended to be sold to customers of Golden Square.  Financial records of Golden Square showed a reduction in stock of 34 copies of Windows 95 over the month of May 1999.  The average cost price of these copies corresponds to that of the cash purchases made by Goodview Electronics.  By virtue of the reasoning used in relation to the products purchased by Goodview Electronics, it is reasonable to infer that the copies listed in the inventory of Golden Square were obtained in the same manner and were counterfeit.  The reduction in stock tends to indicate that these counterfeit copies were sold to customers of Golden Square in May 1999.

38                  For the reasons set out above in relation to Goodview Electronics, Golden Square also infringed the copyright of Microsoft in the Microsoft Programs.

Copyright Infringement – Mr Liu

39                  Microsoft claims that Mr Liu, as director of Goodview Electronics, was a joint tortfeasor with Goodview Electronics in Goodview Electronics’ copyright infringements.  Such a finding would result in Mr Liu also incurring primary liability for these infringements under s 38 of the Copyright Act.

40                  The test for whether a director is liable in tort for copyright and trade mark infringements of his or her company was considered by Lindgren J in Microsoft v Auschina Polaris (1996) 71 FCR 231 at 241-246.  His Honour, after reviewing the authorities, considered that the appropriate test in the circumstances was whether the director “procured or directed” the tortious corporate conduct.  At 243-244, his Honour said:

“The ‘procured or directed’ test, sometimes referred to as the ‘authorised, procured or directed’ test, focuses attention on the relationship between the director’s intention and the particular corporate conduct which the law characterises as tortious.  What seems to underlie this test is the notion that, necessarily, companies can engage in tortious conduct only through human beings, and, at least ordinarily, where a particular human being involved and responsible to an appropriate extent can be identified, he should, as a matter of policy, be liable.  After all, even if the aggrieved party did not sue him, apparently he would be liable to indemnify the company in respect of its liability to the aggrieved party.”

41                  A more stringent test which involved an element of “personal blameworthiness” was rejected by his Honour.  This test involved determining whether the conduct of the director was so deliberate or reckless as to make the conduct his or her own, as distinct from the act of the company.  The approach taken in Microsoft v Auschina Polaris was followed in Henley Arch v Clarendon Homes (1998) 41 IPR 443.  Henley Arch was subsequently appealed, but the appeal in did not deal with this point.  I consider it appropriate to follow the approach adopted by Lindgren J in Microsoft v Auschina Polaris.

42                  Mr Liu has admitted that he was a director of Goodview Electronics and its marketing manager from 1 June 1998 to 17 March 1999.  There is evidence in the form of internal memoranda recovered under the Anton Piller order which shows that Mr Liu was involved in monthly stock takes for Goodview Electronics.  From Mr Liu’s position in the company and his involvement in stocktaking activities, Mr Liu must have been aware of the price at which Goodview Electronics was acquiring copies of Windows 95.  As marketing manager, it can be assumed that he was involved in setting the prices for the sale of Windows 95.  From the discrepancies in price between copies of Windows 95 obtained for cash and those obtained from authorised Microsoft dealers, and from the profit margin achieved by Goodview Electronics in such a competitive industry, Mr Liu must have been aware that the copies obtained for cash were counterfeit.  I find that Mr Liu procured or directed the copyright infringements of Goodview Electronics referred to earlier.

Copyright Infringement – Mr Tsui

43                  Similar claims for primary liability as a joint tortfeasor are made against Mr Tsui.  These claims are based on deemed admissions by Mr Tsui, pursuant to a Notice to Admit Facts dated 28 September 1999, that he authorised, directed or procured various acts by Goodview Electronics which infringed the copyright of Microsoft in the Microsoft Programs.

44                  Although Mr Tsui was not a director of Goodview Electronics or Golden Square, he was responsible for the day to day running of the companies.  The quotation by Lindgren J in Microsoft v Auschina Polaris set out in para 40 above identifies the policy rationale for holding individuals liable for the tortious actions of companies over which they have control.  In following Auschina Polaris, Merkel J in Henley Arch at 463 stated expressly that it is unnecessary for a person to be a director in order for him or her to be primarily liable as a joint or concurrent tortfeasor.  I conclude that Mr Tsui is jointly liable in tort for the copyright infringements of Goodview Electronics and Golden Square.

Trade mark claim

45                  By para 31 of the Statement of Claim, Microsoft has pleaded:

“[Goodview Electronics] has from time to time in the course of carrying on business and without the licence of [Microsoft Corporation], used the Microsoft Trade Marks or a mark that is substantially identical with or deceptively similar to the Microsoft Trade Marks as a trade mark in the course of trade in Australia in relation to one or more of the Microsoft Class 9 Products, Microsoft Class 16 Products, Windows Class 9 Products and Windows Class 16 Products.”

46                  A claim is made in the same terms against Golden Square in para 36 of the Statement of Claim.  Claims are also made against Mr Liu and Mr Tsui in the same terms that were used in relation to the copyright claims outlined above.  That is, that Mr Tsui authorised, directed or procured the acts of Goodview Electronics and Golden Square, or acted in concert with these companies in their trade mark infringements and is liable as a joint tortfeasor with them; and that Mr Liu acted in concert with Goodview Electronics in its trade mark infringements and is a joint tortfeasor with Goodview Electronics.

47                  It is convenient to deal first with the claim by Microsoft that Goodview Electronics infringed its trade marks for “MICROSOFT” and “WINDOWS” in class 9 (in respect of software and computer mice) and class 16 (in respect of manuals).  Section 120(1) of the Trade Marks Act 1995 (Cth) (“the Trade Marks Act”) provides:

“120. (1) A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.”

48                  Infringement of s 120 is established by the deemed admissions of Goodview Electronics which flow from the undisputed Notice to Admit Facts dated 28 September 1999.  In addition, there was direct and indirect evidence of trade mark infringement.  The counterfeit copies of Windows 95 purchased from Goodview Electronics by the investigator on behalf of Microsoft (see para 33 above) all bore the trade marks “MICROSOFT” and “WINDOWS”.  It is likely that other non-genuine copies of Windows 95 sold by Goodview Electronics were also in the get-up of genuine copies and bore these trade marks.  Computer mice bearing the Microsoft trade marks which were applied without the licence of Microsoft were also sold to investigators.

49                  The Notice to Admit Facts served on Golden Square likewise established trade mark infringement.  This finding was also supported by direct evidence.  Products which were subsequently obtained from the premises of Golden Square under the Anton Piller order and identified as counterfeit bore the Microsoft trade marks.  By virtue of the reasoning outlined above in relation to the copyright claims, Mr Liu is also liable as a joint tortfeasor for the trade mark infringements of Goodview Electronics and Mr Tsui is liable as a joint tortfeasor for the trade mark infringements of Goodview Electronics and Golden Square.

Trade Practices Claim

50                  Microsoft has claimed (at para 41 of the Statement of Claim) that the conduct of the respondents, in selling and offering for sale products which infringed its copyright and to which Microsoft trade marks were attached without the licence of Microsoft Corporation, constituted misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”) and, in particular, conduct of the kind proscribed by subsections 53(c) and (d).  In find that by offering for sale counterfeit products, Goodview Electronics and Golden Square were representing that the products were products made with the licence of Microsoft and that Goodview Electronics and Golden Square were lawfully entitled to supply such products.  These representations would be likely to induce purchasers of the products to believe that the products would be unlikely to contain viruses and would be covered by guarantees given by Microsoft.  The representation would also hide from purchasers the risk that a court could order the delivery up of the products to the copyright owner (Polygram Records Pty Ltd v Monash Records (Australia) Pty Ltd (1985) 10 FCR 332 at 333-334).  Such representations were, in the circumstances, misleading and deceptive within the meaning of s 52 of the Trade Practices Act.

51                  By para 43 of the Statement of Claim, Microsoft claims that Mr Liu and Mr Tsui were each “a person involved” in the misleading and deceptive conduct of Goodview Electronics within the meaning of s 75B of the Trade Practices Act.  By para 45 of the Statement of Claim, Microsoft claims that Mr Tsui was “a person involved” in the misleading and deceptive conduct of Golden Square.

52                  The test for liability under s 75B(c) of the Trade Practices Act was summarised by Lee J in a decision by the Full Court of this Court in Wheeler Grace & Pierucci v Wright (1989) 16 IPR 189 at 209:

“Section 75B(c) provides that a person involved in the contravention shall be read as a reference to a person who has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention.  Section 75B(c) has been interpreted to require a party to a contravention to be an intentional participant in the sense that he possesses knowledge of the essential elements of the contravention: see Yorke v Lucas (1985) 61 ALR 307; 158 CLR 661 per Mason ACJ, Wilson, Deane and Dawson JJ at 670 and per Brennan J at 677.

The knowledge required is not knowledge or awareness that the conduct has the capacity to mislead nor knowledge that it may be a contravention of s 52 of the Act.  What must be shown to be possessed is knowledge of the elements of a contravention.”

From the evidence already referred to, it has been established that Mr Liu and Mr Tsui procured and directed various copyright and trade mark infringements carried out by Goodview Electronics and Golden Square.  The active involvement of Mr Liu and Mr Tsui in these infringements and the positions which they held in the two companies are sufficient to demonstrate knowledge of the requisite elements of the infringements by the two companies of s 52 of the Trade Practices Act.  For these reasons, Mr Liu and Mr Tsui were persons involved in the contraventions of s 52 for the purposes of s 75B of the Trade Practices Act.

Damages

53                  Liability for damages arises under s 115(2) of the Copyright Act, s 126 of the Trade Marks Act and s 82 of the Trade Practices Act against Goodview Electronics, Golden Square, Mr Liu and Mr Tsui.  The applicants have sought to obtain damages only under the Copyright Act to avoid any problem of “double counting”.

54                  In a defence filed early in these proceedings by a firm of solicitors which has since ceased to act, Goodview Electronics claimed a defence of innocent infringement under s 115(3) of the Copyright Act.  This was in the context of a claim that all copies of the applicant’s products were obtained from authorised dealers.  The second of these claims has proven to be untrue and, indeed, was material in the granting of the Anton Piller order.  As there has been no appearance by Goodview Electronics at the trial, no evidence has been provided in support of this defence.  For the reasons outlined above, it is clear that the respondents had the requisite knowledge that the products sold were infringing copies so as to refute any defence under s 115(3).

55                  The applicants have submitted that damages under s 115(2) in this case should be calculated according to the “licence fee” approach.  According to this approach, damages would be the total of licence fees forgone by the applicants by reason of sales by Goodview Electronics and Golden Square of infringing copies rather than genuine copies of Windows 95.  The licence fee approach will only be appropriate where an inference may be drawn that consumers would have purchased genuine copies of Windows 95 at market rates if they had not purchased infringing copies from Goodview Electronics and Golden Square (Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69).  The alternative to the licence fee approach is for the issue of damages to be left as a “jury question”.

56                  The applicants have submitted that as Windows 95 is an operating system and operating systems are necessary components for computers to function, an inference can be drawn that consumers would have purchased genuine copies from authorised distributors if infringing copies had not been available.  The applicants have not submitted any evidence regarding the comparative price of alternative operating systems or the market share of Microsoft with regard to operating systems.  Such evidence may have been significant in determining whether, when faced with a choice between not having Windows 95 or paying the full price, consumers would instead have purchased an alternative operating system.  In the circumstances of this case, however, the price at which infringing copies of Windows 95 were being sold was not significantly below the standard market rates.  It is therefore likely that consumers would have paid the full price for genuine products.

57                  In total, 5,219 copies of Windows 95 were purchased by Goodview Electronics for cash.  Of these, 1,920 copies were ordered by Goodview Electronics and probably distributed in 1997 and 3,299 thereafter.  The date at which copies were sold is significant in the distribution of damages as between the first and third applicants.  As of 31 December 1997, Microsoft Licensing became the exclusive licensee of Microsoft products in respect of the “OEM” market (Original Equipment Manufacture) which includes Windows 95.  Microsoft Licensing thus became entitled to any licence fees resulting from sales of Windows 95 from that date.  Therefore, the apportionment of damages according to the licence fee approach amounts to $223,213.61 for Microsoft Corporation and $426,258.21 for Microsoft Licensing.  There is also evidence from which it can be inferred that Golden Square sold 34 copies of Windows 95 during May 1999.  Using the licence fee approach, this would result in damages of $4347.55 for Microsoft Licensing.

58                  Mr Tsui is jointly liable for the whole of the amount owed by Golden Square and Goodview.  The liability of Mr Liu for the actions of Goodview Electronics is reduced by $38,784.57 because of limitations in the direct evidence provided by the applicants and the failure to obtain admissions from Mr Liu.

Damages under s 115(4) of the Copyright Act

59                  The applicants claim that additional damages should be awarded under s 115(4) of the Copyright Act to take into account the “calculated and deliberate” nature of the infringements by the respondents.  Section 115(4) of the Copyright Act provides that, where an infringement of copyright is established, the Court may award additional damages if it is satisfied that it is proper to do so, having regard to:

(a)    the flagrancy of the infringement;

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

(c)    all other relevant matters.

60                  For the purposes of s 115(4), flagrant conduct will include conduct that is “deliberate, deceitful and serious” (Microsoft Corporation v ATIFO Pty Ltd (1997) 38 IPR 643 at 648).  The structure of s 115(4), however, demonstrates that it is not necessary to establish that a breach demonstrates a particular degree of flagrancy in order for additional damages to be awarded.  That is, flagrancy is not a threshold which must be crossed, but merely one of the factors to be taken into account in calculating an award of damages (Raben v Polygram (1997) 75 FCR 88 at 93).

61                  In the present case, the conduct of the respondents can properly be described as flagrant in the sense referred to above.  A defence filed in these proceedings by Goodview Electronics alleged that all of its Microsoft products were acquired from authorised dealers.  This was proved to be false by evidence obtained under the Anton Piller order.  Internal documents of the respondents evinced an intention to conceal the identity of their suppliers through the use of cash purchases of infringing copies and a system of code names for suppliers.  In combination, these actions demonstrate a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they were engaged in and actively sought to conceal it.

62                  The respondents have benefited financially from the sale of infringing copies of various Microsoft products.  These products were purchased well below the wholesale price for genuine Microsoft products and sold for a slight discount on the retail price.  The profit margin created by the respondents was substantial in a very competitive industry.  Profit and loss statements of Goodview Electronics for each of December 1998 and January 1999 show net monthly profits in the order of $300,000.

63                  In considering an award of additional damages under s 115(4), I also have regard to the considerations referred to by Wilcox J in Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69 at 77-78.  That case also involved infringement of copyright in computer software, and his Honour considered it relevant to take into account the fact that computer software is easy to duplicate, distribute and conceal.  This makes detection and proof of infringement a substantial task.

64                  In the circumstances it is appropriate for damages to be awarded under s 115(4).  The Court has a broad unilateral discretion in relation to the quantum of additional damages under s 115(4) of the Copyright Act (Raben v Polygram at 93 per Burchett J).  I regard this as a strong case for an award of additional damages.  The respondents acted with a calculated disregard for the applicant’s rights in the pursuit of profits.  I consider that additional damages in the sum of $500,000 will sufficiently indicate the Court’s disapproval of the conduct of the respondents (Bailey v Namol (1994) 53 FCR 102 at 114).  The respondents will be jointly and severally liable for the additional damages.

Other Relief

65                  Microsoft has sought several other forms of relief in its application.  A claim was made for an order under s 87 of the Trade Practices Act that the respondents publish advertisements rectifying any damage to the applicants and any deception caused to the public.  This claim was not pressed at the hearing and it is thus unnecessary for me to deal with it.

66                  A claim was also made for injunctive relief and an order for delivery up of infringing products.  In general, an injunction will only be granted where a remedy of damages in inadequate.  In order to demonstrate that a final injunction is warranted, the plaintiff must prove a copyright infringement which is likely to continue or a strong case of threatened infringement, and at least a probability of damage, although actual damage need not be proved (Canterbury Park Race Course Co Ltd v Hopkins (1932) 49 WN (NSW) 27 at 29).

67                  In supplementary written submissions on the injunction issue, counsel for Microsoft drew attention to recent UK cases which supported the proposition that injunctions in broad terms should be granted in cases of trade mark and copyright infringement where the defendants have shown themselves to be “untrustworthy” or “dishonest” (see Coflexip SA v Stolt Comex Seaway MS Limited [1999] FSR 473 at 486; and Microsoft Corporation v Plato Technology Limited [1999] FSR 834).  In this case, the flagrancy of the infringements by the respondents justifies the awarding of broad injunctions directed at the infringing conduct.  The proposed short minutes of order prepared by Microsoft includes injunctions against the importation of infringing products.  As there has been no importation proved against any of the respondents, there is no basis for this to be a specific term of the injunction.  Nevertheless, there will be injunctions in broad terms directed at the infringements of the respondents of the Copyright Act, Trade Marks Act and Trade Practices Act.

68                  Microsoft is entitled to delivery up of all products in the possession or control of the respondents which infringe its copyright.  An action to enforce this right can be brought under s 116 of the Copyright Act.  As the infringing products have already been removed from the premises at 73 Mark Street North Melbourne under the Anton Piller order, there will be an order that Microsoft is entitled to all infringing products so removed and may also retain copies of documents removed from the premises pursuant to the Court’s order of 10 June 1999.

69                  The applicants are to bring in short minutes of order to reflect these reasons for judgment.

Associate:

Dated:                                           15 December 2000