FEDERAL COURT OF AUSTRALIA

Sony Entertainment (Australia) Limited v Smith [2005] FCA 228

COPYRIGHT – Assessment of damages – conversion damages – additional damages – whether lump sum costs orders should be made

Copyright Act 1968 (Cth) - ss 115(4), 116

Australasian Performing Rights Association Limited v Marlin [1999] FCA 1006 referred to

Autodesk v Yee (1996) 139 ALR 735 referred to

Beach Petroleum NL v Johnson (1995) 57 FCR 119 referred to

Canvas Graphics Pty Limited v Kodak Australia Pty Limited [1998] FCA 23 referred to

Hadid v Lenfest Communications Inc [2000] FCA 628 referred to

Harrison v Schipp (2002) 54 NSWLR 738 referred to

Infabrics Limited v Jaytex Shirt Co Limited [1980] 2 All ER 669 referred to

Infabrics Limited v Jaytex Shirt Co Limited [1982] AC 1 referred to

Leary v Leary (1987) 1 All ER 261 referred to

Microsoft Corp v Tyn Electronics Pty Limited (in Liq) [2004] FCA 1307 referred to

Microsoft Corp v Ezy Loans Pty Limited [2004] FCA 1135 referred to

Microsoft Corp v Goodview Electronics Pty Limited (2000) 49 IPR 578 referred to

Microsoft v Jiang [2003] FCA 101 referred to

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

Raben Footwear v Polygram Records (1997) 75 FCR 88 at 93 followed

Sony Computer Entertainment Australia Pty Limited v Carey [2003] FCA 605 referred to

Sparnon v Apand Pty Limited [1998] FCA 164 referred to

Universal Music Australia Pty Limited v Miyamoto [2004] FCA 982 referred to

WH Brine v Whitton (1981) 37 ALR 190 referred to

Explanatory Memorandum to the Copyright Amendment Bill 1997

S Ricketson and C Cresswell, The Law of Intellectual Property, 2^nd ed, 2002, LBC Information Services, Sydney

SONY ENTERTAINMENT (AUSTRALIA) LIMITED & ORS v CHRISTOPHER FRASER SMITH & ORS

N 944 of 2002

 

JACOBSON J

11 MARCH 2005

SYDNEY

 

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 944 of 2002

 

BETWEEN:	SONY ENTERTAINMENT (AUSTRALIA) LIMITED (ACN 000 033 581) FIRST APPLICANT   UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592) SECOND APPLICANT   CENTRAL STATION RECORDS & TAPES PTY LTD (ACN 005 707 997) THIRD APPLICANT   and the applicants listed in the attached schedule
AND:	CHRISTOPHER FRASER SMITH also known as CHRIS KROSS also known as KRIS KROSS FIRST RESPONDENT   TOWER RECORDS PTY LTD (ACN 084 046 784) T/A SLAMM DISTRIBUTION SECOND RESPONDENT   PETER FERRIS also known as PEEWEEFERRIS FIFTH RESPONDENT
JUDGE:	JACOBSON J
DATE OF ORDER:	11 MARCH 2005
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1. The parties are to provide short minutes of order reflecting the reasons for judgment.

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

SCHEDULE OF ADDITIONAL APPLICANTS

SONY MUSIC ENTERTAINMENT (GERMANY) GMBH FOURTH APPLICANT   MEDIA RECORDS SRL FIFTH APPLICANT   COMBINED FORCES RECORDS BV SIXTH APPLICANT   TRACID TRAXX GMBH SEVENTH APPLICANT   DANCE STREET GMBH EIGHTH APPLICANT   KONTOR RECORDS GMBH NINTH APPLICANT   ALPHABET CITY GMBH TENTH APPLICANT   NERVOUS INC ELEVENTH APPLICANT   WYZE PRODUCTIONS LIMITED TWELFTH APPLICANT   TOCO AUSTRALIA PTY LIMITED (ACN 008 706 576) THIRTEENTH APPLICANT   FREAKY MUSIC BV FOURTEENTH APPLICANT   EMI MUSIC AUSTRALIA PTY LTD (ACN 000 070 235) FIFTEENTH APPLICANT   EMI ELECTROLA GMBH & CO KG SIXTEENTH APPLICANT   STEP BY STEP MV GMBH SEVENTEENTH APPLICANT   CENTRAL STATION PTY LTD (ACN 073 153 705) EIGHTEENTH APPLICANT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 944 of 2002

 

BETWEEN:	SONY ENTERTAINMENT (AUSTRALIA) LIMITED (ACN 000 033 581) FIRST APPLICANT   UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592) SECOND APPLICANT   CENTRAL STATION RECORDS & TAPES PTY LTD (ACN 005 707 997) THIRD APPLICANT   and the applicants listed in the attached schedule
AND:	CHRISTOPHER FRASER SMITH also known as CHRIS KROSS also known as KRIS KROSS FIRST RESPONDENT   TOWER RECORDS PTY LTD (I 084 046 784) T/A SLAMM DISTRIBUTION SECOND RESPONDENT   PETER FERRIS also known as PEEWEEFERRIS FIFTH RESPONDENT

 

JUDGE:	JACOBSON J
DATE:	11 MARCH 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1                     On 14 October 2004 I gave judgment and made declarations and orders against the first, second and fifth respondents for copyright infringement in respect of 17 sound recordings (“the tracks”); see [2004] FCA 1315 (“the first judgment”). 

2                     The first judgment was confined to the issue of liability.  The applicants now seek to recover damages pursuant to s 116 of the Copyright Act 1968 (Cth) (“the Act”) and additional damages under s 115(4) of the Act.

3                     In the application, the applicant also sought damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) (“TPA”), however this was not pursued at the hearing.

4                     The claims for damages and additional damages are substantial.  The infringing sound recordings were reproduced on eight compact discs but each compact disc contained a large number of other sound recordings which are not alleged to infringe copyright.  Nevertheless, the applicants submit that they are entitled to recover damages calculated upon the basis that each compact disc is an infringing article.

5                     Thus, the applicants submit that they are entitled to recover the full wholesale price, less manufacturing costs, of each compact disc manufactured by the respondents.  They say that no allowance or apportionment ought to be made to recognize the fact that the number of non-infringing tracks on each compact disc is greater than the number of infringing tracks.  This is because, the applicants contend, that it is not possible, in a legal sense, to sever the infringing tracks so that each compact disc is an infringing article.

6                     The claim for conversion damages against the first respondent (“Mr Smith”) and the second respondent, Tower Records Pty Limited (“Tower”) is approximately $486,000.  The claim for conversion damages against the fifth respondent (“Mr Ferris”) is approximately $82,000.

7                     The claims for additional damages under s 115(4) of the Act are also substantial.  The applicants say that the evidence establishes that the infringements were flagrant.  They point to evidence which appears to show that, at least in the case of Mr Smith and Tower, those respondents manufactured the compact discs with full knowledge that they did not have the licence of the copyright owner.  But the applicants also contend that Mr Ferris was, or ought to have been aware of the breach prior to manufacture.

8                     A very significant aspect of the applicants’ claim for additional damages focuses upon conduct of Mr Smith, Tower and Mr Ferris after they were informed of the infringements of the applicants’ copyright.  This is a factor which the Court may take into account in assessing the award of additional damages; see s 115(4)(b)(ib) of the Act.

9                     The applicants point two aspects of the conduct of Mr Smith, Tower and Mr Ferris after they were informed of the infringement.  The first is a series of threatening communications from Mr Smith to executives of two of the applicant recording companies after he was informed that the relevant copyright owners had not granted the necessary licences to reproduce the sound recordings.

10                  The threats to executives were made, in most instances, by SMS messages sent from Mr Smith’s mobile phone to the mobile phones of the executives.  The applicants submit that Mr Smith sent the messages on his own behalf and on behalf of Tower.  Mr Ferris does not appear to have had any involvement in sending the SMS messages although there is a reference to him in two of them.

11                  The second aspect of the respondents’ post infringement conduct is their attitude to these proceedings.  As against all of them it is said that they adopted a cavalier approach, failing to comply with directions of the Court and putting the applicants to proof of all the elements of the claim.  The applicants were therefore forced to file a large number of affidavits to prove matters of fact which were not in issue on the question of liability and the hearing of the trial was delayed for over two years from the commencement of the proceedings.

12                  There is a further troubling aspect of the claim about the respondents’ attitude to the proceedings.  It is directed only at Mr Smith and Tower.  It is that Mr Smith made threats to a witness and to a solicitor for the applicants.  I made orders against Mr Smith arising from those incidents.

 

The Legislation

13                  The claims under the Act are an action for infringement of copyright under s 115 and an action for conversion under s 116.  I shall set out the relevant provisions of the Act.

14                  Section 10 of the Act defines “infringing copy” as:-

“(b) in relation to a sound recording—a copy of the sound recording not being a sound-track associated with visual images forming part of a cinematograph film;

…

being an article the making of which constituted an infringement of the copyright in the … recording…”

15                  Section 115 of the Act provides :-

“(1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.

(2)   Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

(3)   Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.

(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 form into 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. “

16                  Section 116 of the Act provides:-

“(1) The owner of the copyright in a work or other subject-matter may bring an action for conversion or detention in relation to:

(a)   an infringing copy; or

(b)   a device (including a circumvention device) used or intended to be used for making infringing copies.

(1A) In an action for conversion or detention, a court may grant to the owner of the copyright all or any of the remedies that are available in such an action as if:

(a)   the owner of the copyright had been the owner of the infringing copy since the time the copy was made; or

(b)   the owner of the copyright had been the owner of the device since the time when it was used or intended to be used for making infringing copies.

(1B) Any relief granted by a court in an action for conversion or detention is in addition to any relief that the court may grant under section 115.

(1C) A court is not to grant any relief to the owner of the copyright in an action for conversion or detention if the relief that the court has granted or proposes to grant under section 115 is, in the opinion of the court, a sufficient remedy.

(1D) In deciding whether to grant relief in an action for conversion or detention and in assessing the amount of damages payable, the court may have regard to the following:

(a)   the expenses incurred by the defendant, being a person who marketed or otherwise dealt with the infringing copy, in manufacturing or acquiring the infringing copy;

(b)    whether the expenses were incurred before or after the infringing copy was sold or otherwise disposed of by the defendant;

(c)     any other matter that the court considers relevant.

(1E) If the infringing copy is an article of which only part consists of material that infringes copyright, the court, in deciding whether to grant relief and in assessing the amount of damages payable, may also have regard to the following:

(a)    the importance to the market value of the article of the material that infringes the copyright;

(b)    the proportion the material that infringes copyright bears to the article;

(c)    the extent to which the material that infringes copyright may be separated from the article.

(2) A plaintiff is not entitled by virtue of this section to any damages or to any other pecuniary remedy, other than costs, if it is established that, at the time of the conversion or detention:

(a)     the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject-matter to which the action relates;

(b)     where the articles converted or detained were infringing copies—the defendant believed, and had reasonable grounds for believing, that they were not infringing copies; or

(c)      where an article converted or detained was a device used or intended to be used for making articles—the defendant believed, and had reasonable grounds for believing, that the articles so made or intended to be made were not or would not be, as the case may be, infringing copies.”

 

The parties, the sound recordings and the compact discs

17                  I described the parties at [2] to [6] of the first judgment.  The applicants are recording companies who own or control the copyright in the sound recordings.  Mr Smith and Mr Ferris are leading disc jockeys in the club and dance music field.

18                  Tower manufactures and sells compact discs, aimed, particularly at followers of the club and dance music genre.

19                  I set out tables at [18], [19] and [22] of the first judgment showing the compact discs, the sound recordings which I found to infringe copyright and a compilation showing the compact disc on which each sound recording was reproduced.  For ease of reading it is convenient to repeat those tables in this judgment.

20                  The compact discs which contained the infringing sound recordings were:-

CD No.	CD Title
1.	nikfish.com.au digital domain
2.	Hard Trance Nik Fish
3.	downunderground 007 nik fish
4.	peeweeferris.com digital domination
5.	downunderground 006 katemonroe
6.	Happy Valley 1991 to 2001 A Decade of Dance
7.	downunderground 011 captainkirk
8.	fishmixl nik fish

21                  The sound recordings in respect of which Mr Smith, Tower and Mr Ferris have been found to have infringed copyright were:-

Recording No	Artist	Recording Title
1.	Kai Tracid	Too Many Times
2.	DJ Bismark	E.R.K [TEK Forum Mix]
3.	Ricky Le Roy	One Day [Le Roy Mix]
4.	DJ Zagros & Pacific	Shine (DJ Wag remix)
5.	DJ Isaac	On the Edge
6.	Reeloop	F**king Society
7.	Floorkiller	Dancefloor Killer
8.	Winx	Don’t Laugh 2000
9.	Blank & Jones	After Love [MP Remix]
10.	Mark et Claude	I Need Your Lovin’ Like the Sunshine
11.	Negrocan	Cada Vez
12.	Donkey Rollers	Motherf.ck [Nexus Remix]
13.	Cosmic Gate	Hardcore (Club Mix)
14.	Cosmic Gate	Mental Atmosphere [Greencourt mix]
15.	Mauro Picotto	Awesome
16.	Mauro Picotto	Pulsar 2002 (Picotto Verdi Mix)
17.	DJ Bismark	Triplet (Paranoia Mix)

 

22                  I was satisfied that the exclusive licence of the copyright in the sound recording for each of the infringing tracks was held by one or other of the first applicant, (“Sony”), the second applicant (“Universal”), the third applicant (“Central Station”), the thirteenth applicant (“ToCo”) and the fifteenth applicant (“EMI”). 

23                  The compilation table showing each compact disc, the infringing sound recording which appeared on it, the artist and the name of the exclusive licensee of the copyright is as follows:-

CD (Ref# from [20] above)	Sound Recording (Ref# from [21] above)	Artist	Exclusive Licencee
nikfish.com.au digital domain (#1)	“Too Many Times” (#1)	Kai Tracid	Sony
nikfish.com.au digital domain (#1)	“Hard Core (Club Mix)” (#13)	Cosmic Gate	EMI
Hard Trance Nik Fish (#2)	“E.R.K [Tek Forum Mix]” (#2)	DJ Bizmark	Universal
Hard Trance Nik Fish (#2)	“One Day [Le Roy Mix]” (#3)	Ricky LeRoy	Universal
Hard Trance Nik Fish (#2)	“Shine (DJ Wag remix)” (#4)	DJ Zagros & Pacific	Central Station
Hard Trance Nik Fish (#2)	“On the Edge” (#5)	DJ Isaac	Central Station
Hard Trance Nik Fish (#2)	“Motherf.ck [Nexus Remix]” (#12)	Donkey Rollers	ToCo
downunderground 007 nik fish (#3)	“Don’t Laugh 2000” (#8)	Winx	Central Station
downunderground 007 nik fish (#3)	“After Love [MP Remix]” (#9)	Blank & Jones	Central Station
fishmix 1 nik fish (#8)	“Mental Atmosphere [Greencourt mix]” (#14)	Cosmic Gate	EMI
peeweeferris.com digital domination (#4)	“F**king Society” (#6)	Reloop	Central Station
peeweeferris.com digital domination (#4)	“Triplet (Paranoia Mix)” (#17)	DJ Bizmark	Universal
peeweeferris.com digital domination (#4)	“Awesome” (#15)	Mauro Picotto	Universal
peeweeferris.com digital domination (#4)	“Pulsar 2002 (Picotto Verdi Mix)” (#16)	Mauro Picotto	Universal
Downunderground 006 katemonroe (#5)	“Cada Vez” (#11)	Negrocan	Central Station
Downunderground 001 Captainkirk (#7)	“Dancefloor Killer” (#7)	Floorkiller	Central Station
Happy Valley 1991 to 2001 A Decade of Dance (#6)	“I Need Your Lovin’ Like the Sunshine” (#10)	Mark et Claude	Central Station

 

The factual background

24                  I referred at [29] of the first judgment to the fact that the compact discs were pressed by an independent pressing plant known as Technicolor.  The evidence establishes that seven of the compact discs were released commercially by late July 2002.  

25                  Before the release of the compact discs, requests were made by or on behalf of Tower for licenses of the copyright in some of the sound recordings the subject of these proceedings.

26                  As early as April  2002, Mr Grant Kearney (“Mr Kearney”), who was then employed by Universal, was told by Mr Nik Fish (“Mr Fish”), a former respondent to these proceedings,  that Tower was going to put out an album to be called “Hard Trance” and that Tower would want to use some tracks owned by Universal.  The conversation took place at what appears to have been a chance meeting at a music shop.  Mr Kearney said there should be no problem with permission to use the tracks.  Mr Kearney’s evidence was as follows:-

“Sometime in around April 2002 I was contacted by Mr Fish, in relation to the possible licensing of recordings from within the Universal Music catalogue to downunderground/Tower Records.  I met him at One Stop Deejay Equipment & Records Pty Limited (One Stop) which is located at Shop 23a 55 Oxford Street, Darlinghurst, Sydney and had a conversation with him during the course of which, words including those to the following effect, were spoken:

Fish:    ‘We are intending to put out a new album in June.  It is going to be called Hard Trance or something like that.  We will want to use some Universal tracks, like Mother.fuck, One Day and ERK, the Invaders … Can we do it?’

I said:  ‘There should be no problems with the media tracks.  I have a label deal with them and can clear them straight away.’

27                  On 1 May 2002, Ms Donna Fitzhenry (“Ms Fitzhenry”), who was then Licensing Manager of Universal, received an email request from Tower for the license of three of the subject tracks recorded by the artists, Donkey Rollers, DJ Bismark and Ricky Le Roy. 

28                  Ms Fitzhenry then had a series of email communications with Mr Kearney.  The result of these communications was that Ms Fitzhenry received approval for the licence of only one of the tracks, DJ Bismark, ERK, prior to release of the Hard Trance CD.  However, she did not convey the approval to Tower before the release of the CD. 

29                  As early as about 15 July 2002, Mr Peter van Den Bremer (“Mr van Den Bremer”) of ToCo saw the Hard Trance CD on display in a music store in Melbourne.  He noticed that the tracks included “Motherf.ck” by Donkey Rollers, for which ToCo held the exclusive license.

30                  Later on the same day, 15 July 2002, Mr van Den Bremer had a conversation with Mr Smith.  He told Mr Smith that ToCo had not approved the use of the track.  Mr Smith told Mr van Den Bremer to talk to Mr Fish stating that, so far as Mr Smith was aware, the track had been cleared by Universal.

31                  On 24 July 2002, Mr van Den Bremer sent a fax to Mr Fish at Downunderground, which is apparently a record label that is a ‘division of Tower’, stating that ToCo did not approve the use of the Donkey Rollers track on the Hard Trance CD.  The fax stated that Mr van Den Bremer also worked for Central Station and that he found two tracks on the Hard Trance album which belonged to Central Station.  Mr van Den Bremer said that no approval was given for those tracks.

32                  Mr van Den Bremer also had a conversation with Mr Smith on 24 July 2002.  Mr Smith said that Universal had given approval for use of the Donkey Rollers tracks.  Mr Smith also requested a contract for the Central Station tracks and said he would pay the royalties into a bank account.

33                  Shortly before these events, on or about 20 July 2002, Mr Morgan Williams (“Mr Williams”), a director of Central Station, had a conversation with Mr Smith.  The conversation took place at Central Station’s store in Sydney.  Mr Smith said that Downunderground was releasing the Hard Trance CD and that all the tracks on it had been cleared for copyright.

34                  Mr Williams then agreed to purchase 10 copies of the Hard Trance CD.  However, on reviewing the album, he found that no license had been granted for the Central Station tracks.

35                  On 26 July 2002, Mr Williams received an SMS message from Mr Smith.  The message stated:-

“I  have paperwork signed from combined forces for both these tracks.  Have a musical day.”

36                  At about 7:30 am on 7 August 2002, Mr van Den Bremer received a telephone call from Mr Smith.  The conversation was as follows:-

 Mr Smith:                   ‘Did you get the paperwork ready so we can pay the royalties for Donkey Rollers?’

Mr van Den Bremer:   ‘No, I am still waiting on approval from head office in Holland.’

Mr Smith:                    ‘Well, it doesn’t matter anyway because we have sold all our stock.  I don’t care, just send me the paperwork if, and when, you get it or hear from your Holland office.  You know where to find me.  Goodbye.’

37                  On 8 August 2002 and 9 August 2002, Mr Smith sent a series of threatening SMS messages to Mr Kearney.  The messages were as follows:-

8.8.02   10.41 PM       “hey grant, me and nik are coming 2 ur office 2moro with some paper work 4 u 2 sign it has been 3 months and nothing has come from your office, what time?

9.8.02   6.30 AM         We are all pissed off with you, we want the pwork 2day then u wont here frm any of us again, u teamed with morgan- all the djs now hate u.

9.8.02   6.32 AM         See you at universal, u might have 2 call the police cause im PISSED OFF”

38                  Not unnaturally, Mr Kearney was worried after he received these messages.  He rang Mr Smith at about 9.00 am on 9 August 2002.  They had a conversation to the following effect:-

Mr Smith:                    “You told me the tracks would be cleared but there is no paperwork.  You have to send me some of written approval today for my records.

Mr Kearney:               OK, I’ll send you an email today.  Why are you sending me messages?  You have done the wrong thing and the decision is out of my hands.”

39                  Later on 9 August 2002, Mr Kearney sent an email to Mr Smith stating that Universal had cleared a number of tracks including DJ Bismark “ERK” which appeared on the Hard Trance CD.

40                  Mr Smith replied on the same day requesting approval for a further track, Ricky Le Roy “One Day”, which was also featured on the Hard Trance CD. 

41                  Shortly after 11 August 2002, Mr Kearney became aware that Universal had decided not to grant a licence to Tower because of the fact that Tower had taken the step of releasing the Hard Trance CD without obtaining a prior licence to reproduce the copyright works included on the album. 

42                  The evidence establishes that no licence was granted by Universal to Tower (or to Mr Smith) to reproduce the sound recordings included on the Hard Trance CD for which Universal held the copyright.  Nor was any licence granted to Mr Smith, Tower or Mr Ferris for the other sound recordings the subject of these proceedings;  see [51] – [52] of the first judgment.

43                  From mid August 2002 to 2 September 2002, Mr Smith repeatedly tried to contact Mr Kearney on his mobile phone.  Mr Kearney avoided the calls and avoided speaking to Mr Smith during this period.

44                  In the meantime, on 15 August 2002, Mr Williams received a series of threatening SMS messages on his mobile phone from Mr Smith.

45                  Mr Williams’ evidence of these calls, which I accept, was as follows:-

“On 15 August 2002 I received a number of text messages from the same mobile phone number 0417 405 303.  The first of those messages was received on 15 August 2002 at 06:33:47.  That message stated:

            ‘I hope ur not stoping in asia to rape children again u petophile’

At 6:36:26 I received another text message from the same mobile phone number which stated:

            ‘Gutless 4 eyed piece of child molester, went to the police about u with an old employe, ur going 2 be on current affair’

At 6:39:19 I received a text message on my mobile telephone which stated the following:

            ‘I CAN’T WAIT 2 RUN INTO U WALKING DOWN THE STREET’

At 6:45:32 I received another text message from the same mobile telephone number.  That message stated:

            ‘I can’t believe what u did 2 andre, they are goin 2 put u in jail  and ur shop on tv, don’t 4get it was ME who started all ur new problems’.”

46                  Copies of photographs of the messages were produced in evidence.

47                  It is hardly surprising that Mr Williams found the messages threatening.  His unchallenged evidence was that he believed that the messages were sent as a consequence of the refusal of Central Station to issue a licence to Tower or Mr Smith for the use of recordings which were reproduced on the Hard Trance CD. 

48                  Mr Williams also gave unchallenged evidence that the messages were intended to put pressure on him to issue a licence for the use of the relevant sound recordings. 

49                  As I mentioned above, at [43], Mr Kearney avoided contact with Mr Smith during the period from mid August 2002 to 2 September 2002.  However, between 2 September 2002 and 11 September 2002, Mr Smith sent Mr Kearney a series of threatening SMS messages.  The dates, times and content of the messages are recorded in the following table:-

Date	Time	Message
2.9.02	8.32 AM	It’s a pity ur not around 2 c nik and pee bash morgan 2dayJ tell u about it 2moro
5.9.02	8.39 AM	You should go back to nz, weve made sure u n ever get any gigs in this country and I heard the Asians are coming 4 uJ welcome 2 aus
6.9.02	11.27 PM	Hey for a laugh, the letter from ur legal dept, I wiped my ass with it, cause it was shitpaper, we all had a good giggle when reading it
11.9.02	6.06 AM	What death threats, ur fucked, im coming 2 ur office 2day, theres going to be a showdown at ur work 2day, u me nik and pee, and im going make noise
11.9.02	6.08 AM	Don’t hide ur fat cunt im coming 2day and what a drama there is going 2 b grant, u will learn the rules of aus
11.9.02	6.56 AM	Also I got ur home address from the public records (rental bond board) maybe easier 2 come in the night as ur busy by day, cant wait 2 meet the mrsJ

50                  The messages to Mr Kearney at [37] and [49] above contain references to the names of people which may not be self-evident to someone not connected with these proceedings.  The unchallenged evidence of Mr Kearney was that the names were references to the following persons:-

            “Grant” was a reference to Mr Kearney.

            “Morgan” referred to Mr Williams.

            “Pee” referred to Mr Ferris.

            “Nik” referred to Mr Fish.  

51                  I find that these references were abbreviations for the names of the persons stated in Mr Kearney’s affidavit.  I also find that this was plainly the way in which Mr Kearney read, and was intended to read, the messages.

52                  Mr Kearney’s evidence, which I accept, was that after receiving the messages he became fearful for his safety and for the safety of his colleagues and his family.  He referred to his concerns about the safety of his girlfriend, this apparently following from the reference to “the Mrs” in the last of the messages. 

53                  At about the same time, on 3 September 2002, Mr Thurstan of Technicolor, received a letter from Mr Smith asserting that Technicolor had illegally handed over Tower’s property to a third party and stopped Tower from trading. 

54                  Technicolor was the pressing plant which produced the compact discs the subject of these proceedings.  On about 20 August 2002, Technicolor had handed over to the applicants’ solicitors various documents and business records which established the details, and numbers, of infringing sound recordings reproduced on the subject compact discs.  Technicolor did so in response to a request made by the solicitors on 14 August 2002.

55                  It is to be inferred that by 3 September 2002 Mr Smith and Tower were aware that Technicolor had produced the documents to the applicants.  It is also to be inferred that Mr Smith sent the letter of 3 September 2002 as a consequence of his discovery of this information.

56                  On 5 September 2002, Mr Williams filed a complaint and summons in the North Sydney Local Court seeking an apprehended violence order (“AVO”) against Mr Smith.  The North Sydney Court does not appear to have made an order, but on 13 November 2002 the Local Court at the Downing Centre granted an AVO against Mr Smith restraining him for a period of  two years from threatening or intimidating Mr Williams. 

57                  On 11 September 2002 Mr Kearney obtained an interim AVO against Mr Smith from the Local Court at Burwood. 

58                  The current proceedings were commenced on 12 September 2002.  On 13 September 2002, I granted ex parte injunctive relief against the respondents restraining them from infringing the applicants’  copyright in the sound recordings which were the subject of these proceedings.

59                  The evidence before me on the ex parte application included evidence of the threats made to Mr Kearney and Mr Williams.  Accordingly, I made an order in the following terms against Mr Smith:-

“That, until further order, the first respondent, whether by his servants, agents or otherwise, be restrained from communicating directly with the applicants or their non-legal representatives concerning the subject matter of these proceedings.”

60                  On 27 September 2002, the applicants filed an amended application and an amended statement of claim.  A defence was filed on 10 December 2002.  I will deal below with the history of these proceedings.

61                  Before dealing with the history of the proceedings, it is convenient to refer to the threats made by Mr Smith to a witness and also to a solicitor for the applicants.

62                  On 22 April 2004, Ms Kathryn Munsey, a disc jockey who works under the professional name of Kate Monroe (“Ms Monroe”), and who was formerly the sixth respondent to these proceedings, settled the proceedings with the applicants.  She swore an affidavit on that date in support of the applicants’ case.  The applicants filed Ms Monroe’s affidavit on 22 April 2004.  

63                  In April and May 2004, Ms Monroe received the following SMS messages from Mr Smith:-

No.	Date	Message
1	1/4/04	You are required to write a statement for this court case.  Can we rely on u, or are you still ignoring me?
2	13/05/04	Ur affidavit is now been given to the federal police : ) hope that explains ur position with my company

64                  On 13 May 2004, the applicants’ solicitors sent a fax and an email to Mr Smith requesting that he cease communication with any of the applicants’ witnesses including Ms Monroe.

65                  Late in the afternoon of 13 May 2004, Mr Smith sent the following email reply to Ms Sophia Finter, the solicitor who had the day to day conduct of the proceedings for the applicants:- 

“Dear Ms Faucker [sic]  (emphasis added)

re: directions

have have [sic] today recieved [sic] your proposed Directions from Wednesday 20^th may 2003 [sic]

we do not consent to your timetable and we will be seeking alternative directions from the Court next Wednesday 20^th.

We have also refereed [sic] Ms Munsy and her affidavit to the NSW Police, and I will be asking the Judge to deal with this criminal mis-practice and other abuses of the Courts process by the Applicants in these proceedings, next Wednesday, 20^th May.

Yours faithfully

Chris Smith”

66                  The proceedings were before me for directions on 20 May 2004 and, on that date, I made orders restraining Mr Smith from communicating directly with the applicants’ witnesses concerning the subject matter of the proceedings.

 

Threats to non-parties

67                  The applicants relied on an affidavit of Ms Emma Herkes of Meerbusch, Germany.  In September 2002 Ms Herkes was the co-owner of a German company which specialized in the production of recordings for the dance music genre. 

68                  Ms Herkes said in her affidavit that in September 2002 Tower requested a licence from her company to use a recording which is not the subject of these proceedings.  Ms Herkes’ company refused to grant the licence and notified Tower accordingly. 

69                  Shortly afterward, in mid- September 2002, Ms Herkes found two messages on her company’s telephone answering machine.  The person who left the messages did not identify himself but he did say he came from Australia.  The affidavit states that Ms Herkes was “aware that it was Mr Smith”.

70                  On 14 October 2004, I made directions that the respondents notify any objections to the applicants’ affidavits by 1 February 2005.  No objections were notified.  However, at the hearing, the respondents’ counsel objected on the ground that the affidavit did not establish in admissible form that Mr Smith left the messages.  Counsel for the applicants informed me that if he had received prior notification of the objection, he may have been able to adduce additional evidence to establish in admissible form the facts which would enable me to infer that Mr Smith left the messages.

71                  In view of the lateness of the objection, it seemed to me to be appropriate to admit the evidence of the messages but to defer consideration of whether the evidence enables me to infer that Mr Smith left the messages until handing down my reasons for judgment.  There is power to proceed in this manner under s 57(1) of the Evidence Act 1995 (Cth) (“Evidence Act”) and, to the extent necessary, s 190(3)(b) of the Evidence Act.

72                  The evidence of the messages was as follows:-

 

“Thank you for the track ‘Searching for the light’.  This is from Australia.  All we’ve got to say to you is, fuck you!  Fuck you, we use what we want here.  Go fuck yourself, you fucking loser cunt.”

 “Hi, we use your track already on the compilation.  So what you gonna do?  You wanna come fly on a plane to fucking Australia, come out and get it?  Come on, we love to meet you too.  Get on a plane, you fucking fat cunt.”

73                  The evidence of Ms Herkes is that Mr Smith had previously sought to obtain a license for Tower to use the track “Searching for the Light” to which reference is made in the first telephone message.  Accordingly, I can infer that someone from Tower left the messages, even if it was not Mr Smith himself.

74                  It seemed to me, when I admitted the evidence, that, assuming the messages were left by Mr Smith or by an employee of Tower, they were relevant to the question of  “the need to deter similar infringements of copyright”; see s 115(4)(b)(ia) of the Act.

The allegedly vexatious proceedings brought by Mr Smith and Tower against Central Station and Mr Williams

 

75                  On 16 March 2004, Mr Smith filed proceedings in the Federal Court purportedly on behalf of Tower and another recording company.  Mr Smith is not a solicitor and was not entitled to bring the proceedings on behalf of the two companies; see Order 4 rule 14(2).  Tower and the other company claimed that certain sound recordings made by the respondents to those proceedings, which included Central Station Records (the 3^rd applicant in the current proceedings), were produced in breach of copyright.

76                  At the first directions hearing there was no appearance on behalf of Tower or the other company after the matter was called outside the Court.  Lindgren J dismissed the proceedings under Order 10 rule 3 for want of appearance. 

77                  The applicants contend that the proceedings against Central Station Records were vexatious.  They say that this is a matter I am entitled to take into account in the assessment of additional damages under s 115(4).  However, in my opinion the court process and the transcript of the hearing before Lingren J are insufficient to make good the applicant’s contentions.

A brief history of the proceedings

78                  As I have already said, the proceedings were commenced on 12 September 2002.  An amended application and amended statement of claim was filed on 27 September 2002.  The amendments added a number of sound recordings to those previously claimed to be produced in breach of copyright. 

79                  On 10 December 2002, Mr Smith, Tower, Mr Ferris, and Mr Fish (who was then the 4^th respondent) filed a defence.  The defence put in issue the copyright claims made by the applicants and put them to proof of the necessary elements of the claims. 

80                  Moreover, in [32] and following of the defence, Mr Smith, Tower and Mr Ferris pleaded that valid licences to reproduce the relevant sound recordings had been granted to them by the holders of the copyright. 

81                  The respondents changed legal representatives five times during the course of the proceedings.  This resulted in substantial delay to the progress of the proceedings.

82                  Commencing in October 2003, the applicants began to file a large number of affidavits to prove each of the necessary elements in the claim for copyright infringement and in support of the claims for damages and additional damages.

83                  On 20 May 2004, I listed the proceedings for hearing on 21 September 2004.  I made substantial pre-trial directions on that day to enable the hearing to take place.  The applicants complied with the pre-trial directions but the respondents did not. 

84                  The respondents made two unsuccessful applications to adjourn the hearing on the issue of liability.  I dismissed each of the applications, made on 16 September 2004 and 21 September 2004.  The respondents made no attempt, either at the hearing of the adjournment applications or at the present hearing to explain the reasons for their failure to comply with the Court’s pre-trial directions.

85                  On 14 October 2004, I made pre-trial directions for the hearing of the damages claim.  The respondents did not comply with the directions and have not attempted to explain the reasons for their default.

86                  Nor have the respondents complied with orders which I made on 14 October 2004, when giving judgment on the issue of liability, for delivery up of the infringing compact discs.  No explanation has been given by Mr Smith or Tower.  Mr Ferris said in cross-examination that he did not have any remaining compact discs in his possession. 

The respondents’ evidence

87                  The respondents did not file evidence for the damages hearing in accordance with my directions made on 14 October 2004.

88                  At the hearing, counsel for the respondents sought leave to rely upon an affidavit of Mr Smith sworn on 28 January 2005 and served on the applicants’ solicitors on 4 February 2005, which was taken by the applicants’ solicitors to be an indication of the respondent’s intention to rely upon the affidavit. 

89                  I gave leave to the respondents’ counsel to read the affidavit provided that Mr Smith was available for cross-examination.  I did so because counsel for the applicants indicated that he would wish to cross-examine Mr Smith should leave be granted to read the affidavit.

90                  Mr Smith was not present in Court.  However, his counsel contacted him by telephone during a short adjournment.  I was then informed by counsel that Mr Smith would not attend Court.  Accordingly, I rejected the affidavit. 

91                  After the respondents closed their case, counsel sought leave to reopen in order to read an affidavit of Mr Ferris which he said he had inadvertently failed to rely upon.  The affidavit was sworn and filed on 15 April 2004.  The respondents’ solicitors gave notice to the applicants’ solicitors on 4 February 2005 that they intended to rely on the affidavit.

92                  I gave leave to the respondents’ counsel to read Mr Ferris’ affidavit.  Mr Ferris was present in Court at 2:15 pm and was available for cross-examination.

93                  Mr Ferris’ affidavit describes his impressive qualifications and experience in the music industry.  He has been a disc jockey in the dance music field, both nationally and internationally, for about 18 years.  He says that he is recognized as Australia’ leading disc jockey.  He is a song writer, composer and producer and has received awards from the Australian Record Industry Association (“ARIA”) for his work.  He says he composed the music for the Sydney 2000 Olympic Games Opening and  Closing Ceremonies. 

94                  During his long years in the music industry, Mr Ferris has compiled and mixed sound recordings for most of Australia’s major recording companies including Sony, Universal and EMI.

95                  According to his affidavit, Mr Ferris’ ordinary practice when he is asked by a record company to produce a compilation compact disc is to obtain written confirmation from that record company that the company has “been able to obtain the necessary copyright”. 

96                  In October 2001, Mr Ferris was approached by Mr Smith on behalf of Tower to produce the compilation CD which became known as Peeweeferris.com.  He said that since he had not previously dealt with Tower, he inspected the copyright licence documents for the sound recordings which he intended to reproduce and formed the view that all necessary licenses and approvals had been obtained. 

97                  Mr Ferris entered into a contract with Tower on or about 19 March 2002.  The contract provided for Tower to pay Mr Ferris royalties of $4 per CD sold up to 2,500 units and $5 per CD for sales in excess of that number.  Mr Ferris was to be paid $1,000 by Tower on delivery of the finished compilation. 

98                  The contract provided for Tower to meet all production costs including royalties.  Tower accepted “all unforeseen claims that may arise from this compilation” and agreed to “meet all requirement as to licensing for all musical reproductions that appear on the CD”.

99                  Mr Ferris’ evidence is that he mixed the album and handed the finished master recordings to Tower in March 2002. 

100               Mr Ferris supplemented his affidavit evidence with additional evidence in chief in the witness box.

101               He said that he arrived in Sydney about 1 o’clock and came straight to Court.  He did not explain why he was not present when the hearing commenced at 10:15 am.

102               Mr Ferris was asked in chief some further questions about his inspection of the copyright licences.

103               He said he saw the documents and they looked “above board” to him.  He said they looked the same as every other document he had seen in his long experience in the music industry. 

104               Mr Ferris was also asked in chief about enquiries he had made, after the commencement of the proceedings, about the licence of the copyright in the Reloop sound recording.  He said he spoke to Mr Klitzing of Headline Records in February 2003, that is about six months after the commencement of these proceedings.  Mr Klitzing was apparently the person who produced the Reloop track.

105               The effect of Mr Ferris’ evidence was that Mr Klitzing told him that he had mistakenly given multiple licences to parties including Tracid Tracks (the 7^th Applicant), without informing Central Station, which was in fact the exclusive licensee of the copyright.

106               At the conclusion of his evidence in chief, Mr Ferris was asked whether he wanted to say anything to the Court about his copyright infringements.  The evidence was as follows:-

“MR ELLIOTT:   Sir, is there anything you would like to say to the court

about your breaches and your attitude in the future to dealing with accepting

assurances in respect of licences? --- Well, I did everything I could to – in my

position because all of the record companies won’t give copies of their

documents so within my powers I did as much as I could do to protect my

interests as I am not part of the company so as far as – from now on at least

I have learned that I have to do a lot more that would not normally be

considered industry standard.  Now I have to go beyond what is considered

normal to protect my interests.

When you say protect your interests what do you mean by that? --- Well, for

this case, that’s what I mean.

So that you don’t wind up infringing? --- Right.  According to everything I

was told and saw I was non-infringing.

But you understand you’ve been adjudged to have infringed? --- Yes, I

understand that.

To avoid this situation in the future what are you going to do? --- I don’t

think I’ll work with him again and whether I work with other major

companies is another question too and I haven’t had any work since then

from either of them neither.”

107               In cross-examination Mr Ferris acknowledged that he had mixed two further compact discs for Tower after the commencement of these proceedings.  He said that the last of these works was produced in June 2004.  Mr Ferris then revealed that his decision not to do further work for Tower or Mr Smith was only made “(t)oday, because he [Mr Smith] did not turn up” at Court. 

108               Mr Ferris’ evidence in cross-examination was that he found out about the date of the damages hearing two weeks before 8 February 2005.

109               This seems surprising in light of the fact that the hearing date was appointed on 14 October 2004.  Nevertheless, even if he had only two weeks notice, as I have said, no explanation was given for why Mr Ferris was not in Court at 10:15 am.

110               Mr Ferris acknowledged that he was not in Court for hearing on the liability issues in September 2004.  He said he was not available at that time but he could not recall the reason for his unavailability.

111               Mr Ferris conceded that he was annoyed, or at least disappointed, with the applicants for bringing these proceedings, and he regarded the respondents’ conduct in the proceedings to be Tower’s responsibility. 

112               The only explanations apparently put forward for his lack of previous involvement in the defence of the proceedings were twofold.  First, he said that Tower was responsible for the proceedings under his contract.  Second, he said that he was involved in a custody battle over his daughter which took up a lot of time in the Family Court. 

 

Damages for conversion

113               As Burchett J observed in Autodesk v Yee (1996) 139 ALR 735 (“Autodesk”) at 739-40, the modern form of the copyright owner’s right to bring an action for conversion under
s 116(1) of the Act has been the subject of considerable criticism;  see also Polygram Pty Limited v Golden Editions Pty Limited (1997) 38 IPR 451 (“Polygram”) at 454-5
(Lockhart J).

114               However, as was pointed out by Burchett J in Autodesk at 740 and by Lockhart J in Polygram at 455, in 1990 the Copyright Law Review Committee (“the CLRC”), chaired by Sheppard J, refrained from recommending its repeal, notwithstanding the harshness with which the section operates.  Nevertheless, the CLRC considered that a discretion should be conferred on the Court to determine whether conversion damages may be appropriate.

115               Amendments to the Act introduced in 1998 have now conferred on the Court a discretion which ameliorates the harshness of the law as it stood when Autodesk was decided.  I will refer to these amendments later.

116               In Autodesk at 738-40, Burchett J traced the history of s 116 of the Act.  His Honour observed that an element of penalty is an accepted feature of copyright legislation, the infringer being treated as a “pirate”.  The effect of s 116(1) is to create a statutory fiction under which the copyright owner is treated as the owner of the infringing article with the consequent entitlement to sue for conversion or detinue; see Autodesk at 740-741 and Polygram at 454.

117               As Lockhart J said in Polygram at 454, the measure of damages in conversion is generally the value of the infringing copy at the date of conversion.  Provision is made in
s 116(1D) of the Act for the value to be assessed having regard to, inter alia, the expenses of the infringer in manufacturing the infringing copy.

118               Under s 116(1C) of the Act, the Court is not to grant relief in damages for conversion if the relief it has granted or proposes to grant under s 115 is, in the opinion of the Court, a sufficient remedy.

119               In the present case, I do not consider that relief under s 115(2) is sufficient.  There are two reasons for this.  The first is that the applicants’ evidence establishes that the respondents have failed to give proper discovery of their records.  It is plain that the respondents have not produced documents which contain details of the number of compact discs pressed or sold by them.  The records that were produced by Tower showed the pressing of a much smaller number of discs than was revealed in documents obtained by the applicants from Technicolor.

120               It follows in my view that the respondents have not put before the Court the necessary documents to enable me to calculate the quantum of pecuniary relief under s 115(2) of the Act.

121               The second reason is that I am satisfied on the evidence before me that it is unlikely that the relevant applicants would have granted licences to any of the respondents to reproduce the copyright sound recordings or compilation CDs.  It is true that Mr Kearney gave preliminary and informal approval for a few tracks.  But the overall effect of the evidence is that the respondents would not have met the applicants’ detailed requirements for the grant of licences.  It is therefore inappropriate to assess damages under s 115(2) on the basis of assumed licences; see Universal Music Australia Pty Limited v Miyamoto [2004] FCA 982 (“Miyamoto”) (Wilcox J). 

Whether damages for conversion ought to be apportioned

122               The authorities recognize that where any part of an article consists of infringing material, the calculation of damages becomes difficult; see S Ricketson and C Cresswell, The Law of Intellectual Property, 2^nd ed, 2002, LBC Information Services, Sydney, p28 [13.90].

123               In Infabrics Limited v Jaytex Shirt Co Limited [1982] AC 1 (“Infabrics”), the House of Lords rejected an argument that an award of damages for conversion should be apportioned where a copyright artistic work had been applied by an infringer to shirts which it manufactured.  Their Lordships, while recognizing that in some cases a failure to apportion may produce an exorbitant award of damages, considered that the shirts were the “infringing copies” and the value of the shirts was the measure of damages; see at 18 (Lord Wilberforce) and 26 (Lord Scarman).

124               Lord Scarman encapsulated the problem and the answer given to it in s 18(1) of the Copyright Act 1956 (UK), the equivalent of s 116(1) of the Act, in the following passage (at 26):-

“But damages for conversion can be very great.  If the industrial application of the infringing copy is a success, damages are recoverable as if the owner of the copyright was the owner of every infringing copy sold:  see 18(1).  And what if the infringing copy be engraved on a silver chalice or a gold medallion?  The language of the subsection is, I think, clear: it bestows on the owner of the copyright the rights and remedies to which at common law an owner of goods is entitled for their conversion,  It treats the owner of the copyright as if he were the owner of the infringing copies.  Since at common law the damages for conversion are ordinarily measured by reference to the value of the goods converted, I would not think it legitimate to construe the subsection otherwise, though the result will be injustice in some cases.  If the possibility of excessive damages is to be eliminated, legislation will be needed, for the language of the subsection permits of no other construction.”

125               The problem and the answer which is given by the statute were explained in similar terms in the Court of Appeal’s decision in Infabrics; see [1980] 2 All ER 669 at 679.  Buckley LJ stated that the problem must be solved in each case having regard to its own facts.  He continued as follows:-

“However, it is I think worth noting that s 18(1) relates to notional conversion of infringing copies.  The definition of ‘infringing copy’ imports that an infringing copy must be recognizable as an article.”

126               The definition of “infringing copy” in the UK Act was the same as the definition of the same term in the Act which I have set out at [14] above. 

127               Infabrics was followed by Fox J in WH Brine v Whitton (1981) 37 ALR 190 (“WH Brine”).

128               In WH Brine, the respondent sold soccer balls which were marked with various marks and devices some of which constituted the intellectual property of the applicant.  Damages for conversion were claimed under s 116(1) of the Act.

129               Fox J was of the view that the case was indistinguishable from Infabrics.  He said, at 199, that the infringing material was substantial and could not be conveniently separated from the rest.  Accordingly, the balls as a whole, were the infringing copies, the action under s 116 being “intended to acknowledge the copyright owners complete domain over the infringing copies”. 

130               Infabrics and WH Brine were followed by Lockhart J in Polygram but his Honour found that it was possible in that case to sever the goods into infringing and non-infringing components.

131               Polygram was concerned with the sale of a package of two CDs sold together as a single package.  One of the CDs embodied the works of a performer then known as Cat Stevens.  The other embodied the works of an artist, Donovan.  The Cat Stevens’ works were reproduced in breach of copyright.  The Donovan works were not; see at 455.

132               Lockhart J said at 457 that where the Court is presented with goods that comprise infringing and non-infringing matter, it is necessary to decide whether they can be separated into infringing and non-infringing components.  He referred, at 458, to authority for the proposition that where the parts are practically inseverable, the order goes to the whole work.  His Honour found that the two compact discs, though sold in one package, were made separately and were physically severable; at 458.

133               Accordingly, Lockhart J apportioned damages between the two compact discs while recognizing that the question depends on the facts of each case; at 458.  Thus, his Honour indicated that if there had been evidence that the Cat Stevens works were more popular than Donovan’s, it may have been appropriate to award conversion damages for the full wholesale price of the package.

134               In 1998, after the decisions in Polygram, and most notably after the decision in WH Brine, the Act was amended to confer on the Court a discretion as to whether to make available the remedy of damages in conversion.  Importantly, the Court was also given a discretion as to the extent of the damages which may be awarded for conversion.

135               The discretion whether to make the remedy of conversion available is found in s 116(1C).  I referred to this earlier.  Section 116(1C) denies the copyright owner a remedy in conversion if the Court is of the opinion that relief under s 115 is sufficient.

136               Section 116(1E) states three factors to which the Court may have regard in deciding whether to grant relief “and in assessing the amount of damages payable”.  I refer to the factors below.  Thus, s 116(1E) relates both to the discretion to award damages for conversion and the quantum of any award.

137               Reference to the Explanatory Memorandum to the Copyright Amendment Bill 1997 (“the Explanatory Memorandum”) makes plain that the purpose of the amendment was to give effect to the recommendation of the CLRC in 1990 that there should be a discretion in the Court as to the availability and extent of the remedy of conversion damages; see the Explanatory Memorandum at [137].

138               Moreover, it is clear from the following paragraph at [140] of the Explanatory Memorandum that a purpose of the amendments was to overcome the harshness of the operation of the previous law as applied in WH Brine.  The paragraph is as follows:-

“Presently, it makes no difference that the infringing copy is an insubstantial part of an article, eg, a badge on a soccer ball, or a few pages of a book.  The whole article must be either delivered to the copyright owner or the value of the goods paid by way of damages.  Implementation of the CLRC recommendations will avoid possible abuse by copyright owners and unfairness to defendants.”

  

139               Thus it seems to me that the effect of s 116(1E) is to give the Court a discretion to award an amount of damages in conversion which, having regard to the stated factors, provides a fair measure of damages in the particular case.  The sub-section is directed at an assessment which strikes a fair balance between the compensatory aspect of the remedy and the acknowledgment of the copyright owner’s domain over infringing copies.

140               It must be a matter for the exercise of the discretion of the Court in each case to determine where the proper balance lies.

141               There was no evidence as to the first factor stated in s 116(1E), that is, the importance to the market value of the compact discs, as a whole, of the infringing material.  In the absence of evidence, I would assume, as Lockhart J did in Polygram, that the works of all of the artists are of equal value.

142               There was evidence of the second factor, namely the proportion of the infringing material to the whole of the article.  With the exception of the sixth CD, Happy Valley, each of the CDs was sold as a double album.  Happy Valley consisted of three compact discs but the third was a bonus disc which contained only video footage.

143              The applicants produced a table showing the total number of tracks on each album and the number of infringing tracks as a proportion of the tracks on each disc.  The table is as follows:-  

#	Name	Tracks	Disc 1	Disc 2
1	nikfish.com.au digital domain	29	2/15	0/14
2	Hard Trance Nik Fish	29	1/14	4/15
3	downunderground 007 nikfish	29	1/15	1/14
4	peeweeferris.com digital domination	23	1/12	3/11
5	downunderground 006 katemonroe	19	1/9	0/10
6	happy valley 1991 – 2001 a decade of dance	23	1/12	0/11
7	downunderground 011 captainkirk	22	1/11	0/11
8	fishmix 1 nik fish	28	1/15	0/13

 

144               The table shows that the infringing parts represent a small proportion of the article.  The largest proportion is five infringing tracks out of a total of 29 on the Hard Trance CD. 

145               As to the third factor, namely the extent to which the infringing material may be separated, the position is similar to WH Brine. 

146               That is to say, the infringing tracks cannot be separated.  The situation is unlike that which applied in Polygram where the infringing tracks were all contained on one of the two CDs.

147               But now that the approach in WH Brine has been altered, due to amendments to the legislation, the result must be different.  It is a matter for me to arrive at a fair balance between the two competing factors, namely the small proportion of infringing material and the impossibility of severance.

148               If I were to simply award the proportion which the infringing tracks bear to the whole article, I would be ignoring the impossibility of severance.  However, if I were to award the full wholesale value of the CDs as sought by the applicants, I would return to the harshness of WH Brine, contrary to the language and purpose of the amendments.

149               It seems to me that in striking the appropriate balance, the starting point should be the proportion of the infringing tracks to the whole but an amount should be added to recognize the impossibility of severance.  I therefore propose to increase the proportion by 100%, that is to say, I will double the percentage which would otherwise flow from the proportion of the infringing tracks on each CD.

150               In my view, this provides a proper measure of damages in light of the rule that conversion damages are compensatory; see the authorities referred to in WH Brine at 199.  There is usually a punitive element in an award of conversion damages because the verdict operates as a forced sale but any further punitive aspect should be determined in the application for additional damages under s 115(4).

151               I do not consider that on its proper construction s 116(1C) prevents the Court from awarding conversion damages under s 116 and additional damages under s 115(4).  I would only be precluded from doing so if I were of the opinion that additional damages of themselves would be sufficient.  I am not of that opinion because the conversion damages I will award are to be compensatory whilst the additional damages to which I refer below are of the nature of exemplary damages.

Calculation of Conversion Damages

152               I find that the wholesale price of the compact discs was $20.  There was no evidence to establish a lesser sum as the wholesale price.

153               The expenses in manufacturing the infringing copies, that is to say the CDs, were as stated in the evidence of Mr Speck.  The respondents produced no evidence to the contrary.  Nor did they introduce or point to any evidence of other expenses which may be allowed pursuant to s 116(1D)(a) of the Act.

154               The number of infringing copies is the number stated in Mr Speck’s affidavit.

155               Thus, subject to an apportionment based on twice the proportion that the infringing tracks bear to the total number of tracks on each CD, the damages are to be calculated on the basis of the figures stated in Mr Speck’s table of damages claimed against Mr Smith and Tower and in his table of damages against Mr Ferris.

156               I do not propose to calculate the figures.  The parties should draft short minutes stating the figures which reflect my reasons.

157               It will also be necessary to apportion the damages between the relevant applicants according to their ownership of the copyright in the infringing tracks.  I would not order the relevant respondents to pay this overall figure to the applicants as a whole.  Each must be awarded that amount which represents the measure of conversion damages awarded in its favour for the infringing copies.

Additional damages

158               The principles upon which additional damages are awarded are well established.  Flagrancy is not an essential pre-requisite, depending on the presence or absence of the other factors stated in s 115(4).  The Court has a broad discretion which is not dependent upon whatever form of financial relief may be awarded for ordinary damages; Raben Footwear v Polygram Records (1997) 75 FCR 88 at 93 (Burchett J, with whom Lehane J agreed); see also per Tamberlin J at 103.  It seems to me to follow that the amount of the additional damages is not to be related to the quantum of ordinary damages.

159               In Miyamoto, Wilcox J awarded $10,000 each against two disc jockeys, and less against some others, for the manufacture of a number of infringing compilation CDs.

160               The facts in Miyamoto, apart from the deliberate nature of the infringements for the financial gain of the disc jockeys, bear little resemblance to the present case.

161               In particular, in Miyamoto, each respondent, with one exception, expressed regret for the copyright infringement and asserted that he would not infringe again.  Each respondent also facilitated proof of the applicants’ case and an early resolution of the proceedings; see at [21].

162               Apart from Mr Ferris’ belated assertion that he will not deal with Mr Smith or Tower again, there has been no apology by any of the remaining respondents to these proceedings.  Moreover, until certain concessions were properly made by counsel for the respondents at the hearing on liability last September, Messrs Smith and Ferris, and Tower, put the applicants to the trouble and expense of proving their claims.

163               There have been a number of cases in the area of infringement of copyright in computer software in which judges of the Court have awarded amounts of $300,000 to $500,000 for additional damages.  Those were extreme cases in which the illegality was concealed, deliberate and for the considerable pecuniary benefit of the respondents; see Microsoft Corp v Ezy Loans Pty Limited [2004] FCA 1135 at [95] – [96] (Stone J); Microsoft Corp v Tyn Electronics Pty Limited (in Liq) [2004] FCA 1307 at [46] – [48] (Stone J);  Microsoft Corp v Goodview Electronics Pty Limited (2000) 49 IPR 578 at [61] – [64] (Branson J).

164               In my view, the present case is also extreme and calls for awards of damages, at least against Mr Smith and Tower, of amounts closer to those which were ordered in the various Microsoft proceedings than the amounts ordered by Wilcox J in Miyamoto.

165               The distinguishing feature which, above all else, calls for a very large award of additional damages against Mr Smith and Tower is the threats made by Mr Smith to Mr Kearney and Mr Williams.

166               The threats were made by Mr Smith and he has a higher degree of culpability than Tower but I reject the submission that Mr Smith made the threats in his personal capacity.  The evidence shows that Mr Smith made the threats to put pressure on Universal and Central Station to grant to Tower licences which those companies were otherwise unwilling to enter into.  No one from Tower came forward to disavow the actions of Mr Smith and the SMS messages were sent on Tower’s behalf.

167               In awarding additional damages, the Court marks its disapproval of the respondent’s conduct, bearing in mind the matters referred to in s 115(4)(b).  Here I must mark my disapproval of Mr Smith and Tower’s conduct in very strong terms.  There was a strong undercurrent of violence in the messages that increased in intensity as each further SMS message was transmitted.

168               Threats of physical harm to a person or his family demonstrate a rejection of the ordinary norms of conduct in a civilized society.  Where, as here, they were made for the purpose of enjoying the commercial benefits of the exploitation of copyright works, the behaviour is even more repugnant.

169               Moreover, the threats to Mr Kearney and Mr Williams are evidence from which I can infer that Mr Smith and Tower had no licences to the copyright in the sound recordings as asserted in their defence.  The threats are also inconsistent with any belief in the existence of the licences because the purpose of the threats was to secure that which they could not obtain by lawful means.

170               In assessing the amount of additional damages against Mr Smith, I do not take into account the threats made to Ms Herkes.  I am not satisfied from the terms of her evidence that Mr Smith made the threats.

171               Nevertheless, I do take the threats against Ms Herkes into account in assessing damages against Tower.  The evidence establishes that someone from Tower made the threats.  No one from Tower came forward to disavow them or to suggest that it was unaware of any such behaviour.

172               The threats to Ms Herkes, and indeed all of the outrageous conduct of Mr Smith and Tower in trying to force Universal and Central Station to grant licences shows a culture of contempt for copyright restrictions.  As Wilcox J said in Miyamoto at [24], copyright piracy deprives performing artists of the legitimate rewards of their work.

173               The evidence plainly establishes that Mr Smith and Tower knew that they did not hold the copyright licences for any of the infringing tracks and that they deliberately exploited the infringing works for their own commercial benefit.  Their infringements were flagrant within the tests stated in all the authorities.  And as I have said, the flagrancy of their infringements was compounded by outrageous and frightening threats as well as by false defences of the claims made in these proceedings.

174               A further aspect of their flagrant conduct which is to be taken into account is the false claims of copyright entitlements made on the covers of the infringing CDs.

175               Mr Smith and Tower have shown utter contempt for the applicants and for the Court.  They have failed to comply with Court orders for the preparation of the proceedings.  More seriously, they have failed to comply with orders made on 14 October 2004 for delivery up of infringing copies of the sound recordings.

176               I propose to order an amount of $150,000 against Tower and $300,000 against
Mr Smith for additional damages under s 115(4).

177               I should add that the factors which I have taken into account include the need to deter similar infringements of copyright.

178               I find that Mr Ferris was not involved in the threats although his name was mentioned in two SMS messages sent by Mr Smith.

179               I am not satisfied that Mr Ferris deliberately infringed copyright, but neither am I satisfied that he took any real care or interest in whether the necessary copyright licences had been granted.  He did not follow his usual procedure of obtaining written confirmation from the relevant recording company, Tower, that it had obtained the licence.  There was insufficient opportunity for counsel for the applicant to test Mr Ferris’ assertion that he inspected the paperwork because the evidence was given with little warning and without the advance notice contemplated by any pre-trial directions. Moreover, Mr Ferris was somewhat dismissive in his attitude to the applicants notwithstanding his long commercial relationship with them and his obvious knowledge of the required procedures.  His attitude to the entire matter was that it was Tower’s responsibility and he could turn a blind eye to whatever took place.  I reject his evidence that what he did would normally be considered industry standard.

180               Furthermore, Mr Ferris’ conduct after he was informed of the infringements plainly calls for an award of additional damages.  This is because he failed to accept what was clearly revealed in the evidence filed against Mr Smith and Tower and Mr Ferris that the applicants had an overwhelming case of copyright infringement against all of them.

181               I was not impressed by Mr Ferris’ evidence that he left the conduct of the defence to Mr Smith and Tower.  The evidence demonstrated serious breaches of copyright for which all of them were liable.  It also revealed threats made by Mr Smith and Tower which I have set out in detail.

182               Mr Ferris’ conversation with Mr Klitzing after the commencement of the proceedings must have put him on notice that the respondents did not have the licence to reproduce the Reloop track.

183               It is true that the evidence does not establish that Mr Ferris made any threats.  But a cursory examination of the evidence filed against him as early as 12 September 2002 would have made it obvious to Mr Ferris that he had no defence to the proceedings and that he must repudiate the conduct of Tower and Mr Smith.  He did not do so even when he had the opportunity in the witness box to say whatever he wished about his breaches and his future attitude.

184               I was not impressed by Mr Ferris’ answer which I set out at [106] above.  His belated suggestion that he would not work with Mr Smith again deserves little weight.  This is because his only explanation, given at the 11^th hour, was that his attitude towards Mr Smith had changed only when Mr Smith did not turn up at Court.  He produced two further CDs for Mr Smith after these proceedings were commenced, the most recent production being in June 2004.  Yet this was at a time when he must have known of the serious allegations of copyright infringement and threats to which there was no answer.

185               There was no acknowledgment by Mr Ferris of the seriousness of the allegations made against Mr Smith and Tower.  It was not suggested that he was unaware of the evidence of the threats made by Mr Smith to Mr Kearney and Mr Williams.  I am entitled to infer that Mr Ferris was aware of this evidence.  Yet he failed to acknowledge it or to distance himself from it.

186               I propose to order $50,000 additional damages against Mr Ferris to show my disapproval for his conduct and to deter similar infringements of copyright.

187               The additional damages awarded against Mr Smith, Tower and Mr Ferris are to be apportioned between the applicants whose copyright was infringed. This is to be done by dividing the total sum in each case equally between the five relevant applicants, namely Sony, Universal, Central Station, ToCo and EMI.  Thus, for example, Mr Smith will be ordered to pay $60,000 to Sony.  The orders are to be recorded in short minutes.

Costs

188               The applicants submit that this is an appropriate case for the lump sum assessment of costs, in accordance with order 62 rule 4(2)(c) of the Federal Court Rules.

189               Whilst the power conferred to award lump sum costs has been described as particularly suited to complex litigation, the rule is in general terms and the power is not limited to cases of that type: Australasian Performing Rights Association Limited v Marlin [1999] FCA 1006 per Burchett J.  As Giles JA recently observed, in relation to a similar rule in the Supreme Court of NSW, the power to award lump sum costs may be exercised whenever the circumstances warrant its exercise: Harrison v Schipp (2002) 54 NSWLR 738 (“Harrison”) at [21]. 

190               In Beach Petroleum NL v Johnson (1995) 57 FCR 119 (“Beach Petroleum”), Von Doussa J observed at 120 that the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation.  His honour referred to the decision of the English Court of Appeal in Leary v Leary (1987) 1 All ER 261, which contains a discussion of the principles upon which the power to award lump sum assessment of costs should be exercised.

191               The applicants submit that the present case is one in which the Court should exercise its discretion, especially taking into account the conduct of the respondents, and I accept their submission for two main reasons.

192               The first reason is the manner in which the respondents have conducted themselves throughout the course of these proceedings, described above at [24]-[77].  As a result of their behaviour, the respondents put the applicants to the trouble and expense of proving their claims, and they consistently failed to comply with orders of the court.  I note that at no time did Mr Smith enter the witness box, either on the issue of liability or damages, and it seems to me that Mr Ferris only made himself available to attend the damages hearing at the eleventh hour, when it became apparent to him that Mr Smith would not be present.  In my opinion, they are unlikely to attend on any taxation hearing.  Further, it seems to me that if they were to involve themselves in such a hearing, it likely that it would not be to assist in an orderly and expeditious determination of the amount to be taxed or assessed.

193               Awards of lump sum costs in small to medium sized cases have previously been made by the Court particularly where respondents have not appeared to save the successful party the difficulties, inconvenience and added expense of taxation: Microsoft v Jiang [2003] FCA 101 and Sony Computer Entertainment Australia Pty Limited v Carey [2003] FCA 605.

194               A further reason which weighs in favour of the exercise of my discretion is that it appears, based on the conduct of the respondents to date, that they may be unlikely to be able to meet a liability of the order which will result from an assessment. 

195               There are numerous authorities for the proposition that if the unsuccessful party is unlikely to be able to pay the amount of costs ordered following taxation, the successful party is further aggravated by having to fund the additional costs of taxation, those costs being also unrecoverable: Harrison at [21]; Sparnon v Apand Pty Limited [1998] FCA 164 (“Sparnon”) per Von Doussa J at 4; Hadid v Lenfest Communications Inc [2000] FCA 628 (“Hadid”).

196               As to the amount of a gross sum order, the applicants seek $302,997.89, being 60% of actual costs incurred ($504,996.47), as detailed in the affidavit of Mr Michael Williams, partner for Gilbert + Tobin, solicitors for the applicants.  They submit that this represents an amount commensurate with taxed party/party costs.  They claimed a further $6,000 of the $10,000 likely to be incurred on the damages hearing.

197               There are a number of authorities on the question of assessment of costs, and the effect of them is that the exercise of the rule contemplates a much broader brush than would be applied on taxation.  The gross sum can only be fixed broadly having regard to the information before the court: Beach Petroleum at 124; Harrison at [22] and Hadid at [27].

198               In Harrison, Giles JA observes at [22] that of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs.  In Hadid it was said that the evidence enabled fixing a gross sum “only if I apply a much broader brush than would be applied on taxation, but that… is what the rule contemplates”. 

199               Giles JA goes on to state, at [22] that :-

“[t]he approach taken to estimate costs must be logical, fair and reasonable.  The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available.”

200               On a party party basis, a taxing officer will allow all necessary and proper costs that have been incurred to defend or prosecute the proceedings, but not those costs which arise as a result of an over-cautious or excessive investigative approach: Sparnon at 6, citing Canvas Graphics Pty Limited v Kodak Australia Pty Limited [1998] FCA 23.  I note the observation of Von Doussa J in Sparnon that the luxuries of litigation must be paid for by those who indulge in them, the necessities only are to be paid for by the losing side.

201               It seems to me appropriate to award 40% of the amount sought by the applicants, being $205,998.58.

202               Accordingly, the order I will make is that the applicants pay the respondent's costs of the proceeding in a gross sum specified in accordance with order 62 rule 4(2)(c) in the amount of $205,998.58.  This is to be apportioned between the respondents, with Mr Smith and Tower liable for 80% of these costs, Mr Ferris being liable for the remaining 20%.

203               If the total amount of damages awarded against Mr Ferris is less than $100,000 I would exercise my discretion under Order 62 rule 36A of the Federal Court Rules to order that the costs payable by Mr Ferris not be reduced.  This is because the matter was one that was properly brought in the Federal Court.  In any event, the claim against Mr Ferris was inextricably bound up with the claim against Mr Smith and Tower against whom damages far in excess of $100,000 will be awarded.

 

 

I certify that the preceding two hundred and three (203) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Date:                11 March 2005

Counsel for the Applicant:		Mr J Hennessy
Solicitor for the Applicant:		Gilbert + Tobin
Counsel for the Respondent:		Mr J Miller
Solicitor for the Respondent:		Stephen Smart and Associates
Date of Hearing:		8 February 2005
Date of Judgment:		11 March 2005

SCHEDULE OF ADDITIONAL APPLICANTS

SONY MUSIC ENTERTAINMENT (GERMANY) GMBH FOURTH APPLICANT   MEDIA RECORDS SRL FIFTH APPLICANT   COMBINED FORCES RECORDS BV SIXTH APPLICANT   TRACID TRAXX GMBH SEVENTH APPLICANT   DANCE STREET GMBH EIGHTH APPLICANT   KONTOR RECORDS GMBH NINTH APPLICANT   ALPHABET CITY GMBH TENTH APPLICANT   NERVOUS INC ELEVENTH APPLICANT   WYZE PRODUCTIONS LIMITED TWELFTH APPLICANT   TOCO AUSTRALIA PTY LIMITED (ACN 008 706 576) THIRTEENTH APPLICANT   FREAKY MUSIC BV FOURTEENTH APPLICANT   EMI MUSIC AUSTRALIA PTY LTD (ACN 000 070 235) FIFTEENTH APPLICANT   EMI ELECTROLA GMBH & CO KG SIXTEENTH APPLICANT   STEP BY STEP MV GMBH SEVENTEENTH APPLICANT   CENTRAL STATION PTY LTD (ACN 073 153 705) EIGHTEENTH APPLICANT