FEDERAL COURT OF AUSTRALIA

Flags 2000 Pty Ltd v Smith [2003] FCA 1067

COPYRIGHT – infringement of copyright in the Aboriginal flag – earlier declaration of the Federal Court that applicant the author of the design of the Aboriginal flag and owner of the copyright therein – second applicant had exclusive license to reproduce, manufacture, sell and distribute flag – unauthorised display and sale of the flag by the respondent – sales of the flag after respondent made aware of applicants’ ownership of copyright and exclusive licence – authorship of design and ownership of copyright put in issue by respondent – whether additional damages should be awarded.

Flags Act 1953 (Cth):  ss 5, 36, 38

Copyright Act 1968 (Cth):  s 115

Thomas v Brown (1997) 37 IPR 207, applied

Cala Homes (South) Limited v Alfred McAlpine Homes East Limited (No 2) 23 [1996] FSR 36, referred to

Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 38 IPR 451, referred to

XL Petroleum (NSW)PtyLtd vCaltexOil (Australia) Pty Ltd (1985) 155 CLR 448, referred to

Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417, applied

MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1999) 43 IPR 275, considered

Milpurrurru v Indofurn Pty Ltd (1995) 30 IPR 209, considered

Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, referred to

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, referred to

J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301, referred to

Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Davies J, Federal Court of Australia, 5 March 1993), referred to

Carson v John Fairfax & Sons (1992) 178 CLR 44, referred to

Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578, referred to

Autodesk Inc v Yee (1996) 35 IPR 415, referred to

Bailey v Namol Pty Ltd (1995) 30 IPR 147, referred to

FLAGS 2000 PTY LTD (ACN 050 021 666) & ANOR v DAVID GEORGE ERROL SMITH (trading as “FLAGS AND POLES”)

V 1098 of 2001

GOLDBERG J

7 OCTOBER 2003

MELBOURNE

THE COURT ORDERS THAT:

1.         The respondent, whether by himself, his servants, agents or otherwise howsoever, be restrained permanently from infringing the copyright of the second applicant in the artistic work being the design for the flag described in sch 1 to the proclamation dated 27 June 1995 under s 5 of the Flags Act 1953 (Cth) and published in the Commonwealth of Australia Gazette Number S259 of 14 July 1995, such flag being known as “the Aboriginal flag”.

2.         The respondent deliver up within twenty‑eight days of the date of the service of a copy of this order on the respondent all infringing copies of the Aboriginal flag in the possession, power, custody or control of the respondent.

3.         The respondent pay to the applicants damages pursuant to s 115(2) of the Copyright Act 1968 (Cth) in the sum of $320.

4.         The respondent pay the applicants additional damages pursuant to s 115(4) of the Copyright Act 1968 (Cth) in the sum of $1,000. 

5.         The respondent pay the applicants’ costs of and incidental to the proceeding:

(a)        on a party and party basis up to and including the directions hearing on 5 June 2003;

(b)        the costs incurred after 5 June 2003 are to include all costs incurred by the applicants, except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to the above exceptions, the applicants will be completely indemnified by the respondent for their costs incurred after 5 June 2003.

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

REASONS FOR JUDGMENT

Introduction

1                     This proceeding has been brought by Mr Harold Thomas, as author of the design of the Aboriginal flag and owner of the copyright in that work, and by Flags 2000 Pty Ltd (“Flags 2000”), as holder of an exclusive licence to reproduce, manufacture, sell and distribute the Aboriginal flag and the copyright therein.  The applicants claim that Mr David Smith, who carries on business under the name “Flags and Poles” in Bassendean, Western Australia, has infringed Mr Thomas’ copyright in the Aboriginal flag. 

2                     The Aboriginal flag is depicted in sch 1 to the proclamation dated 27 June 1995 pursuant to s 5 of the Flags Act 1953 (Cth) which was published in the Commonwealth of Australia Gazette No S259 of 14 July 1995.  In sch 2 of the proclamation the following description is given of the Aboriginal flag:

“The Australian Aboriginal flag is divided horizontally into halves, the upper half being black (symbolising the Aboriginal peoples) and the lower half being red (symbolising both the Australian soil and ochre, a substance used by Aboriginal peoples at their ceremonies).  A yellow disc (symbolising the sun) is superimposed centrally on the black and red halves of the flag.”

3                     On 9 April 1997 the Federal Court of Australia declared that Mr Thomas was the author of the artistic work being the design of the Aboriginal flag and that he was the owner of the copyright subsisting in the Aboriginal flag.  That declaration was made by Sheppard J in Thomas v Brown (1997) 37 IPR 207.  Mr Thomas’ authorship was contested in that case by two persons not parties to the present proceeding.  Mr Smith was not a party in that proceeding.

Background

4                     Flags 2000 manufactures, distributes and sells flags within Australia.  It holds a licence from Mr Thomas to reproduce the Aboriginal flag and the copyright therein until 19 April 2023. 

5                     In or about April 1998 Flags 2000 became concerned at the extent of complaints which had been raised by Mr Thomas in relation to the unauthorised use of the Aboriginal flag design on a number of items, including flags, by parties who had not been licensed to reproduce the Aboriginal flag.  On or about 29 April 1998 Flags 2000 sent a circular letter to all flag operating and manufacturing companies within Australia drawing attention to the fact that the copyright in the Aboriginal flag was held by Mr Thomas.  The recipients of the circular letter were told that any reproduction of the design of the Aboriginal flag on flags, banners, pennants or bunting was an infringement of Mr Thomas’ copyright and Flags 2000’s exclusive licence.  Flags 2000 noted that it would make available its flags, banners, pennants or bunting at wholesale prices to any company involved in the manufacture, distribution, hire or sale of such items.  The circular letter was sent to the respondent, amongst others.  The letter was not received by the respondent because he had changed his address.

6                     On 12 July 1999 a search of the website of Flags and Poles by Mr James Richardson, the Managing Director of Flags 2000, disclosed that a number of flags were depicted as available for sale.  The flags included two sizes of the Aboriginal flag. 

7                     On the same day Mr Richardson telephoned Flags and Poles and spoke to Mr Smith.  Mr Richardson offered to buy an Aboriginal flag which he had seen on the firm’s website and Mr Smith said he had the flag available for sale.  Mr Richardson then identified himself and told Mr Smith of Mr Thomas’ copyright and Flags 2000’s exclusive licence in relation to the Aboriginal flag.  Mr Richardson told Mr Smith that he was obliged to provide Flags 2000 with details of sales of the Aboriginal flag and asked him to surrender his stock of Aboriginal flags.  On the same day he wrote to Mr Smith enclosing a copy of the earlier letter of 29 April 1998 and informing him that the display of the Aboriginal flag on the website and his offer to sell the flag to him was an infringement of Mr Thomas’ copyright.  In the letter Mr Richardson required Mr Smith to remove all advertising concerning the Aboriginal flag from the website and to provide details of any sales of the Aboriginal flag and to surrender all Aboriginal flags in his possession.

8                     By 22 July 1999 the advertisement for the Aboriginal flag had been removed from Flags and Poles’ website.  On 27 July 1999 Mr Smith sent a letter by facsimile transmission to Mr Richardson stating that he had never received the letter of 29 April 1998 and that he had ceased to sell or advertise “the flag of Mr Thomas’ design” while he investigated Flags 2000’s assertions.

9                     Thereafter Flags 2000 continued to investigate unauthorised use of the design of the Aboriginal flag.  On 18 January 2001 an employee of Flags 2000 visited Flag and Poles’ premises at Bassendean and purchased an Australian flag for $65 and an Aboriginal flag for $60.  The employee was given an invoice for both flags which were described on the invoice as “Flag Aust” and “Flag General Club”, this latter description being a reference to the Aboriginal flag which had been purchased.

10                  Mr Smith did not appear at the hearing in person or by counsel.  However, he had sworn an affidavit on 14 February 2003 in which he said he did not receive the circular letter dated 29 April 1998.  Flags 2000 had sent the letter to a Bayswater, Western Australia address but Flags and Poles had moved from that address on 1 August 1997.  Mr Smith did not dispute the July 1999 conversation with Mr Richardson and said that on the basis of that conversation the Aboriginal flag was removed from Flags and Poles’ website. 

11                  Mr Smith admitted selling the Australian flag and the Aboriginal flag to the Flags 2000 employee on 18 January 2001.  Mr Smith said that the employee had told him that he was from the “Lord Street Aboriginal Community”, or words to that effect, which community Mr Smith knew to be an established and recognised Aboriginal community.  He had earlier read a copy of the judgment of Sheppard J (par [3] above) and had concluded that, irrespective of whether Mr Thomas was the author and owner of the copyright in the Aboriginal flag, the decision did not preclude Aboriginal people from using the design or purchasing flags carrying the design.  Mr Smith said that on the basis of that assumption he sold the flag to the employee.  Mr Smith said that the only other Aboriginal flag he had sold following his conversation to Mr Richardson in July 1999 was to the Moordit J Noongar Aboriginal Community in April 2001.  Mr Smith said that following the telephone call with Mr Richardson in July 1999 he removed any reference to the Aboriginal flag from his website and removed its code designation from his accounting system.  He destroyed the two remaining Aboriginal flags that he had in stock for sale at that time.  The Aboriginal flag that he sold to the employee on 18 January 2001 was taken from his hire flag shelves as his business was concerned with both the sale and hire of flags.  He sold the hire flag because it was in “as new” condition.  The designation of the invoice “Flag General Club” was because he had no category remaining in his accounting system covering sales of Aboriginal flags.  Mr Smith said that he had not sold any Aboriginal flags since July 1999 other than the two in January and April 2001.

The creation of the Aboriginal flag

12                  Mr Thomas created and designed the Aboriginal flag at the time he was working at the South Australian Museum.  He commenced working at the Museum in either December 1970 or January 1971.  In 1970 he had marched on Aboriginal Day when banners and placards were displayed.  The march was also known as the NADOC march, the acronym for National Aboriginal Day Observation Committee.  Mr Thomas began to think about the use of a flag.  Some weeks before the NADOC march in July 1971 Mr Thomas decided to make a flag so as to have it ready and available for the march.  He spoke to another Aboriginal activist, Mr Gary Foley, and told him that they should make a flag and Mr Foley told him to bring in some drawings.  Mr Thomas started to do drawings of the flag.  The colours which were the most obvious for him to use were ochre, yellow ochre and black.  He chose ochre and yellow ochre because they were, with red, predominant colours used by Aboriginals in their artefacts, paintings and totem poles.  He used black because he was thinking in terms of “black consciousness”, “black awareness” and “black power” and the need for Aboriginal people to be proud of their blackness.  Mr Thomas did a number of drawings before he was satisfied with the shape of the flag.  The design he finally achieved was black on top, red underneath and yellow in the middle.  Mr Thomas decided to place the yellow of the flag in the middle, as it was representative of the sun which overlaps the earth and mankind.  He achieved this design within a week or so before the NADOC march in July 1971.

13                  Mr Thomas said, and I accept his evidence, that he had not copied the design from any source and no one had shown him any design prior to his creating the design which he used for the flag.

14                  Mr Thomas then purchased fabric in order to make a flag from his design.  He could not find fabrics that had colours close to the ochre colours which he had chosen so he selected primary colours of red, yellow and black.  He gave the design and fabrics to Ms Sandra Hanson who was also working at the South Australian Museum and asked her to sew the fabrics to make the Aboriginal flag.  Ms Hanson sewed the flag at her home.  She sewed the black and red fabrics together to make a rectangle, half red and half black.  She cut out a large yellow circle and applied it to the black and red rectangle and then turned the flag over and cut out the other side around the yellow circle so that the yellow could be seen from both sides.  The flag which Ms Hanson made was approximately 1.8 metres by 1 metre. 

15                  The first public display of the Aboriginal flag was on 9 July 1971 at Victoria Square, Adelaide when the NADOC march occurred.  The flag was raised and Mr Foley told the gathering that the flag which Mr Thomas held was the new Aboriginal flag.  Mr Foley introduced Mr Thomas as the designer and asked him to explain the meaning of the flag.  Mr Thomas explained to the gathering that the black represented the Aboriginal people, the red represented the earth or the ochre and the yellow represented the sun, the giver of life.

16                  Mr Thomas recalled that the next occasion when he saw the Aboriginal flag in public was at the Aboriginal tent embassy in Canberra in 1972.

Infringement of copyright

17                  I am satisfied that Mr Thomas is the creator, designer and author of the Aboriginal flag, that he is the owner of the copyright in the Aboriginal flag and that Mr Thomas has granted an exclusive licence to Flags 2000, which is current until April 2023, to reproduce or authorise the reproduction of the Aboriginal flag and to manufacture, promote, advertise, distribute and sell it throughout the world.  The only licence which Mr Thomas has given in respect of the Aboriginal flag is the licence given to Flags 2000.

18                  Although s 126(a) of the Copyright Act 1968 (Cth) (“the Act”) establishes a presumption for the existence of copyright subsisting in a work to which a proceeding relates if the respondent does not put in issue the question whether copyright subsists in the work, Mr Smith, in his defence, did not admit the allegation of the subsistence of copyright in the Aboriginal flag as pleaded in the statement of claim.  Similarly, Mr Smith put in issue Mr Thomas’ ownership of the copyright in the Aboriginal flag as in his defence Mr Smith did not admit that Mr Thomas was the owner of the copyright in the Aboriginal flag.  Hence the presumption that Mr Thomas is the owner of the copyright in the Aboriginal flag provided for in s 126(b) does not apply.

19                  The evidence to which I have referred establishes that the Aboriginal flag which Mr Thomas conceived, created and designed in or shortly prior to July 1971 was an original artistic work, which was unpublished and in respect of which Mr Thomas was a “qualified person” when he first drew or painted the Aboriginal flag for the purposes of s 32 of the Act.  Accordingly, copyright subsists in the drawing or painting which Mr Thomas created in or shortly prior to July 1971:  s 32(1) of the Act.  As Mr Thomas is the author of the Aboriginal flag, he is the owner of the copyright which subsists in it:  s 35(2) of the Act.

20                  Copyright, in relation to a work, includes the exclusive right to reproduce it in a material form, to publish it and to communicate the work to the public:  s 31(1)(b) of the Act.  There is clear evidence that Mr Smith infringed Mr Thomas’ copyright in the Aboriginal flag as he reproduced the flag in a material form without the licence of Mr Thomas or Flags 2000:  s 36(1).  Mr Smith also infringed the copyright in the Aboriginal flag by selling it to the employee of Flags 2000 on 18 January 2001 and in selling the other flag in April 2001:  s 38 of the Act.

21                  By virtue of s 119 of the Act, Flags 2000 has the same rights of action against Mr Smith as does Mr Thomas by virtue of its exclusive licence from Mr Thomas. 

The relief to be awarded

22                  Mr Thomas and Flags 2000 sought the following relief against Mr Smith:

(a)        a permanent injunction restraining Mr Smith from infringing Mr Thomas’ copyright in the Aboriginal flag;

(b)        an order for the delivery up of all infringing copies or in the alternative destruction upon oath of all such infringing copies;

(c)        damages for infringement of copyright;

(d)        additional damages pursuant to s 115(4) of the Act in the sum of $30,000.

23                  I am satisfied that it is appropriate to grant a permanent injunction in the terms sought.  Although Mr Smith has asserted that he no longer has any Aboriginal flags available for sale in his business, the applicants have not been able to test that assertion by cross‑examination as Mr Smith did not appear at the hearing, either by counsel or in person.  Mr Smith filed material with the court in which he said that after his conversation with Mr Richardson in July 1999 he destroyed the two remaining Aboriginal flags he had in stock for sale but he nevertheless kept Aboriginal flags for hire purposes.  Mr Smith gave no explanation as to why he did not destroy what he called the “hire” flags after July 1999.  Having regard to the fact that Mr Smith maintained a number of Aboriginal flags for the purpose of hiring them and that he made at least two further sales after being put on notice in July 1999 of Mr Thomas’ copyright and Flags 2000’s exclusive licence in relation to the Aboriginal flag, I consider that a permanent injunction will provide an appropriate protection for Mr Thomas in respect of the copyright in the Aboriginal flag. 

24                  I am satisfied that the applicants are entitled to an award of damages pursuant to s 115(2) of the Act.  The applicants have claimed damages or alternatively an account of profits but at the hearing they elected for damages rather than an account of profits.  In his defence Mr Smith said he had not manufactured any Aboriginal flags since July 1998.  He said he had manufactured eight Aboriginal flags, of which six were sold prior to July 1999.  Mr Smith produced copies of the invoices in relation to the two sales which occurred after July 1999 and these showed sale prices of $54.54 and $59.09.  Making an appropriate allowance for some costs in acquiring those flags, I assess damages pursuant to s 115(2) of the Act in the sum of $320.

25                  The applicants submitted that this was an appropriate case for an award of additional damages under s 115(4) of the Act.  At the time of the infringements and at the time the application was filed, s 115(4) provided:

“(4)     Where, in an action under this section:

(a)        an infringement of copyright is established; and

(b)        the court is satisfied that it is proper to do so, having regard to:

(i)         the flagrancy of the infringement; and

(ii)        whether the infringement involved the conversion of a work or other subject‑matter from hardcopy or analog forminto a digital or other electronic machine‑readable form; and

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

(iv)       all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.”

26                  The applicants submitted that in assessing such damages I should take into account the manner in which Mr Smith had conducted his defence and the fact that he had only indicated that he would not be appearing at the hearing on the evening before the day fixed for the commencement of the trial.  The applicants also submitted that I should take into account the fact that Mr Smith had advertised the Aboriginal flag for sale over the internet.

27                  Mr Smith did not specifically deny Mr Thomas’ authorship and ownership of the copyright subsisting in the Aboriginal flag, nor did he deny the existence of the licence agreement between Mr Thomas and Flags 2000.  However, he did not admit those allegations thereby putting the applicants to their proof.

28                  On 21 May 2003 the applicants served a notice to admit on Mr Smith requiring him to admit, for the purpose of the proceeding, that Mr Thomas was the author of the Aboriginal flag and the owner of the copyright subsisting in it, that his authorship and ownership had been confirmed by declaratory order of the Federal Court on 9 April 1997 and that the licence agreement between Mr Thomas and Flags 2000 was current, valid and subsisting.  Mr Smith’s then solicitors responded by stating that he did not admit authorship or ownership or their confirmation by the Federal Court on 9 April 1997.  Mr Smith did admit the authenticity of the licence agreement.

29                  A directions hearing was held on 5 June 2003 at which Mr Smith appeared personally by video link.  He made it clear on that occasion that he would be resisting the claims made against him with some vigour and that Mr Thomas’ authorship and ownership of the copyright in the Aboriginal flag was definitely in issue.

30                  Section 115(4) of the Act conditions an award of additional damages upon the establishment of infringement of copyright and the satisfaction of the Court that it is appropriate to award additional damages.  Infringement of copyright in the Aboriginal flag is established for the purposes of s 115(4)(a).  That leaves for consideration in relation to the awarding of additional damages the flagrancy of the infringement and “all other relevant matters”.

31                  An award of additional damages under s 115(4) is not dependent upon the adequacy or inadequacy of an award of damages under s 115(2).  In particular, an award of additional damages under s 115(4) does not have to bear any proportionate relationship to an award of damages under s 115(2).  In Cala Homes (South) Limited v Alfred McAlpine Homes East Limited (No 2) 23 [1996] FSR 36, Laddie J, at 43, referred to additional damages as being “a head of relief independent of and not dependent upon whatever form of financial relief the plaintiff seek …”

32                  I do not have to make a finding that there has been a flagrant infringement of the copyright; rather I have to be satisfied that it is proper to award additional damages “having regard to”, inter alia, the flagrancy of the infringement:  Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 at 422, 432.  Similarly, I do not have to make findings as to the existence of “all other relevant matters” but rather I am to have regard to them in determining whether I am satisfied that it is proper to award additional damages. 

33                  The degree of flagrancy of the infringement is not extreme.  The applicants submitted that Mr Smith’s conduct showed a conscious and continued disregard for the applicants’ rights and that Mr Smith ought to be deterred from committing such conduct again.  If such a conclusion was open then a significant award of damages might be appropriate:  XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 at 471.  However, the evidence does not support the conclusion that there was a continuous disregard for the applicants’ rights.  Once the claim of copyright was brought to the attention of Mr Smith in July 1999 he removed any reference to the Aboriginal flag from his website.  Further, the evidence does not disclose a significant number of sales post‑July 1999. 

34                  The extent to which Mr Smith’s disregard for the applicants’ rights was conscious is tempered by his statement that, on the basis of his telephone conversation with Mr Richardson in July 1999, he decided that it would be prudent to delete any reference to the sale of Aboriginal flags and the Aboriginal flag was removed from his business website not long after the conversation.  It is also tempered by Mr Smith’s statement, albeit not tested by cross‑examination, that, as a result of research on the issue of copyright and the origins of the Aboriginal flag and the reading of the judgment of Sheppard J, he concluded that irrespective of whether Mr Thomas was the author and owner of the copyright, it did not preclude Aboriginal people using the design or purchasing flags carrying the design.  This conclusion or assumption of Mr Smith was not warranted but it is relevant to take into account on the issue of the flagrancy of the infringement.  Mr Smith said that it was on the basis of that assumption that he sold the flag to the employee of Flags 2000 who had held himself out to be a representative or member of an Aboriginal community.  As noted above, Mr Smith said that the only other Aboriginal flag he had sold was also to an Aboriginal community.

35                  There is a useful discussion by Lockhart J of the principles governing the award of additional damages under s 115(4) of the Act in Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 38 IPR 451 at 461‑463 and by Sundberg J in MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1999) 43 IPR 275 at 281‑284.  In particular, Sundberg J said at 282:

“It has been said that ‘flagrancy’ involves ‘calculated disregard of the plaintiff’s rights, or cynical pursuit of benefit’:  Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70; ‘scandalous conduct, deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay’:  Copinger and Skone James on Copyright, 13th ed, 1991, p 344; ‘the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement’:  Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 at 208; Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69; 94 ALR 472 at 478.”

36                  There may have been a misunderstanding by Mr Smith in relation to his interpretation of the judgment of Sheppard J, but I do not consider that he has acted significantly in calculated or deliberate disregard of the applicants’ rights.  Although the concept of flagrancy includes a deliberate and calculated copyright infringement, the conduct of Mr Smith lies at the lower end of flagrancy. 

37                  The applicants submitted that the relevant matters to which the Court is to have regard in order to be satisfied that it is proper to award additional damages include the conduct of Mr Smith in the proceeding and the manner in which he conducted his defence.  The applicants pointed, in particular, to the consequence of Mr Smith’s refusal to admit that Mr Thomas was the author of the Aboriginal flag and the owner of the copyright in it.  As a result of that refusal the applicants and their legal advisers were put to considerable effort and expense in preparing the evidence necessary to establish such authorship and ownership.  Those efforts included locating the witnesses who had given evidence before Sheppard J, obtaining a copy of the transcript of that proceeding and preparing affidavits for execution by six witnesses.

38                  The applicants also pointed to the fact that Mr Smith did not file or serve any affidavits in support of his defence on any issue of authorship of the Aboriginal flag or ownership of the copyright in it, notwithstanding his statement at the directions hearing on 5 June 2003 that these matters were in issue.  Although directions were given for the preparation of the court book and the filing of contentions of fact and law, Mr Smith did not file any such outline and did not contribute to the preparation of the court book.  After the time had expired for Mr Smith to comply with the directions to file and serve his outline of contentions of fact and law, a message was left on his voicemail by my associate enquiring as to when he would be filing and serving his contentions and whether he wanted to cross‑examine any of the applicants’ witnesses.  On 15 September 2003, one week before the date fixed for the trial, Mr Smith sent a letter by facsimile transmission to the Court, which was copied to the applicants’ solicitors, in which he said that he would not be submitting any contentions of fact and law, he would like to cross‑examine all the witnesses who provided affidavits and that he would be attending the proceeding in Melbourne in person.  It was only the evening before the date fixed for trial that he informed the Court he would not be attending the hearing.

39                  On 15 September 2003, after Mr Smith sent his letter by facsimile transmission, the solicitors for the applicants sent a letter in reply by facsimile transmission in which they noted that the applicants were seeking additional damages pursuant to s 115(4) of the Act and they provided the particulars on which they relied.  Those particulars covered the sale of Aboriginal flags after Mr Richardson’s conversation with Mr Smith in July 1999 and a number of respects in which Mr Smith had failed to comply with procedural directions and also his failure to admit authorship and ownership of the copyright in the Aboriginal flag.

40                  I do not consider that the manner in which Mr Smith approached the trial of the proceeding and conducted his defence is “a relevant matter” for the purposes of s 115(4)(b)(iv) of the Act.  The context in which the “relevant matters” appear in s 115(4) demonstrates that the matters must be relevant to the nature of the infringement and the consequences of the infringement in relation to the subject‑matter of the copyright.  If there be matters which have had an aggravating consequence on the incurring of costs by the applicants in proving their case, I consider that such matters should be taken into account in any order for costs but not in relation to the quantification of additional damages under s 115(4).

41                  The applicants relied on Milpurrurru v Indofurn Pty Ltd (1995) 30 IPR 209 in support of their proposition that the conduct of a respondent during litigation, especially in relation to the respondent’s refusal to acknowledge copyright, ownership and a refusal to consent to injunctions, was a relevant matter for the purposes of s 115(4) of the Act.  The issue before the court in Milpurrurru v Indofurn Pty Ltd was a claim by a number of Aboriginal artists for breach of copyright in certain artworks including bark paintings, a lino cut and Papunya style paintings in acrylic paint on canvass.  The subject‑matter of the artworks concerned creation stories of spiritual and sacred significance to the artists and the cultures of the group to which they belonged.  The respondents arranged for a carpet factory to manufacture a number of carpets which reproduced several of the artworks in full and reproduced other designs which were said to be reproductions of a substantial part of three of the artworks.

42                  The court made an order for additional damages pursuant to s 115(4) of the Act in respect of flagrant infringement.  In support of their claim for additional damages the artists submitted that the additional damages should be increased by the conduct of the respondents in the course of the litigation.  von Doussa J did not accept that submission and was not satisfied that the respondents’ conduct bore the characterisation claimed by the artists.  von Doussa J left the conduct of the respondents to be taken into account in making the relevant costs orders.

43                  The applicants relied upon the following passage at 247:

“The applicants have strenuously contended that the additional damages should be inflated by the conduct of the respondents in the course of the litigation, in particular the persistent refusal to recognise that the proceedings had been brought on the instructions of the artists, the refusal to acknowledge copyright ownership, and a refusal during the course of trial to consent to an injunction restraining the continued sale of the snake, the green centre and the waterhole carpets.  I have already commented that the tactical decisions involved in the first two of these matters are extraordinary, and on several occasions both in pre‑trial directions hearings, and during the trial, it was pointed out to the respondents and their advisers that the course they were adopting could be viewed as a matter of aggravation.  However, and with some hesitation, I have decided that these matters should not be so treated.  Having observed Mr Bethune in the witness box, I am left with the impression that his approach to the predicament in which he and Beechrow found themselves was largely dictated by wrong‑headed emotions and at times inappropriate advice.  I am not satisfied that the conduct of the litigation was wilfully contemptuous.  The tactical decisions are likely to lead to orders for costs compensating the applicants for the additional expense to which they have been put, and in the circumstances I think that is the appropriate way in which the conduct of the proceedings should be reflected.”

This passage does not support the proposition that the conduct of a respondent in relation to a proceeding before the court is a relevant matter to be taken into account for the purposes of s 115(4)(b)(iv) of the Act.  von Doussa J did not affirmatively accept the proposition that conduct in the course of litigation is a relevant matter for the purposes of s 115(4)(b)(iv) of the Act.

44                  Section 115(4) of the Act was amended by the Copyright Amendment (Parallel Importation) Act 2003 (Cth), sch 4, item 1.  The amendment inserted sub‑pars (ia) and (ib) in subs 4(b) of s 115.  Section 115(4) now reads:

“(4)     Where, in an action under this section:

(a)        an infringement of copyright is established; and

(b)        the court is satisfied that it is proper to do so, having regard to:

(i)         the flagrancy of the infringement; and

(ia)       the need to deter similar infringements of copyright; and

(ib)      the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

(ii)        whether the infringement involved the conversion of a work or other subject‑matter from hardcopy or analog forminto a digital or other electronic machine‑readable form; and

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

(iv)       all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.”

45                  The applicants submitted that the insertion of subpars (ia) and (ib) was declaratory of the position which had existed prior to the amendments.  There is substance in that submission as can be seen from cases such as Carson v John Fairfax & Sons (1992) 178 CLR 44 at 71 and Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578.  However, the conduct taken into account in those cases was conduct which was relevant to the substantive allegations made against the respondents.  For example, in the Microsoft case the respondent filed a defence which proved to be false.  Branson J took that fact into account in conjunction with other evidence which showed an intention on behalf of the respondent to conceal the identity of their suppliers to find “a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they are engaged in and actively sought to conceal it”. 

46                  I do not consider that the conduct of the respondent  contemplated by subpar (ib) of subs 115(4)(b) is referable to conduct of the defence insofar as it relates to procedural matters and matters whereby the applicants are put to the proof of their case, albeit unreasonably.  I consider that these are matters more appropriately dealt with by an appropriate order for costs. 

47                  The applicants submitted that an award of additional damages was analogous to an award of exemplary damages.  Such an approach was accepted by Burchett J in Autodesk Inc v Yee (1996) 35 IPR 415 at 419; see also Bailey v Namol Pty Ltd (1995) 30 IPR 147 at 157.  However, I consider that a distinction is to be drawn between conduct which relates to the substantive allegation made against a respondent, in which case exemplary damages might be appropriate, and conduct which relates to the manner in which the trial is conducted and the procedural steps taken, which are more appropriately dealt with by an appropriate order for costs. 

48                  Overall I am satisfied that this is an appropriate case for the award of additional damages having regard to the fact, in particular, that further sales were made after Mr Smith was put on notice of Mr Thomas’ claim to be the author of the design of the Aboriginal flag and the owner of the copyright in it.  However, as I have noted earlier, the degree of flagrancy is at the lesser end of the scale particularly having regard to the fact that the availability of the Aboriginal flag for sale was removed from Mr Smith’s website shortly after his conversation with Mr Richardson.  I therefore assess additional damages under s 115(4) of the Act in the sum of $1,000.

49                  I turn to the issue of costs.  In substance the applicants seek an order for indemnity costs.  The usual order for costs in litigation in the type presently before the Court is that costs are awarded on a party and party basis.  It has been made clear in numerous cases that the court ought not to depart from an order for costs on a party and party basis unless the particular circumstances of the case warrant a departure from the usual course.  A clear and well‑known exposition of the relevant principles is to be found in the judgment of Sheppard J in Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232‑234.  The circumstances which have been established as warranting an order for costs other than on a party and party basis include commencing or continuing proceedings in wilful disregard of known facts or clearly established law:  Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303.  The making of groundless contentions which unduly prolong a case has also been recognised as justifying an order for indemnity costs:  Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Davies J, Federal Court of Australia, 5 March 1993).

50                  I am satisfied in the present case that the conduct of Mr Smith warrants an award of indemnity costs in part.  Although he put the authorship and ownership of Mr Thomas in issue in his defence, he did not attempt to adduce evidence challenging Mr Thomas’ authorship and ownership.  At the directions hearing held on 5 June 2003 one of the issues specifically raised for consideration was the extent of the controversy between the parties.  At that time Mr Smith maintained he was contesting the issue of the existence of copyright in the Aboriginal flag.  He maintained this position notwithstanding the judgment of Sheppard J (see par [3]).  Shortly prior to that hearing Mr Smith had been given the opportunity to admit Mr Thomas’ authorship and ownership by way of response to a notice to admit but he had not done so, although he had accepted the authenticity of the licence agreement between Mr Thomas and Flags 2000 and the variation of it.  The affidavit sworn by Mr Smith on 14 February 2003 responded to Mr Richardson’s affidavit and dealt only with Mr Smith’s conduct after the existence of the copyright in the Aboriginal flag was brought to his attention in July 1999.

51                  The applicants were therefore compelled to prepare their case and their evidence on the basis that authorship and ownership of copyright in the Aboriginal flag were contested.  Indeed that position was maintained by Mr Smith when he sent his facsimile transmission on 15 September 2003 in which he said he would be appearing and he wanted to cross‑examine all the applicants’ witnesses.  In these circumstances I consider that there should be a departure from the usual rule of costs being awarded on a party and party basis in respect of the work undertaken by the applicants and their costs incurred after the directions hearing on 5 June 2003, including the trial of the proceeding.

52                  Although the total amount recovered by the applicants is less than $100,000, I consider that the proceeding was properly brought and continued in the Federal Court.  In reaching this conclusion I have taken into account the significance of the issue of a challenge to the copyright in the Aboriginal flag which had been proclaimed pursuant to the provisions of the Flags Act and the fact that it was a case in which it was appropriate to grant a permanent injunction.  I therefore direct that O 62 r 36A of the Federal Court Rules not apply.

Associate:

Dated:              7 October 2003