FEDERAL COURT OF AUSTRALIA

Sony Computer Entertainment Aust Pty Ltd v Jakopcevic [2002] FCA 777

TRADE MARKS – infringement – accounting for profits – application of established principles – no new question of principle.

Trade Marks Act 1995 (Cth) s 126

Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 followed

Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101 followed

Kettle Chip Co Pty Ltd v Apand Pty Ltd (1998) 40 IPR 481 followed

LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24 referred to

Apand Pty Ltd v Kettle Chip Company Pty Ltd (1999) 43 IPR 225 referred to

SONY COMPUTER ENTERTAINMENT AUSTRALIA PTY LTD (ACN 077 583 183) & ANOR v BARRY JAKOPCEVIC & ORS

N 113 OF 2001

LINDGREN J

14 JUNE 2002

SYDNEY

THE COURT ORDERS THAT:

1.         The first, second and fourth respondents account to the applicants for profits in a sum of $156,000.00.

2.         There be judgment for the applicants against the first, second and fourth respondents for $208,979.73, including the sum of $156,000.00 referred to in Order 1 above and interest of $52,979.73 under s 51A of the Federal Court of Australia Act 1976 (Cth) calculated to 14 June 2002.

3.         The first, second and fourth respondents pay the applicants’ costs, including reserved costs, but excluding any costs the subject of any previous order.

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

REASONS FOR JUDGMENT

1                     I have previously given a judgment in this proceeding in which I declared that the first, second and fourth respondents (for convenience, I will call them “the respondents”) had infringed the relevant trade marks.  I also gave injunctive relief: see Sony Computer Entertainment Australia Pty Limited v Jakopcevic [2001] FCA 1520.  The declaration and orders were made on 24 October 2001.

2                     On 27 February 2002, I ordered that an account be taken of the profits earned by the respondents.  The present judgment relates to the accounting for profits.  I will take the earlier reasons for judgment as read and will not repeat or summarise them.  I will use the same abbreviations as I used in them.

3                     An accounting for profits is provided for in s 126 of the Trade Marks Act 1995 (Cth).  Taking into account orders for substituted service which have been made, I am satisfied that the respondents were duly served and were aware of the order that they account for profits and of the hearing that was to take place for that purpose.  They have elected not to appear.  This is important.  I am in the position of having only the evidence filed on behalf of the applicants, which, no doubt, is the best evidence they have been able to get to show the profits made by the respondents, but no evidence at all from the respondents, who know best what profits they in fact made.  I will draw such inferences as I think warranted by the evidence.  It is conceivable that if the respondents had filed evidence they would be able to establish that their profits have been less than the amount at which I will arrive.  It is however also possible that in certain respects their documentary or testimonial evidence would establish that certain approaches which I will be taking are unduly generous to them. 

4                     In Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 (“Colbeam Palmer”), Windeyer J addressed some of the principles governing a proceeding for an accounting for profits based on infringement of a trade mark.  One principle which his Honour enunciated is that the liability to account is not necessarily co-extensive with acts of infringement, because the liability to account is limited to the profits made by the infringer, “during the period when he knew of the plaintiff’s rights” (at 34).  Similarly, his Honour said that (at 35):

“[I]t lies upon a plaintiff who seeks an account of profits to establish that profits were made by the defendant knowing that he was transgressing the plaintiff’s rights.”

5                     It was because of this principle that the applicants read a lengthy affidavit of Nicholas Andrew Foster sworn 31 May 2002, establishing that the applicants and the Sony Trade Marks are well known in Australia.  As well, his affidavit established that publicity had been given to the anti-piracy campaign of the applicants.  The applicants also rely upon particular aspects of the evidence.  For example, they rely on the fact that the respondents used aliases in the advertisements which they placed in the Melbourne Trading Post; their attempt to avoid execution of the Anton Piller order on the first attempted execution on 12 February 2001; the respondents’ method of doing business involving, as it did, the use of mobile phones and rendezvous places away from the respondents’ premises (usually at Red Rooster car parks); an admission by the fourth respondent (“Mr Guthrie”) to Wayne Gladman, a private inquiry agent retained on behalf of the applicants, that the respondents’ activities were “illegal after all” (see affidavit of Mr Gladman sworn 8 February 2001 para 23 at 14);  the attempted deletion of computer files on 12 February 2001 when execution of the Anton Piller order was threatened; and the size of the operation of the respondents’ business and the period over which it was carried on. 

6                     I have no hesitation in inferring that at all times the respondents knew that their activities in selling and advertising for sale the infringing PlayStation CD-ROMs did involve an infringement of the Sony Trade Marks. 

7                     When the hearing of the accounting for profits aspect was before me on Thursday 6 June 2002, numerous affidavits were read including those which had been read on the liability hearing.  In addition, there were read affidavits of Sophie Jane O'Connor sworn 27 March 2002 and Nicholas Andrew Foster sworn 31 May 2002.  Counsel who appeared for the applicants said that he was seeking an accounting for the profits made over a period of some five years and he took me to the evidence supporting that claim. 

8                     After I commenced working on the judgment, I appreciated that the amended statement of claim sought an accounting for profits made by the selling of only the ninety-five PlayStation CD-ROMs particularized in para 5 of that document.  Subsequently I had the matter relisted and granted leave to the applicants to amend.  As a result, a further amended statement of claim was filed on 11 June 2002, and pursuant to orders I made, it has been served. 

9                     In addition, an accompanying letter drew the respondents’ attention to the fact that judgment would be delivered today unless cause was shown to the contrary.  The further amended statement of claim makes it clear that an accounting for profits is sought on the basis of a sale of 26,000 copies of PlayStation CD-ROM games in the period from 12 February 1996 to 11 February 2001 at an average of 100 games per week.  Cause to the contrary has not been shown.

10                  Although the profit to be accounted for is that made by the wrongful use of the plaintiff’s registered trade mark and not simply the profit made by selling the goods (Colbeam Palmer at 37-38), the onus rests on the infringer to establish what deductions from gross profit should be allowed:  Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101 at 118;  Kettle Chip Co Pty Ltd v Apand Pty Ltd (1998) 40 IPR 481 at 484.  On the hearing before me I raised with counsel for the applicants the fact that obviously the blank compact discs themselves would have cost the respondents something and I was uncomfortable about making no allowance, at least for that cost, because of its obviousness.  As a result, helpfully the applicants subsequently filed an affidavit of Miriam Anne Stiel sworn 7 June 2002 giving some evidence as to the cost of blank compact discs.  That affidavit has been read, and I make an allowance below based upon it.

11                  I now turn to the elements involved in arriving at a figure in the present case.  The first is the question of the period of the time of trading.  In his affidavit sworn 8 February 2001, Mr Gladman recounted a conversation which he had on 15 November 2000 with a person whom he described in his affidavit.  The man was the driver of a Mitsubishi Magna station wagon with Victorian number plates showing registration number FVB 285.  Mr Gladman described the man as being aged approximately fifty years, and as being approximately five feet seven inches tall, of slim build, with brown hair, a tanned complexion and a moustache.  He said the man was wearing sunglasses.  This and other evidence leads me to think that the man was probably the fourth respondent, Mr Guthrie.  There is, of course, no evidence to the contrary.

12                  The conversation included Mr Guthrie saying: “We have been in the business for five or six years”.  Five or six years would take one back to 15 November 1994 or 15 November 1995.  In fact, the applicants have sought profits only in respect of a period of five years down to the date when execution of the Anton Piller order was first attempted.  That period of five years commenced on 11 (or 12) February 1996.  This is one respect in which the applicants have taken what could be described as a “generous” approach to the respondents, and this will have significance later.  On the basis of the evidence of the conversation with Mr Guthrie, I think the respondents are liable to account for the profits they made from use of the Sony Trade Marks over the period from 12 February 1996 to 11 February 2001.

13                  The next question to be considered is that of the number of PlayStation CD-ROM games sold over that period.  One thing is clear: the respondents were carrying on a sizeable enterprise.  The affidavit of Sophie Jane O’Connor, to which I referred earlier, was directed largely to the question of the extent of the selling activity of the respondents, and the number of CD-ROMs which I should conclude they sold.  Mr Gladman bought 95 CDs as follows:

            4 June 2000:                   3 CDs for $30

            20 October 2000:         20 CDs for $100

            26 October 2000:         18 CDs for $100

            15 November 2000:     19 CDs for $100

            3 January 2001:            19 CDs for $100

            5 February 2001:          16 CDs for $100

14                  Upon execution of the Anton Piller orders, “records” were seized at the premises where the respondents carried on their business.  It has to be said at once that these records are only notes on scraps of paper.  Nonetheless, an analysis has been done of them, and they refer to sales of 317 infringing copies of PlayStation CD-ROM games.  The sale prices are also referred to.

15                  Another source of information was ICQ messages taken from the computer which refer to the sale of 912 infringing copies of PlayStation CD-ROM games.  As an indication of the inadequacy of the records to which I have referred, the ninety-five purchases by Mr Gladman were not recorded in either the documents seized or the ICQ messages.  Including those ninety-five, there are records of 1324 sales.  Those sales were effected at a unit price of between $5 and $10 per game in the period October 2000 to February 2001.  I have no doubt that many more games than this were in fact sold.

16                  These sales give a figure of some sixty games per week and I think it proper to work on a much larger number than that.  In the conversation between Mr Gladman and Mr Guthrie, Mr Gladman asked Mr Guthrie how much he would make in a week and Mr Guthrie said (Mr Gladman’s affidavit sworn 8 February 2001 para 23, p 16):

“Well, if we sold $5000 worth a week that's about $1500 per week.  But then you’ve got other overheads like lighting, electricity, cost of running computers, petrol for delivery, and getting the “RAF” files together that’s taken some doing.”

17                  The explanation of this conversation is that previously Mr Guthrie had said that he was making about $1.50 per CD on the basis of a sale price of $5 per CD.  In other words, he was content, for the sake of his illustration, to work on a sale of 1000 CDs per week.  I appreciate, of course, that this may have been merely a hypothetical case, but even for Mr Guthrie to be able to think in those terms suggests that to accept a mere sixty CDs per week would be far too low.  I accept the submission that I should proceed on the footing of an average of 100 CDs per week.

18                  In passing, I note that Mr Guthrie also said that he was making a profit of only $1.50 per CD.  This troubled me at first but I accept the submission that I should reject that figure as a true indication of the profit being made by the respondents.  It is unlikely that Mr Guthrie would have revealed the true extent of the respondents’ profit-making to a potential competitor. 

19                  I have no doubt that there would be some overheads in respect of which the respondents would have been entitled to a deduction if they had been here and led evidence, but they are not here and have not led evidence, so that is the end of that.

20                  I proceed on the basis that the respondents sold an average of 100 PlayStation CD-ROMs per week over a period of five years from 12 February 1996 to 11 February 2001, that is to say, 26,000 CD-ROMS.

21                  The next matter to consider is the price at which they were sold.  There was considerable evidence before me on this question.  The prices in the records seized on the execution of the Anton Piller order were, generally speaking, of the order of $10 per CD.  Most of the advertisements in the Melbourne Trading Post stated a price of $10 per CD.  Nearly all of Mr Gladman's own purchases were at a price of $5 per CD.  I accept that an appropriate approach is to take an average sale price of $7.50 per CD.

22                  The remaining question is what amount is to be deducted.  Ms Stiel’s affidavit, referred to earlier, provides evidence of the prices at which blank recordable CDs in plastic cases could be purchased.   The price is between 80 cents and $2.20 per disc, but the price can be reduced for bulk purchases.  I will not summarise all of the evidence in her affidavit or elsewhere but it seems to me that to allow a deduction of $1.50 per CD is, if anything, generous to the respondents.   That is the figure I propose to allow with the result that the respondents will be treated as having made a profit of $6.00 ($7.50 – $1.50) per sale. 

23                  Accordingly, the result is that the respondents must account for profits calculated on the basis of five years’ trading and selling throughout that time 100 CDs per week at a profit of $6.00 per CD - a total sum of $156,000.   As well, the applicants seek interest and I think they should have interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (“the Act”):  see LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24;  Kettle Chip Company Pty Ltd v Apand Pty Ltd (1998) 40 IPR 481 at 496;  Apand Pty Ltd v Kettle Chip Company Pty Ltd (1999) 43 IPR 225.  The interest should be calculated at the rates applicable in the Supreme Court of New South Wales.  The calculation is to be made from the end of each annual period on the profit made over that year and in previous years, down to 11 February 2001 when business ceased.  This calculation has been performed by the solicitors for the applicants and I annex a copy to these reasons for judgment. 

24                  In the result of the Court orders there will be judgment for the applicants against the first, second and fourth respondents for a sum of $208,979.73, including $156,000 for profits and $52,979.73 for interest under s 51A of the Act calculated to 14 June 2002.

Associate:

Dated:                          26 June 2002

ANNEXURE

Assumptions

Account period: 12 February 1996 to 11 February 2001

Average weekly sales: 100 games

Average sale price per game: $7.50

Average cost of blank CD: $1.50

Profit per CD: $6.00

Annual profit: $6.00 x 100 x 52

Interest period: calculated up to and including 14 June 2002

Applicable interest rates: Schedule J to the Supreme Court Rules 1970 (NSW)

Calculations

Period 1:

Period 2:

Period 3:

Period 4:

Period 5: