FEDERAL COURT OF AUSTRALIA

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd

[2004] FCA 183

PRACTICE AND PROCEDURE – Anton Piller orders made in copyright suit – Claim of infringement of musical copyrights by operation of ‘peer to peer’ computer file sharing – Application to set aside orders on basis of non-disclosure of material facts – Undisclosed facts related to the conduct of some respondents in United States litigation of a similar nature – Whether the undisclosed facts were material – Distinction between ‘static’ records showing the structure of a file-sharing system and ‘dynamic’ records showing the system in operation – Application to set aside orders dismissed.

UNIVERSAL MUSIC AUSTRALIA PTY LTD, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED v SHARMAN LICENSE HOLDINGS LTD, SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, PHIL MORLE

N 110 of 2004

WILCOX J

4 MARCH 2004

SYDNEY

THE COURT ORDERS THAT:

1.         Insofar as they seek orders setting aside the orders made on 5 February 2004 (as amended on 6 February 2004), the notice of motion filed by the respondents on 10 February 2004 and the notice of motion filed by Brilliant Digital Entertainment Pty Limited and Kevin Glen Bermeister on 13 February 2004 each be dismissed.

2.         Insofar as the said notices of motions seek other orders, they be stood over generally.

3.         The costs of the motions hitherto incurred be applicants’ costs in the principal proceeding.

4.         The principal proceeding be stood over for further directions on Tuesday, 23 March 2004 at 9.30am.

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

REASONS FOR JUDGMENT

WILCOX J:

1                     Before the Court are two notices of motion seeking the discharge of Anton Piller type orders made by me on 5 February 2004.  The orders were made in a proceeding intended to be instituted by six applicants, Universal Music Australia Pty Ltd, Festival Records Pty Ltd and Mushroom Records Pty Ltd trading as Festival Mushroom Records, EMI Music Australia Pty Limited, Sony Music Entertainment (Australia) Limited, Warner Music Australia Pty Limited and BMG Australia Limited.  Although these six parties are respondents to the motions, it is convenient to refer to them in these reasons as ‘the applicants’.

2                     One motion is brought by the five respondents to the principal proceeding, Sharman License Holdings Ltd, Sharman Networks Ltd (‘Sharman Networks’), LEF Interactive Pty Ltd (‘LEF’), Nicola Anne Hemming and Philip Morle (‘the respondents’).  The other motion is that of Brilliant Digital Entertainment Pty Limited (‘BDE’) and Kevin Glen Bermeister.  I will refer to these two persons as ‘the Brilliant Digital parties’.  Although not respondents to the principal proceeding, the Brilliant Digital parties were named in Schedule 1 of the Anton Piller orders (along with the five respondents) as ‘Kazaa Parties’.  They were subjected to the operation of the Anton Piller orders in the same way as if they had been respondents to the principal proceeding.

The Anton Piller orders

3                     In accordance with usual practice, the Anton Piller orders were made on the ex parte application of counsel for the applicants.  Counsel’s application was supported by four volumes of material comprising the application proposed to be filed to commence the principal proceeding, two draft notices of motion (one of which was the motion seeking Anton Piller orders), a solicitor’s undertaking, an outline of submissions, a draft order for ex parte relief and numerous affidavits.

4                     The affidavit evidence indicated that all the applicants are Australian record companies with extensive catalogues of copyright sound recordings.

5                     Paragraphs 3 to 6 of counsel’s outline of submissions explained the background to the application:

‘These proceedings relate to large scale infringement of copyright in sound recordings by the operation of a so-called “peer to peer” internet “file sharing” system and associated computer software generally known as “Kazaa”.

Technological developments in recent years have greatly increased opportunities for, and the scale of, piracy of sound recordings.  This has been particularly so with the availability of a range of technologies, including compact discs (CDs), personal computers and the internet, which have together enabled the copying and online transmission of digitally accessible versions of sound recordings.

There is in Australia no right of private copying of copyright sound recordings.  Accordingly, it is an infringement of copyright for an individual to “rip” (copy) the content of a copyright commercial CD, or to download a digital music file that is a copyright sound recording, unless specifically authorised to do so.

The developments described in paragraph 4 above have led to the promotion of various schemes designed to facilitate the exchange between computer users of copyright sound recordings, including the so-called “peer to peer” technology.’

6                     Counsel went on to describe the ‘Kazaa’ system.  They described it as a scheme using software known as Kazaa Media Desktop (sometimes ‘KMD’) ‘that permitted users to distribute and receive digital music files to and from each other’.  They stated this software first appeared in the Netherlands.  Legal proceedings were brought in the Netherlands, after which ‘there was a relocation of the entities apparently associated with supplying the software to countries outside the Netherlands’.

7                     In para 10 of their outline of submissions, counsel made a reference to legal proceedings in the United States.  They said:

‘The second set of proceedings was commenced in the United States in relation to infringement of United States copyright.  The applicants in those proceedings include but are not limited to five of the applicants in the present case.  In October 2002, certain of the present respondents were joined to those proceedings.  Those proceedings remain on foot.  Ancillary proceedings (relating to a letter of request to obtain evidence and documents in Australia pursuant to the Hague Convention) are on foot in the Supreme Court of New South Wales.  These are not substantive proceedings and they do not relate to Australian copyright.’

8                     At a directions hearing after the grant of the Anton Piller orders, counsel for the applicants told me the second sentence in this passage is erroneous.  The sentence should have stated that the United States applicants (plaintiffs) include companies associated with the present applicants, not the applicants themselves.  Nothing turns on this difference.

9                     In their outline of submissions, counsel for the applicants referred to the release of new Kazaa software in June 2003, and changes to that software in September and December 2003.  They asserted:

‘it has become apparent that the Kazaa scheme, which promotes enormous infringement of sound recording copyright, is now substantially administered from Australia.  Further, it has become apparent that representations previously made by those associated with the Kazaa scheme about their inability or the inability of the Kazaa system to track or distinguish between legitimate and illegitimate (infringing) sound recordings, are not (or are no longer) correct.’

10                  Counsel then said:

‘However, there remain significant features of the Kazaa system about which the applicants have not been able to obtain detailed knowledge.  These include the nature and extent of communications passing between various elements of the Kazaa system, including encrypted communications, the content of such communications, and the existence and operation of mechanisms used by the operators, programmers and administrators of the Kazaa system to control or monitor aspects of the system.

Accordingly, the applicants move for ex parte relief in the nature of Anton Piller orders against the respondents, and analogous orders against a number of third parties whose computer systems are believed to be involved in the operation or facilitation of the Kazaa system or the provision of the Kazaa software and are likely to contain specific information relevant to these proceedings.  In essence, the relief currently sought relates to the inspection and (in certain cases) preservation of information and data relating to aspects of the Kazaa system and its operation.’

11                  It is not necessary for me to refer to all the material contained in the affidavits used to support the application for Anton Piller orders.  None of that material is disputed, for present purposes.  However, it is desirable to note the evidence put before me as to the nature of the risk of destruction of evidence, if Anton Piller type relief was not obtained. 

12                  Jorg Michael Speck is the Manager of Music Industry Piracy Investigations, an organisation apparently controlled by the applicants.  Mr Speck has held that position for nine years.  Prior to that time, he was a detective sergeant and senior investigator in the New South Wales Police Service.  The material in his affidavit suggests he is well conversant with the problem of copyright piracy in the music industry.  He has been deeply involved with investigations into the Kazaa system, the features of which he explained at length.  He set out some information about each of the Kazaa Parties.  At paras 185-187 of his affidavit, he said:

‘Information gained from files contained on the computers of the server or of the site operators is likely to reveal information about the structure, operation and monitoring of the Kazaa system and the infringement of copyright of the applicants occurring on that network or committed by Kazaa users.

Based on my experience in the enforcement of copyright in cases of online copyright infringement, I believe that there is a very high risk of the destruction, dissipation or unavailability of documents and computer records in the event that notice is given to the respondents of the allegations of copyright infringement.

I hold this belief for the following reasons:

(a)              There is real risk that with notice of the application some, or all of the respondents, and their associates, will destroy documents and data.  The first and second respondents are not companies incorporated or registered in Australia.  The applicants are entirely unable to identify the persons, other the [sic] fourth and fifth respondents (who are identified on the sharmannetworks website), who are in practical control of the company.  I therefore have no knowledge of how many unidentified persons may be directing the activities of the first and second respondents and able to direct staff in Australia to destroy or transfer documents out of Australia.

(b)              Much of the information to which the applicants seek access for use in the proceedings is inherently vulnerable to destruction or loss.  I have significant concerns about the high risk of destruction of crucial evidence given how quickly electronic files can be moved and/or deleted, particularly around the highly complex Kazaa system.  I have found in previous internet piracy investigations that information is frequently overwritten or lost by the ordinary operation of computer systems.  Once overwritten it becomes much more difficult to retrieve by computer forensic processes.  This is particularly the case with logs of data or electronic transactions which can be overwritten as new data is recorded.

(c)        The transient nature of many aspects of the Kazaa system, and the data likely to record its actions.  The [sic] I understand from the evidence filed by the forensic experts in this matter that the Kazaa supernodes are transitory, existing for anywhere from hours to days only to disappear without warning.  It is not, in my view feasible for evidence about their activity to be gathered without being able to take a snapshot of the system.  Any notice of this is likely in my view to enable the operators of the Kazaa system time to remove or alter the processes to prevent the analysis of individual network elements thereby denying the applicants the opportunity of analysis of the information.

(d)       The enormous scale of copyright infringement involved and the potentially very large number of people involved in the infringements of copyright (including KMD users on the Kazaa system) means that there are likely to be a large number of participants who would seek to conceal themselves from detection by the applicants by deleting data and changing their behaviour for the period of observation.  This is not a case in which, in my view, the applicants can simply seek to make document and data requests in the ordinary way and expect that any of the that [sic] information will be recoverable.’

13                  On the basis of the material put before me on 5 February 2004, I made a number of ex parte orders.  Order 4 required each ‘Kazaa Party’ – that is, each of the respondents and the Brilliant Digital parties - to permit a total of not more than five persons, comprising representatives of the applicants and forensic experts (‘the Attending Representatives’), together with an independent solicitor, to enter and remain upon specified premises during specified hours.  Order 5 authorised the Attending Representatives to:

‘(a)      search for, identify, observe, monitor and examine (including with the use of facilities to examine, decode or restore data):

(i)      any Electronic Materials which contain information or data listed in Schedule 2 (Kazaa Party Electronic Materials);

(ii)     any documents in non-electronic format which contain information or data listed in Schedule 2 (Kazaa Party Documents);

(b)        copy or capture (including with the use of forensic methods) from any Kazaa Party Electronic Materials or Kazaa Party Documents any information or data listed in Schedule 2;

(c)       subject to order 14 below, remove into the possession and safekeeping of the Applicants’ solicitors any information or data copied or captured pursuant to sub-paragraph (b) above.’

14                  Order 6 required each Kazaa Party to disclose to the Attending Representatives all Kazaa Party Electronic Materials and Kazaa Party Documents in that party’s possession.

15                  The terms of Schedule 2 are of critical importance to the operation of these orders.  The Schedule read:

‘DEFINITIONS

In this Schedule 2:

Kazaa Software means the software applications Kazaa Media Desktop and Kazaa Plus;

Kazaa System means the Kazaa peer-to-peer file sharing system or any network involving the use of any of the Kazaa Software;

Kazaa Websites means the websites (in any language) accessible at www.kazaa.com and www.kazaaplus.com, and any substantially identical websites.

RELEVANT INFORMATION AND DATA

Kazaa System

1.         Information recording the number or location of:

            (a)        users of the Kazaa Software;

            (b)        supernodes in the Kazaa System;

            (c)        other central servers forming any part of the Kazaa System,

            in Australia.

2.         Information recording communications between the respondents and any one or more of the following:

            (a)        users of the Kazaa Software;

            (b)        supernodes in the Kazaa System;

            (c)        other central servers forming any part of the Kazaa System,

            in Australia.

3.         Information recording the function or management of Australian supernodes in the Kazaa System.

4.                  Information recording the administration, management or monitoring of the functions of:

(a)        users of the Kazaa Software;

            (b)        supernodes in the Kazaa System;

            (c)        other central servers forming any part of the Kazaa System,

            in Australia.

5.         Information recording the hosting of any of the Kazaa Websites in Australia.

6.                 Information recording the creation or transfer of any digital music files (including MP3 files) in Australia by or to any user of the Kazaa Software or by means of the Kazaa Software in Australia.

7.         Information recording the means by which communications over the Kazaa System are or can be encrypted.

8.         Information recording the processes by which users of the Kazaa Software in Australia can search for digital music files by means of the Kazaa Software.

9.         Information recording the processes by which files recognised as gold files by the Kazaa Software are delivered to users of the Kazaa Software in Australia by means of the Kazaa Software.

10.       Information recording the process by which the Kazaa Software distinguishes between different files types, including gold files and blue files.

Supernodes

11.       Information recording communications between each Australian supernode in the Kazaa System and any one or more of the following:

            (a)        users of the Kazaa Software;

            (b)        other supernodes in the Kazaa System;

            (c)        other central servers forming any part of the Kazaa System.

12.       Information recording the administration or monitoring by the respondents of Australian supernodes in the Kazaa System and any software applications used for this purpose.

13.       Information recording digital music files located on computers of other users of the Kazaa Software, including index files.

14.       Information recording the configuration and administration of any Australian supernode in the Kazaa System, including registry keys and configuration files.

15.       Information recording the creation on or transfer of any digital music files (including MP3 files) by means of any computer at the Applicable Kazaa Party Premises.

16.       Digital music files (including MP3 files) located on any computer at the Applicable Kazaa Party Premises.

Edge servers

17.       Information recording the physical or network locations of Australian edge servers being used in relation to the Kazaa System.

18.       Information recording all communications between Australian edge servers being used in relation to the Kazaa System and any one or more of the following:

            (a)        users of the Kazaa Software;

            (b)        supernodes in the Kazaa System;

            (c)        other central servers forming any part of the Kazaa System.

19.       Information recording the administration or monitoring by the respondents of Australian edge servers being used in relation to the Kazaa System and any software applications used for that purpose.

20.       Information recording digital music files located on computers of other users of the Kazaa Software, including index files.’

16                  Having regard to one aspect of the applicants’ argument, I should refer also to orders 13 and 14.  They read:

‘13.      For the avoidance of doubt, orders 5, 8 and 11 above extend to:

(a)       undertaking a search of all of the contents of Electronic Materials by appropriate technical or forensic means, including gaining of access to drives by non-destructive mechanical means;

(b)       making bitstream images of files and records as follows:

(i)      where the files are in a static environment, extracting the files and securing a copy;

(ii)     where the files are in a dynamic environment, isolating the files, making a bitstream image and then securing a copy,

            whether or not those contents or images include information or data in addition to information or data constituting, evidencing or referring to any of the things listed in Schedules 2, 4 or 6.

14.       Any images of the kind referred to in paragraph 13(b) above must be kept in the secure custody of one or more of the Forensic Experts and not subjected to further analysis without a further order of the Court.’

17                  Action taking advantage of the orders was undertaken on 6 February 2004.  During the course of that day, I was asked to amend the orders in certain respects.  I did so, by consent.  The amendments did not affect orders 4, 5, 6 or 13 or Schedule 2.  They did vary the detail of order 14.

The motions

18                  The principal proceeding came before me for directions on 10 February 2004.  I granted leave to the respondents and the Brilliant Digital parties to file their respective notices of motion.

19                  The respondents’ motion (as subsequently amended) sought the following relief:

‘The proceedings be stayed pending the determination of the U.S proceedings MGM v Grokster et al Case No. CV01-08541 and CV01-09923.

Orders 4, 5 and 6 of the Amended Order dated 6 February 2004 be set aside.’

In the alternative, the motion sought orders concerning custody of, and access to, the materials taken from the respondents pursuant to the Anton Piller orders.

20                  Similarly, the motion filed by the Brilliant Digital parties sought that orders 4, 5 and 6 be set aside, along with other orders.  That motion also sought orders concerning custody of, and access to, the seized material.

21                  The motions were heard on 20 February 2004.  Counsel for the respondents, Mr F M Douglas QC and Ms S J Goddard, and counsel for the Brilliant Digital parties, Mr F G Lever SC, contended that, in applying for the Anton Piller orders, the applicants had failed to disclose material facts.  Therefore, they said, those orders ought to be set aside.  Both sets of counsel identified the relevant material facts as facts concerning the United States litigation mentioned at para 7 above.

Evidence on the motions

(i)         The respondents’ affidavits

22                  The respondents (applicants on the motions) relied on four affidavits: two affidavits of Shannon Elizabeth Platt, a solicitor employed by Phillips Fox, the firm of solicitors acting for the respondents, and two affidavits made by Roderick G Dorman, an attorney practising in California.

23                  Ms Platt’s first affidavit set out the history of the United States litigation.  It appears that, on 2 October 2001, a proceeding (MGM v Grokster Ltd) was instituted in the United States District Court, Central District of California (‘the US Court’), by 28 plaintiffs (‘the plaintiffs’), all of whom claimed to be owners of copyright in motion pictures and sound recordings.  The plaintiffs included companies associated with the present applicants.  The original defendants comprised four companies, Grokster Ltd (‘Grokster’); Musiccity.Com, Inc; Musiccity Networks, Inc; and Consumer Empowerment BV.  The plaintiffs sought injunctive relief in relation to breach of copyright and an account of profits or award of damages.

24                  On 19 November 2001, a second action (Leiber v Consumer Empowerment BV) was commenced in the same Court.  This was a class action brought by five plaintiffs against the same four defendants.  On 7 March 2002, the two proceedings were consolidated.  I will refer to the consolidated proceedings as ‘the US proceedings’.

25                  Consumer Empowerment BV is a Netherlands corporation.  At some stage it changed its name to KaZaa BV.  It filed an answer and counterclaim in the US proceedings.  However, on 28 May 2002, it applied for leave to withdraw those pleadings, citing financial reasons.  Leave has not yet been granted.

26                  On 8 July 2002, the US Court granted the plaintiffs leave to add two of the present respondents as additional defendants.  They were Sharman Networks and LEF.

27                  At some stage, Musiccity.Com, Inc changed its name to Streamcast Networks Inc (‘Streamcast’).  On 9 September 2002, the plaintiffs filed motions for summary judgment against this defendant, and also against Grokster.  Those defendants filed cross-motions for summary judgment.  On 1 October 2002, Sharman Networks and LEF also applied for summary dismissal.

28                  On 28 and 29 October 2002, Nicola Hemming and Philip Morle, the fourth and fifth respondents in the present proceeding, were deposed in Vancouver, Canada in relation to a challenge to the jurisdiction of the US Court.  On 8 January 2003, the US Court (Judge Wilson) denied the applications for summary dismissal filed by Sharman Networks and LEF.

29                  However, on 25 April 2003, Judge Wilson delivered a judgment in which he rejected the claim for summary dismissal made by the plaintiffs against Grokster and Streamcast and granted the applications for summary dismissal made by those defendants.  This decision was not based on jurisdictional grounds but upon a conclusion that the software then being used by Grokster and Streamcast did not infringe the plaintiffs’ copyright, which Judge Wilson assumed to exist for the purpose of the applications.  The reasons for judgment contain an analysis of the software offered by each of the two defendants and a discussion of the effect of the relevant United States copyright law.

30                  On 23 May 2003, the plaintiffs filed a notice of appeal against this decision to the United States Court of Appeal (Ninth Circuit).  On 3 February 2004, the Court of Appeal heard oral argument in that appeal and reserved its judgment.

31                  Ms Platt’s first affidavit also sets out the history of related proceedings in the Supreme Court of New South Wales (‘the Supreme Court’).  It appears that, on 14 May 2002, at a time when the parties to the US proceedings remained the original parties, the plaintiffs sought orders that Ms Hemming and Mr Morle be orally examined in Sydney.  They also sought orders for production of documents by them, and also by other persons, including Sharman Networks, LEF and BDE.  This application was granted by the US Court.  The US Court issued a Letter of Request addressed to the Supreme Court.

32                  Pursuant to the Letter of Request, the Supreme Court made orders for the attendance of witnesses and production of documents.  These orders were subsequently varied so as to postpone the date for compliance to a date to be fixed.  I gather this happened because of events in the US Court.  Apparently the persons affected by the Letter of Request have voluntarily provided some documents, but the Letter of Request proceeding remains in limbo.

33                  In the meantime, on 27 January 2004, the US Court made an order for the deposition of Sharman Networks’ witnesses, in Sydney, over a period of 56 hours commencing on 16 February 2004.  After the institution of the present proceeding, that date was abandoned.

34                  Ms Platt gave evidence, on information and belief, that Sharman Networks and LEF have discovered in the US proceedings ‘in excess of 100,000 pages’ of documents.

35                  The second affidavit of Ms Platt retails information given to her by Ms Hemming regarding the first respondent to this proceeding, Sharman License Holdings Ltd, and also events that were said to have happened during implementation of the Anton Piller orders.  This material is not relevant to the present motions.

36                  The affidavits of Mr Dorman confirm Ms Platt’s understanding of the history of the US proceedings, and supply a little more detail about them.  Correspondence annexed to Mr Dorman’s second affidavit shows there has been dispute between the lawyers of the respective parties about the adequacy of the discovery made by Sharman Networks and LEF in the US proceedings.

(ii)        Brilliant Digital parties’ affidavits

37                  Mr Lever read two affidavits made by Mr Bermeister.  The first of them, dated 6 February 2004, refers to the US proceedings.  Mr Bermeister asserts that he and BDE ‘have continued to provide all documentation and participated in depositions for that purpose’.

38                  The second affidavit, dated 17 February 2004, concerns two United States companies, Brilliant Digital Entertainment Inc, and its subsidiary, Altnet Inc.  Apparently, BDE (the Australian company) is owned by Brilliant Digital Entertainment Inc.  Mr Bermeister annexed to this affidavit copies of documents relating to the US proceedings.  He stated that 90% of the items seized at the time of implementation of the Anton Piller orders had been delivered by one or other of the three companies to the plaintiffs in the US proceedings.  Anthony Rose, an employee of BDE who was present at the time of execution of the Anton Piller orders, made an affidavit in which he detailed what he believed to have been taken.

(iii)       The applicants’ affidavits

39                  Counsel for the applicants (Mr A J L Bannon SC, Mr R Cobden and Mr C Dimitriadis) indicated they relied upon all the evidence that was provided to me on 5 February 2004.  They read affidavits, made by various people, as to information obtained in the course of implementation of the Anton Piller orders.  They also read a further affidavit, dated 20 February 2004, of Michael John Williams, a partner in Gilbert + Tobin, the firm of solicitors acting for the applicants.  This affidavit reported information that Mr Williams had recently obtained from the United States attorneys acting for the plaintiffs in the US proceedings.

(iv)       Irrelevancies

40                  Much of the affidavit evidence put before the Court is irrelevant to the present motions.  The sole ground upon which I am asked to set aside the Anton Piller orders made on 5 February 2004 is material non-disclosure, on that day, of facts concerning the US proceedings.  Evidence about what happened at the time of implementation of the orders on 6 February 2004 is irrelevant.  This includes evidence from Ben Joseph Lyons, a computer forensic expert, as to what the search revealed, as well as evidence from Mr Bermeister and Mr Rose alleging excessive or inappropriate seizure of documents.  These are important matters, but they are for another day.

41                  Some affidavits contain complaints about the adverse effects, for the respondents and the Brilliant Digital parties, of the Attending Representatives’ intrusion into their premises and the removal of material from them.  I understand these complaints.  Without commenting on their justification (if any), I note the complaints are a further reminder, if one were needed, about the need for caution in making Anton Piller orders.  However, the complaints are irrelevant to the issue I now have to determine.

(iv)       Mr Williams’ oral evidence

42                  As previously mentioned, the only present issue is whether there was a material non-disclosure about the US proceedings.  Mr Douglas and Mr Lever each cross-examined Mr Williams on that subject.

43                  In response to Mr Douglas, Mr Williams agreed that Gilbert + Tobin was a specialist commercial law firm and he personally had particular experience in copyright matters.  Mr Williams said he had acted for the record industry for a long time and had previously sought Anton Piller orders; he was aware that an applicant for such orders has a duty to make full and frank disclosure to the Court of all material facts.  He accepted this obligation involves making all proper inquiries before making any application.

44                  Mr Williams agreed that his firm acted on behalf of United States principals in connection with the Letter of Request proceedings in the Supreme Court.  He also agreed his firm played a role in joining LEF and Sharman Networks to the US proceedings.  Gilbert + Tobin provided information about them to the United States attorneys.  Mr Williams said that, when he applied for the Anton Piller orders, he knew these two companies were defendants in the US proceedings.  He agreed he knew the nature of those proceedings.

45                  Mr Douglas put to Mr Williams that, in relation to the application for Anton Piller orders, ‘it would be relevant for the Court to know how Sharman Networks and LEF were behaving themselves as defendants’ in the US proceedings.  Mr Williams disagreed.  He thought the nature of the Anton Piller application ‘is quite a different application from my understanding of the US proceedings’.

46                  Mr Williams agreed that the principal purpose of Anton Piller orders ‘is to prevent the destruction of evidence’.  He agreed that evidence reflecting upon the likelihood of potential respondents destroying evidence may be relevant.  But he did not agree it had been incumbent on him to inquire of the lawyers representing the plaintiffs in the US proceedings ‘as to what was happening in relation to discovery and depositions in those proceedings’.  He thought they were ‘entirely different proceedings’, ‘different in structure’. 

47                  Mr Douglas referred Mr Williams to a passage in the submissions prepared for that day’s hearing by counsel briefed by him.  It reads:

‘Inherent in the disclosure of the fact of the United States proceedings was the proposition that the parties to those proceedings would be subject to ordinary Court processes, including discovery and evidence, in relation to matters in issue in those proceedings.  The applicants made no allegation or suggestion to the contrary.  Nor did the applicants suggest that any party to the United States proceedings, whether the respondents, the Brilliant/Bermeister parties or otherwise, was or may be recalcitrant in complying with such obligations.’

48                  Mr Williams said he agreed with that.  However, he had no specific knowledge as to what discovery procedures were taking place in the United States.  He said ‘we as a firm were given two different sets of instructions which didn’t necessarily overlap’; one in relation to the US proceedings and one in relation to this (Australian) proceeding.  He said he did not handle all of the instructions concerning the US proceedings; but he was aware of the content of both sets of instructions.  He accepted that, if he learned a particular fact in relation to one proceeding, that fact should be regarded as being within his knowledge for the purposes of the second proceeding.

49                  Mr Williams said Gilbert + Tobin had not been asked by its United States principals to provide any assistance in connection with the US proceedings since August 2003.  He was not aware of the proposal to take depositions on 16 February 2004.  He said he did not make inquiries about the current position of the US proceedings when preparing to apply for Anton Piller orders in this proceeding.  He would not agree he abstained from doing so.  He said:

‘I was advising local companies about issues that affected them locally.  I had no instructions from US lawyers or from US companies.’

50                  The following exchange between Mr Douglas and Mr Williams then occurred:

‘Do you tell this Court that as the solicitor for the applicants proposing to make an application for an Anton Piller to this Court, that it didn’t even occur to you that it may be relevant for this Court to know how the defendants in the US proceedings who were to be the respondents to these proceedings, were conducting themselves in relation to their defence of those proceedings? --- No and not all of the defendants in these proceedings are defendants in those proceedings and vice versa.

Do you place reliance upon that matter, Mr Williams? --- I rely on the investigations that were taking place here and the instructions that I got here.

But I ask you: do you place reliance upon the fact that not all of the defendants in the American proceedings are the same as those in these proceedings? --- That’s right, some reliance.

But in relation to those who were defendants in both sets of proceedings, is it your evidence to this Court that it did not even occur to you that it may be relevant for the judge who was being asked to make the order to know how those defendants were conducting themselves in their defence of those other proceedings? --- Yes, separate set of proceedings in another country to do with different copyrights in a differently constructed case, yes.’

51                  I asked Mr Williams some questions about his knowledge of Sharman Networks and LEF.  He said the information he had obtained indicated the Sharman companies ‘did not willingly submit to this jurisdiction or any jurisdiction’.  He said the decision to join LEF in this proceeding was based on investigations, carried out late last year, about its activities in Australia.  I then had this exchange with Mr Williams:

‘Yes, but you see, it’s a question of the character of the respondent that has been put to you.  A primary purpose of the Anton Piller orders is to prevent the destruction of records and obviously one’s attitude to that depends a little bit on the nature of the person or organisation that has the records.  There are some people against whom you would be very slow to make that assumption and there are other people that you would much more readily make it, so therefore the character of the respondent is, at least in my mind, an important matter. --- Your Honour, as for LEF, my belief was, because of a significant amount of material that appears in the evidence in this case, that LEF may not have the capacity – that documents may be in LEF’s possession and may be claimed to be documents of Sharman and therefore the danger was and remains that documentation relating to the business of Kazaa or the effective operation of Kazaa that might be in the hands of LEF is there only in the hands in a fairly artificial fashion, which is as a management company, and could be removed, erased, even disappear during the ordinary course of its operations on behalf of Sharman or at the direction of Sharman.  We don’t know who are the ultimate controllers of Sharman and we’re not allowed to find that out because they’re Vanuatuan companies and it’s an offence to actually make that inquiry in Vanuatu.’

52                  Mr Williams told Mr Lever he did not previously know that Mr Bermeister and Mr Rose had appeared to answer questions on deposition.

Submissions

(i)         The respondents

53                  The respondents’ submissions refer to several cases in which courts have emphasised the need for an applicant for ex parte relief to disclose to the judge all material information of which that applicant is aware.  They mention Thomas A Edison Limited v Bullock (1912) 15 CLR 679, in which Isaacs J at 681 spoke of the obligation ‘to bring under the notice of the Court all facts material to the determination of his right to that injunction’.  His Honour said it was no excuse for the applicant to say he was not aware of the importance of those facts.

54                  As counsel point out, this approach has been followed in later cases, and applied to Anton Piller applications.  The applicants do not dispute its application to this case.

55                  The respondents accept the existence of the US proceedings was disclosed to me when the applicants sought the Anton Piller orders: see para 7 above.  They do not criticise the accuracy of the information about the US proceedings then given to me.  But they say this information was inadequate; it failed to disclose that the proposed respondents to this proceeding were co-operating, both with the US Court and the plaintiffs in the US proceedings, in relation to discovery of documents and oral depositions.  Counsel say Mr Williams failed to make the inquiries that were necessary to enable him to discharge his duty of disclosure.  Their submission is that Mr Williams could, and should, have obtained the necessary information from the plaintiffs’ United States lawyers.  Counsel say their clients’ ‘conduct in what are essentially similar and related proceedings against what are essentially the same opponents in relation to the same subject matter (as concerns the alleged infringing technology) was undoubtedly highly relevant to the ex parte application for Anton Piller relief’.  They submit:

‘Whilst there may be additional plaintiffs in the US proceedings, and whilst the US law on secondary liability or authorization of copyright infringement may differ somewhat from Australian law, these are not matters which serve to distinguish the current proceedings from the US proceedings when it comes to the exercise of a discretion whether or not to grant ex parte Anton Piller relief.  The possibility of the Respondents destroying evidence in either proceedings is one which is essentially the same question.’

(ii)        The Brilliant Digital parties

56                  Counsel for the Brilliant Digital parties put a similar argument.  He referred in some detail to the evidence regarding the discovery undertaken in the US proceedings.  He argued that Mr Williams could, and should, have informed himself about this matter by making inquiries of the United States lawyers involved in the case.

57                  Mr Lever referred to the following comment made by Mr Bannon in oral argument:

‘The way the Kazaa system works is that when they download, the Sharman people download a Kazaa software to somebody else they provide – that software operates, so far as we can tell, or the absolute detail of it is something which is part of the reason we wanted the Anton Piller, so that that user with the new software can immediately access the MyShare folders of other Kazaa users.  In other words, that’s their ticket to the game.’

58                  Mr Lever said this reason is ‘a long way from the accepted grounds for granting Anton Piller relief’.  He referred to a warning by Branson J, in Microsoft Corporation v Goodview Electronics Pty Limited [1999] FCA 754; 46 IPR 159 at [26], about the Court being ‘careful to avoid the extraordinary jurisdiction of the Court to make an Anton Piller order from being subverted to a mere investigatory tool for applicants or indeed, from being used for any purpose other than the preservation of vital evidence pending the hearing and determination of a proceeding’.  Mr Lever commented:

‘Anton Piller orders are by their nature draconian and highly invasive.  They are made in cases where the court is satisfied that there is a grave danger of property or vital evidence being destroyed.  Such an implied finding by the court casts a grave slur on the reputation of reputable businesses.  That’s why Anton Piller orders are only made in extreme cases.  The only way to overcome the slur is to have the Anton Piller orders set aside.  Had full and proper disclosure been made about Kevin Bermeister and Brilliant Digital Entertainment, then in my respectful submission, Anton Piller orders would not have been made against them.’

59                  Mr Lever said Mr Bannon ‘has attempted to draw a meaningful distinction between documents sought and provided’ by the Brilliant Digital parties in the US proceedings and the documents sought in the Anton Piller orders.  He said this apparent difference is not borne out by a comparison between the United States subpoena addressed to BDE and the categories of documents detailed in Schedule 2 to the Anton Piller orders.  This is an important submission.  I will return to it.

60                  Mr Lever’s conclusion was expressed in these terms:

‘the real issue is Gilbert + Tobin’s comprehensive failure to disclose vital information which would have led your Honour to the conclusion that there was no prospect at all that Brilliant Digital Entertainment and/or Kevin Bermeister would do anything other than continue their cooperation in the Kazaa copyright proceedings, whether those proceedings were instituted in the United States or Australia.  The non disclosed information would have made it clear that there was no risk that vital evidence would be destroyed.  There was therefore no basis for making Anton Piller orders against Brilliant Digital Entertainment or Kevin Bermeister.  There was no “real (or any) possibility that they may destroy such material before any application inter partes can be made”.

The only way to right the wrong induced by Gilbert + Tobin’s non disclosure is to discharge the offending orders.’

(iii)       The applicants

61                  In their submissions in reply, counsel for the applicants in the principal proceeding referred to the affidavit evidence of Mr Speck, set out at para 12 above.  Counsel used the term ‘Perishable Material’ to refer to the electronic material which Mr Speck described.  They went on:

‘The application was confined to the search for and discovery of the Perishable Material and the orders which were made were confined to the Perishable Material.  None of the applicants or their experts, counsel or solicitors asserted or suggested to the Court that there was a risk of dissipation or destruction of material or documents which did not fall into the identified category of Perishable Material (“Non-Perishable Material”).  It is and was plain that the Perishable Material did not include all material which might be discoverable in the due course of the proceedings.  It is and was implicit in the limitation of the application and the orders to the Perishable Material, that Non-Perishable Material was not at risk of dissipation in the face of a usual discovery order.’  (Original emphasis)

62                  Counsel also referred to an affidavit of Nigel John Carson, Director of Computer Forensics at Ferrier Hodgson, in relation to the material intended to be obtained in the Anton Piller searches.  He said:

‘In the case of each site, my forensic plan will direct the investigation to specific information and data about the operation of the Kazaa system.  With only one exception referred to below, in my view this very targeted approach will tightly limit, if not eliminate, the possibility that irrelevant data or information will be gathered in the forensic process.  In this way in my view the privacy and confidentiality of the persons who own or use the computers will be respected and protected and irrelevant information will not be captured in the forensic process.

The one exception relates to the taking of a forensic bitstream image described below of certain limited single desktop computers.  This is a standard forensic process used to gather a control copy of the whole of the hard drive or other media to record the files in their entirety before any forensic examination of specific files occurs.  Creating a bitstreram image of a computer is only appropriate if a single small computer can be isolated and would not be a process used on larger computer systems or system computers.  This whole image represents a complete physical record of the state of the computer system that can potentially contain both relevant and irrelevant information.

Given that irrelevant information may have been captured in the imaging process, where I have been permitted to undertake forensic examination of computers pursuant to orders of this Court in other proceedings and have taken a bitstream image, I have not released that image to the applicants or their legal representatives and have maintained it in my safe custody pending further order of the Court.  That is the same process that I would follow in this case should the Court make orders permitting me and my forensic team to carry out a forensic examination of identified computers.’

63                  Counsel for the applicants pointed out that neither Mr Speck nor Mr Carson was required for cross-examination.  They said the respondents and the Brilliant Digital parties:

‘did not lead any evidence to suggest that the evidence of those witnesses was misconceived.  They did not lead evidence from any person employed by the respondents to deny that the Perishable Material was in jeopardy or to assert that the respondents had a system of retention of Perishable Material or that the respondents had never destroyed or concealed Perishable Material.  Rather, they led evidence from a United States lawyer that his clients had given discovery of certain material in the United States.  That evidence did not assert that the material discovered in the United States was the Perishable Material or the same as the Perishable Material.  An examination of his description of material discovered indicates that it was not Perishable Material.  The respondents do not submit that it was the same or similar material.’  (Original emphasis)

64                  Counsel summarised their position by saying:

‘In short, in answer to an application for ex parte orders for seizure of Perishable Material, the respondents put on evidence to say they have previously discovered Non-Perishable Material.  In fact they say they have discovered lots of Non-Perishable Material, in other words lots of material that none of the applicants or their witnesses or their counsel or their solicitor ever suggested to the Court was at risk of destruction.’  (Original emphasis)

Conclusions

65                  The submissions of counsel refer to many matters I am not required to determine at this time.  I need not set them out or make any comment about them.

66                  I am not in a position to form any view about the merits of the dispute between the parties as to the degree of co-operation shown by the respondents and the Brilliant Digital parties in disclosing material in the US proceedings.  However, if it is correct to say this co-operation (whatever its degree) would have borne upon the desirability of making the Anton Piller orders, I accept the co-operation ought to have been mentioned by counsel in seeking the Anton Piller orders.  The question is whether it would have had such a bearing.

67                  Counsel for both the respondents and the Brilliant Digital parties argue that, if there was material information known to the United States lawyers, non-disclosure of that information is not excused by the fact that Mr Williams was personally unaware of it.  They point out that he was aware of the existence of the US proceedings and that Sharman Networks and LEF were parties to those proceedings.  He was aware the US proceedings concerned allegations of infringement of copyright by those companies; in particular, through use of the Kazaa system.  If Mr Williams did not have knowledge of any particular fact, they say, he needed only to ask.  Counsel argue it is immaterial that the US proceedings concern infringement of United States copyright, whereas the present proceeding relates to Australian copyright.  They say the significant point is that the behaviour of Sharman Networks, LEF and the Brilliant Digital parties, in relation to non-destruction of evidence, would have furnished guidance as to the likelihood that those companies would destroy evidence relevant to the present case.

68                  I accept most of the submissions summarised in the last paragraph.  I agree it would be no answer to an allegation of non-disclosure of a material fact for the applicants to say Mr Williams was personally unaware of that fact, if this was something about which he could have asked the United States lawyers.

69                  However, the critical issue in the case is whether the conduct of Sharman Networks and LEF, in the US proceedings, was a fact material to the question whether or not it was appropriate for me to grant Anton Piller relief.  This issue does not turn upon the circumstance that one proceeding is brought in the United States, under United States law, and the other in Australia, under Australian law; or upon any difference between the procedures, rights and remedies which those laws provide.  The issue does not turn on differences between the identities of the moving parties in each proceeding, or the presence or otherwise of other responding parties.  It is reasonable to work on the assumption that, if Sharman Networks and LEF conducted themselves in a particular way, in relation to non-destruction of evidentiary material in the US proceedings, they would be likely to conduct themselves in a similar way in respect of similar material relevant to the present proceeding.  To put the matter at its lowest, if the purpose of the Anton Piller orders was to prevent the destruction of such material, information as to how they had conducted themselves in the US proceedings, in relation to similar material, ought to have been disclosed when the applicants applied for the Anton Piller orders.

70                  Mr Lever put his finger on the critical issue when he invited a comparison between the material itemised in the United States subpoena addressed to his clients and the material authorised to be seized under the Anton Piller orders made by me on 5 February 2004.  Although the subpoena is addressed to the Brilliant Digital parties, not the respondents, it seems the material sought of the respondents in the US proceedings was similar to that sought by the subpoena.

71                  Mr Bermeister has asserted that he co-operated in providing the documents itemised in the United States subpoena.  Whether or not that assertion is accepted, there is no suggestion that the Brilliant Digital parties, or anybody associated with them, has attempted to destroy any of the documents required by the subpoena.  Consequently, I agree with Mr Lever that, if the material identified in Schedule 2 of the Anton Piller orders was similar in nature to the documents required by the United States subpoena, it would be reasonable to suppose that the Brilliant Digital parties would not attempt to destroy that material either.  The same comment may be made in favour of the respondents.  On the other hand, if the material sought to be preserved by the Anton Piller orders is of a different character to that required to be produced in the US proceedings, being material at risk of loss irrespective of the attitudes and intentions of the respondents and the Brilliant Digital parties, their conduct in relation to the US proceedings may fairly be regarded as irrelevant. 

72                  It will be recalled that counsel for the applicants argued the material sought to be preserved under the Anton Piller orders is different in kind to the documents required to be produced in the United States proceedings.  This is not because the material covered by the Anton Piller orders comprises, or at least substantially includes, electronic information.  The subpoena issued in the United States proceedings to the Brilliant Digital parties defines ‘documents’ as including ‘writings in electronic form’.  The difference, according to counsel, is that the Schedule 2 material is ‘Perishable Material’; it is inherently transitory, rather than ‘Non-Perishable Material’ that will continue to exist until it is deliberately destroyed.

73                  With these thoughts in mind, I made the comparison urged upon me by Mr Lever.  As I understand the list contained in the United States subpoena, the relevant ‘documents’ are all documents relating to what Mr Bannon calls the ‘structure’ of the Kazaa scheme.  Item 1 refers to documents evidencing or referring to any version of the software, or the source or encryption code, that has a role in the functioning of KMD.  Item 2 relates to documents evidencing or referring to the design, operation or capabilities of KMD.  Item 3 is also concerned with documents relating to the design, operation or capabilities of software or code.  Item 4 seeks documents relating to services or information proposed to be provided to Sharman Networks.  Item 5 relates to documents that evidence or refer to the configuration of web servers, access log keepers and analysers.  Item 6 requires documents relating to Sharman Network’s policies and practices with regard to copyright infringement.  Item 7 is concerned with Sharman Networks’ ‘repeat infringer’ policy.  Item 8 relates to documents evidencing and referring to demographic information.  Item 9 concerns financing information.  Item 10 requires documents that evidence or refer to the content of available or downloaded files.  Item 11 seeks documents relating to communications concerning KMD or alleged copyright infringements through KMD and item 12 requests documents that evidence or refer to communications between Sharman Networks and various other persons.  Without going into further detail, the remaining items (13 to 23) all concern what might be called static business records.

74                  The important point about this list is that none of the items includes material (even in electronic form) recording transitory information; that is, data concerning the moment  to moment transactions undertaken by users of the Kazaa system.

75                  On the other hand, Schedule 2 of the Anton Piller orders does just that.  It authorises recovery of data that must be constantly changing: for example, the number and location of participants using the Kazaa system and the communications between them (items 1 and 2). 

76                  There may be elements of the information identified by the Schedule that are of a static nature.  Perhaps the best example is item 4: information recording the administration, management or monitoring of the functions of participants in the Kazaa system.  However, the possibility of picking up some static data was anticipated by order 13.  Order 13(b) provides that order 8 extends to files that are in a static environment.  In such a case, the files were to be extracted and copied and then held by a forensic expert, without further analysis, until further order of the Court.  As I understand the position, the idea was that anything of a static nature would be treated like a discoverable document; it was not to be inspected until the appropriate time.  However, to the extent that the seized material was of a dynamic nature, it could be copied and so preserved for future use as evidence.

77                  In an ideal world, it would be preferable for parties not to need to resort to Anton Piller action.  However, where the case sought to be made by a party depends upon demonstrating the operation of a dynamic scheme, it is difficult to see any alternative to the taking of ‘snapshots’ of the scheme in operation, thereby preserving evidence of what the dynamic system was doing at the moment of inspection.  This was the point made by Mr Speck when he said in his affidavit (see para 12 above) that he had previously found ‘that information [in a computer] is frequently overwritten or lost by the ordinary operation of computer systems’.  Although Mr Speck was also concerned with the possibility of deliberate destruction of electronic material, he was saying, as I understand him, that material may be lost without destructive intent.  If that is so, it is not to the point that the respondents and the Brilliant Digital parties have not deliberately destroyed documents containing static data that are required for the US proceedings.

78                  Because of the amount of material (evidence and submissions) that has been put before me in connection with these motions, I am now better informed of the problems and issues than I was on 5 February 2004.  However, if I apply the test of asking myself whether I would today think it appropriate to make Anton Piller orders in similar terms to those of 5 February 2004, I find myself answering the question in the affirmative.  I do so because it is obviously an essential part of the applicants’ case to put evidence before the Court about the dynamic operation of the Kazaa system, as distinct from its structure.  Evidence about dynamic operation is available on relevant computers, from moment to moment, as the transactions occur.  If that evidence is to be available at the trial, there must be ‘snapshots’, perhaps many snapshots, showing the changing data in the system from moment to moment.  The scheme of the Anton Piller orders was to allow those snapshots to be taken, and thereby to preserve that changing data.  Analysis of the data will no doubt add to the experts’ understanding of the operation of the Kazaa system, but that does not mean that the exercise permitted by the Anton Piller orders was an investigation.  It was an exercise designed to preserve evidence.  The situation seems unusual because it involves preserving data momentarily held in computer memory, rather than data recorded in a more permanent medium such as writing on paper.  It is preservation nonetheless.

79                  It might be argued that, if the respondents and the Brilliant Digital parties were willing not to destroy documents relevant to the United States proceedings, it should be assumed they would be willing to co-operate in an arranged demonstration of the Kazaa system in operation at a future date, so that evidence of its changing operational data could then be obtained without the necessity for any Anton Piller orders.  However, it is one thing to expect parties to litigation not to destroy existing evidence; it is another thing to expect them conscientiously to co-operate in the creation and recording of evidence useful to their opponents.  Moreover, as I understand the situation, the operation of the Kazaa system does not depend only (or even principally) upon action then being taken by the respondents or the Brilliant Digital parties, but upon the actions of countless other participants using the system the respondents have allegedly created.  I do not understand how it could be ensured that these participants would act in a normal and natural way in an organised demonstration.

Disposition

80                  Although the detail of the US proceedings was not disclosed to me on 5 February 2004, I have reached the conclusion that the non-disclosure was not material.  The non-disclosed material would not have affected my decision to make the Anton Piller orders.  Accordingly, there is no occasion for me to set aside those orders.  Insofar as the notices of motion seek orders to that effect, they should both be dismissed.  Insofar as the notices of motion seek other relief, they should be stood over to a later date.

81                  If the applicants are successful in the principal proceeding, any order for costs in their favour should include the costs incurred by them, so far, in resisting the notices of motion.  If they are not successful, the costs should lie where they fall.  Accordingly, I will order that the costs of the motions hitherto incurred be the applicants’ costs in the principal proceeding.

82                  It would be desirable for the parties to consult together about the material taken on 6 February 2004.  In the rush of that day, it seems likely that some material was taken that fell outside the authority of the Anton Piller orders.  With the assistance of the forensic experts, this situation ought to be rectified.  Perhaps with the same assistance, it would be desirable for the parties to agree on a regime for custody, inspection and analysis of the material that was authorised to be taken.  This regime should attempt to minimise intrusions into personal privacy and commercial confidentiality, as well as inconvenience and expense.  In order to allow these things to happen, I will stand over the principal proceeding to a directions hearing at 9.30am on Tuesday, 23 March 2004.

Associate:

Dated:              4 March 2004