FEDERAL COURT OF AUSTRALIA

Australasian Performing Right Association Limited

v Monster Communications Pty Limited  [2006] FCA 1806

INTELLECTUAL PROPERTY – copyright – infringement – licence – where company engaged in the marketing and supply of ringtones and related products to users of mobile telephones – where licences required for the communication to public via short message service (SMS) or interactive voice response services (IVR services) of the parts of the musical works embodied in ringtones and owned by the applicants  – whether licences on foot – unlicensed communication of works found to infringe copyright

INTELLECTUAL PROPERTY – copyright – damages – circumstances justifying award of additional damages – flagrancy - deterrence – quantum of additional damages – where reckless disregard for intellectual property rights of others - Copyright Act 1968 (Cth) s 115(4)

CONTRACT – general contractual principles – construction and interpretation of contracts -  where licences required for the communication to public via short message service (SMS) or interactive voice response services (IVR services) of the parts of the musical works embodied in ringtones and owned by the applicants – whether licences on foot - where meaning of licences terms in dispute – meaning of “retail price” –  use of surrounding circumstances to assist in interpretation of written contract in case of ambiguity

DAMAGES – breach of contract – proof of damages – where evidence insufficient for trial judge to make precise calculation of damages – where expert evidence inconclusive

Held – licences validly terminated by the applicants; respondents in breach of licences; respondents infringing the copyright of the applicants whilst not licensed; compensatory and additional damages awarded; injunction restraining infringement granted.

WORDS & PHRASES – “retail price”

Copyright Act 1968 (Cth) s 115(4)

Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191considered and applied

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51 followed

Ballas v Theophilos [No 2] (1957) 98 CLR 193 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165applied

Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389cited

Fitzgerald v Masters (1956) 95 CLR 420 considered

Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715cited

L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235followed

Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181applied

New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154cited

Perri v Coolangatta Investments Pty Limited (1982) 149 CLR 537followed

Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 applied

Re Powercom Interactive Media Pty Ltd (2003) 175 FLR 1 cited

Reid v Moreland Timber Co Pty Limited (1946) 73 CLR 1applied

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 followed

Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165applied

Universal Music Australia Pty Limited v Cooper [2005] FCA 1878 cited

XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 applied

Zhu v Treasurer of NSW (2004) 218 CLR 530cited

AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED (ACN 000 016 099) AND ORS v MONSTER COMMUNICATIONS PTY LIMITED (ACN 104 112 183) AND ANOR

NSD 286 OF 2006

RARES J

21 DECEMBER 2006

SYDNEY

THE COURT ORDERS THAT:

1.         The applicants prepare short minutes of order to give effect to my reasons. 

2.         The proceeding stand over to 22 December 2006 at 10.15a.m.

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

REASONS FOR JUDGMENT

1                     Australasian Performing Right Association Ltd owns or controls for Australia the exclusive right of public performance and communication to the public of a large number of musical works and associated lyrics.  Australasian Mechanical Copyright Owners Society Limited controls in Australia the right to reproduce certain musical works.  APRA administers licences issued by AMCOS. Between them, APRA and AMCOS own or control the right in Australia to communicate to the public or reproduce many works which are the subject of copyright under the Copyright Act 1968 (Cth).

2                     In mid 2003 Monster Communications Pty Limited began a business of providing downloads of copyright works to mobile telephone customers through the use of telephone services provided by Telstra Corporation Limited and other telecommunications licensed carriers.  Among other services that Monster has provided are downloads of monophonic and polyphonic ringtones.  And, from late 2005 until June 2006 Monster also provided a service to its customers where they could download what are known as MP3 files onto their mobile phones. 

3                     Monster advertised its services nationally.  The advertisements invited consumers to acquire downloads from Monster either by sending a short message service (known as SMS) text message or by making an interactive voice response (IVR) telephone call to a 1900 telephone number.  Customers access the SMS services by sending a text message from their mobile phone to a telephone number together with a code requesting a particular product download.  When the SMS message is received, Monster’s telecommunications service provider processes the request by sending it to Monster and collects or arranges to collect Monster’s advertised price from its customer.  Next, Monster processes the request through its computer systems.  The end result is that the consumer receives on the screen of his or her mobile phone a download of what was ordered:  viz;  a monophonic, polyphonic or MP3 ringtone, a colour message or a picture.

4                     Customers access the IVR services by telephoning the 1900 number and progressing through a series of steps during the call with similar end results.  In addition, if the customer makes an IVR call, he or she can place more than one order for downloads of any of Monster’s advertised products.  A telecommunications agreement between Monster and Telstra for IVR calls was in place between June 2003 and 1 May 2005.  It provided that the first 24 seconds of any IVR call were free and thereafter the call was charged to Monster at an agreed rate.  Monster’s advertisements informed consumers of their ability to order more than one of its advertised download products in the same 1900 call.  The advertisements made an offer that if the consumer ordered three downloads, he or she would get one free (with no limits and in any combination).

5                     When a customer ordered a ringtone or image download through either the SMS or IVR services, Monster reproduced the image or ringtone thus attracting the royalties to which AMCOS is entitled.  Each of Monster and its telecommunications service provider then communicated the ringtone or image download to the consumer thus generating the royalties to which APRA is entitled.  In both cases the royalties became payable in respect of works the copyright in which either APRA or AMCOS controlled or APRA owned.

6                     Ringtone services have developed into an important market for APRA and AMOCS since the year ended 30 June 2002, when they had 18 licensees.  In subsequent years the numbers grew, peaking at 62 in the year ended 30 June 2004.  There were 49 in the year ended 30 June 2005.  As at 30 June 2006 there were 47 licensees although there had been 56 current at one point during that year.

7                     Licensees are required to produce to APRA and AMCOS their telephone service provider statements of account.  Those statements record, among other information, that total revenue collected by the provider from customers downloading licensees’ ringtones and other services and the net amounts remitted to the ringtone licensee from those collections.  Each licensee makes a return to APRA or AMCOS identifying what part of the revenues disclosed in the providers’ statements are attributable to downloads of licensed works.  A calculation is then made of the royalties due.  Based on returns prepared by the licensees under their agreements with APRA and AMCOS, they calculated that, on their estimate, Monster’s share of revenue from the ringtone services market in Australia was in the order of 8% of the market. 

8                     Shortly after Monster commenced its business in July 2003, it became aware that it was obliged to obtain licences from APRA and AMCOS for many of the copyright works used in its business.  After some long negotiations, the parties entered into four different agreements dated 1 January 2005 which took effect as from 1 July 2003 for the IVR licences (cl 3) and 1 October 2004 for the SMS licences (cl 3) so as to provide for royalties during the preceding, as well as future, periods.  Monster entered into an agreement with each of APRA and AMCOS respectively for the provision of IVR services and SMS services.  Apart from the identity of the parties to each agreement, the relevant provisions of each IVR agreement and each SMS agreement were, in many respects, materially similar although there were some substantial differences.

9                     In August 2005 APRA and AMCOS terminated the IVR licences for non-payment of interim invoices for royalties.  Those invoices were issued after an audit by Deloitte of Monster’s financial information following Monster’s failure to provide to APRA and AMCOS relevant financial information under their IVR licences.  The SMS licences were terminated in December 2005 because of Monster’s failure to provide any statements from its telecommunications service providers from which royalties could be calculated.  During the period covered by each of the licences before their termination, Monster paid no royalties at all.  Subsequently Monster paid some royalties.

10                  Monster’s records were audited by Deloitte.  The audit revealed substantial deficiencies in and unreliability of Monster’s records.  Monster’s financial records for 9 May 2005 evince a very significant, two-thirds, decline at midnight on that date in the number of downloads it provided (i.e. from about 37,000 in its previous records to, about 13,000) (T 192.6) from which it never recovered.  The expert evidence said there was no explanation for that fall or its magnitude.

11                  Monster argued that APRA and AMCOS had failed to provide it with any specification of the financial information they required under each of the SMS and IVR licences and that accordingly, it was not in breach of any obligation under them.  Monster argued that the termination of each of the licences was invalid.  The parties entered into negotiations for the grant of new IVR licences to take effect immediately following the termination of the original ones.  Monster argued that it was able effectively to accept that offer three months after it had been made in circumstances where, in the interim, the SMS licences had also been terminated and APRA and AMCOS were threatening to take it to court if it did not pay a substantial sum for past royalties.  Monster has continued to provide downloads of copyright works relying on its argument that the terminations of each of the licences were invalid.

12                  The construction of the SMS and IVR licences, and in particular the formulae for the payment of royalties, is at the heart of the present proceedings.  APRA and AMCOS contend that Monster has not accounted properly for the royalties which are due under the IVR and SMS licences.  Monster contends that it has in fact overpaid those royalties.

RINGTONES

13                  A ringtone is a fragment of a musical work in digital form which is intended to be delivered to and to function as the ring of a mobile telephone:  Re Powercom Interactive Media Pty Ltd (2003) 175 FLR 1 at 3 [9] per Lindgren P.  The President found that in storing ringtones on its computers, a ringtone supplier makes a reproduction of those parts of the musical works embodied in the ringtones for the purposes of s 31(1)(a)(i) of the Copyright Act 1968 (Cth).  In electronically transmitting ringtones to a mobile telephone, the ringtone supplier exercises the right of communication to the public in respect of those parts of the musical works embodied in the ringtones (s 31(1)(a)(iv) of the Act:  s 10(1) contains a definition of the word ‘communicate’ as meaning to ‘make available online or electronically transmit … a work or other subject matter’).  By providing an IVR service, a ringtone supplier authorizes the making of the copy of the ringtones which are created in the customer’s mobile telephones upon electronic transmission of them (for the purposes of s 36 of the Act) (175 FLR at 4 [11]-[13]).

THE SMS LICENCES

14                  Relevantly, each of the SMS licences dated 1 January 2005 is in identical terms, except for the fees payable under Schedule 1, the identity of the licensors and an extra clause in the AMCOS version regulating reproduction of musical works (cl 5).  Each SMS licence commenced on 1 October 2004 (cl 3).  APRA was entitled to a fee for monophonic or polyphonic format ringtones of 1.1% (inclusive of GST) of the retail price subject to a minimum fee of 1.65¢ (inclusive of GST) per sale.  The fee for phonographic format (i.e. MP3) ringtones was 2.2% (inclusive of GST) of the retail price subject to a minimum fee of $3.30 per sale.  At all times, Monster charged consumers, according to its advertisements $3.50 per ringtone downloaded via an SMS service.

15                  AMCOS was entitled to a fixation fee of $11 in respect of each new AMCOS work added to the licensee’s inventory in the quarter for which the fees were payable.  In addition, the licensee had to pay AMCOS a fee for each ringtone of 11% inclusive of GST of the retail price subject to a minimum fee of 16.5¢ (inclusive of GST) per sale.

16                  Each SMS licence recited the capacity in which the relevant licensor acted.  APRA owned or controlled for Australia the exclusive right of public performance and communication to the public in relation to the relevant work (Recital A).  AMCOS controlled in Australia the right to reproduce the AMCOS works (Recital A).  The licensee was described as being in the business of providing customised mobile telephone ringtones for sale ‘at a fixed rate per sale … by means of premium rate short message services … and/or through the proprietary networks of telecommunication carriers’ (Recital B).  The licence then recited that the licensee required a licence from the relevant licensor to pursue that business activity.

17                  The licensee was required to pay the licence fee calculated in accordance with the formula set out in schedule 1 (cl 4).  The AMCOS SMS licence contained a clause 5 which was not in the APRA equivalent.  That clause required the licensee to notify AMCOS within 14 days of the date of the agreement of the names of the ringtones it wished to reproduce (cl 5.2).

18                  Monster was required, within 14 days after the end of each quarter, to provide to the licensor the revenue and music use information described in schedule 2 in the form ‘prescribed by [the licensor] from time to time’ (APRA cl 5, AMCOS cl 6).  The licensee was required to keep accurate books of account and other records in sufficient detail to ensure that all amounts payable to the licensor under the agreement could be properly ascertained (cl 7).

19                  Each SMS licence contained a provision entitling APRA (cl 10.1(a)) and AMCOS (cl 11.1(a)) to terminate it immediately by notice if Monster breached any term of the licence and failed to remedy the breach within 7 days of being required to do so.

20                  In Schedule 2, each SMS licence required the licensee to supply within 14 days after the end of each quarter a detailed account of ringtone sales in that quarter for each separate ringtone service operated by the licensee, which was defined as a sales report.  The sales report had to identify for each separate work offered for sale during the quarter among other things the title of the work, identifying whether the work was an APRA or AMCOS work or not and the price at which it was sold.  Critically, Schedule 2 went on to provide:

‘In a format acceptable to [the licensor], the licensee must also supply [to the licensor] within 30 days after the end of each Quarter, copies of actual revenue statements (including but not limited to details of items delivered, items billed, gross revenue,price points and period covered as relevant) provided by the relevant telecommunications carriers and service providers responsible for collecting revenue in relation to the Purpose.’  

The schedule concluded that if the price of a particular ringtone changed during each quarter or it was sold at different prices, then separate line entries were required to be made for each price so that a correct licence fee could be calculated.

THE IVR LICENCES

21                  Each IVR licence had provided that the licensee had to a licence fee calculated in accordance with a formula set out in schedule 1 (cl 4).  As with the SMS licences, the AMCOS licence alone contained a cl 5 in similar terms to the AMCOS SMS licence.  The licensee, as with the SMS licences, within 14 days after the end of each quarter had to provide the licensor with the revenue and music use information described in schedule 2 in the form prescribed by the licensor from time to time (APRA cl 5, AMCOS cl 6).

22                  On receipt by the licensor of the information under cl 5 or cl 6, the licensor had to calculate the licence fee for the quarter in accordance with cl 4 (APRA cl 6.1, AMCOS cl 7.1).  The licensee was then required to pay any invoice issued by the licensor within 14 days after the date of invoice.  However, if the licensor received information pursuant to an audit or examination which could be required under cl 8 (or cl 9 for AMCOS), it was entitled to issue an invoice for any additional licence fee payable and the licensee had to pay that invoice within 14 days after its date (APRA cl 6.3, AMCOS cl 7.3).  The licensee was again required to keep accurate books of account and other records in sufficient detail to ensure that all amounts payable to the licensor under the agreement could be properly ascertained (APRA cl 7, AMCOS cl 8).

23                  Each IVR licence contained a termination clause in the same terms as the SMS licences (APRA cl 10, AMCOS cl 11).

24                  Schedule 1 of the IVR licences provided for a formula for the payment of fees.  In each formula, the APRA call revenue and AMCOS call revenue were defined as ‘ACR’.  ACR was calculated by multiplying what was defined as NCR (net call revenue) by the fraction comprised of the total number downloads of the licensors’ works by the total number of downloads delivered by the IVR service.  Relevantly, where, as is common ground here, the average price per ringtone was greater than $1.50, the licensee had to pay APRA a licence fee for monophonic ringtones of 1.1%, and for polyphonic ones 2.2% of the APRA call revenue (inclusive of GST) (Schedule 1, 2/105).  Under the AMCOS agreement the licence fee, where the average price per ringtone was greater than $1.50, was 11% of the AMCOS call revenue (inclusive of GST). 

25                  The calculation in Schedule 1 was designed to identify the proportion of works within the control of APRA and AMCOS respectively in the overall revenue generated by the operations of the licensee.  NCR was defined as meaning the gross call revenue ‘less bad debts actually written off and less the connection fee actually charged by the telecommunication service provider responsible for providing the carriage of the IVR service’. Gross call revenue was defined as meaning the gross earnings of the licensee together with the earnings of any or all of its agents, partners, affiliates and income sharers (including without limitation any telecommunications company or service provider or bureau) directly or indirectly receivable during the quarter in respect of or otherwise in relation to the IVR service.

26                  Thus, the concept behind gross call revenue was to capture the charge which the telecommunications company made its subscriber pay when accessing and arranging downloads from Monster’s services.  Consumers would be billed by or have payments deducted from their accounts by their telecommunications services provider.  Thus, a consumer wishing to purchase a download from a Monster advertisement would telephone a 1900 number for an IVR service.  Telstra provided Monster with the 1900 numbers.  Not all Monster’s customers were, however, Telstra customers.  Thus, Telstra would have to collect, from the customers or their telecommunications providers, the money which Monster advertised was the cost of the relevant download.  Telstra and Monster entered into a contract for the provision of the IVR services in June 2003.

THE TEMPLATE DISPUTE

27                  Mr Richard Mallett has worked for APRA for about 10 years and has been APRA’s director of mechanical licensing since early 2002.  He has had extensive experience in the licensing activities of APRA and AMCOS.  He first became aware of Monster’s activities in about August 2003 and was the officer of APRA and AMCOS responsible for dealings with Monster. 

28                  Mr Jansen Chong (the second respondent) is Monster’s sole director.  He graduated a Bachelor of Laws with Honours from the University of Warwick in the United Kingdom in 1991.  During the course of that degree he gained some understanding of intellectual property matters.  Between 1993 and 1996 he held the rank of Inspector with the Singapore Police Force and performed both investigative and staff functions.  After he left the Singapore Police Force he held positions as marketing and strategic development manager with a number of companies that introduced him to the download technology that Monster uses in its business.  From January 2002 for about a year he was the general manger of Powercom which carries on a business in Australia similar to that of Monster.  He was in charge of Powercom’s marketing delivery systems.  While there, he improved its ringtone products and developed graphic products to add to its principal business being a provider of chat room services.  After leaving Powercom Mr Chong established Monster and commenced business in July 2003. 

29                  On 20 January 2005 Mr Mallett and two other representatives of APRA and AMCOS had a meeting during the course of which Mr Chong said that Monster could not provide sales figures for the last 18 months.  Mr Mallett responded that he was sure that they could come up with a commercial solution to that problem.  Discussion turned to the reporting requirements under APRA’s standard form licence agreements.  Mr Mallett said that APRA and AMCOS did not currently require some of the information that was referred to in Schedule 2, including the unique identifying numbers for works and IVR numbers.  He said that APRA and AMCOS would make the calculation of net call revenue directly from the Telstra statements and that Monster did not need to provide additional supporting information.

30                  Mr Mallett said at that time APRA and AMCOS did not have a fixed or prescribed format in their electronic data interchange (EDI) specification that they would send to Monster later that day.  He said that those specifications were due to come into force in September 2005 and that some items in Schedule 2 (in the IVR licences) including identifying numbers and IVR numbers were not required for the moment.  He told Mr Chong that in the meantime sales information should be provided in electronic format and they would work with Monster.  Mr Mallett said that APRA and AMCOS would make the calculation of net call revenue directly from the Telstra statements and that Monster did not need to provide additional supporting information.  Later that day Mr Mallett sent a letter to Mr Chong attaching the draft EDI specification which he said he was assured by the technicians made sense to them.  The letter said that they expected the first reports to be in the format of the draft for the July-September quarter.

31                  In his evidence, Mr Mallett agreed that the letter of 20 January 2005 conveyed that the template was a draft and that there would be no mandatory requirement till later that year (T 101.21-.25).  He said the template in the EDI specification which was sent on 20 January 2005 by APRA and AMCOS to Monster was to be used as a form of guide as to how the specification should be completed (T 99.25-100.42). 

32                  On 11 February 2005 Mr Chong wrote to Mr Mallett.  He enclosed copies of the IVR and SMS licences executed by Monster.  In the letter Mr Chong requested a template from APRA/AMCOS of the correct layout required for the detailed sales report and information which Monster had to provide under the licence agreements.  Mr Chong then set out what he called a detailed sales report for the quarter ending 30 September 2003.  That simply listed the number of sales of mono and polyphonic ringtones for each of the three months.  He also asked for the correct or accepted format with which to provide additional data, such as the song titles and artists, in order to be able to calculate the royalties due.

33                  On the same day, APRA and AMCOS’s  solicitors (Banki  Haddock Fiora) wrote to Monster’s then solicitors (Griffith Hack Lawyers) noting that Monster had provided signed licence agreements relating to the ringtone service which Monster offered together with some sales information in relation to the September 2003 quarter.  They said that Monster had not provided any revenue information.  They drew attention to Monster’s failure to provide, as required by each licence agreement, full details of sales of ringtones, including statements from telecommunication service providers.  Banki Haddock Fiora also asserted that Monster’s licence fee obligations were significant.  They said it was expected to comply with the agreements.

34                  Between 11 February 2005 and early March 2005 Mr Chong and Mr Mallett had at least one and possibly more conversations to the following effect (T 102.15-.30):

‘Mr Chong:     Richard, I need to know the format and information you need from me to supply you with the quarterly reports.  I also need you to tell me which of the ringtones are APRA/AMCOS works.

Mr Mallett:     Don’t worry about that. We’ll give you something.  We’ll give you a format later this year.  You just provide all your sales figures and Telstra revenue returns.’

35                  After this conversation APRA/AMCOS sent an email on 4 March 2005 to Mr Chong  noting that they had processed the licence agreements and they were sending a copy of the executed versions in the mail.  The email continued:

‘We have attached a Digital Download Sales Reporting guide and an example EDI [electronic data interchange] template which labels each field as required under our EDI specifications.  Please complete and return as soon as possible’.  (emphasis added)

Although the attachment clearly showed that the status of the document was a draft, the template format which it contained had a detailed description of what was required for reporting download transactions.  That included descriptive explanations of mandatory fields in the template and of information to be provided (such as the record type, work title, the writers, the performers and the quantity.  Optional items included certain reference information identifying the downloaded work).

36                  All other licensees of APRA and AMCOS have conformed to these requirements and reported without difficulty. 

37                  Mr Chong read the material in the email of 4 March, as he had the material with the letter of 20 January 2005, when he received them (T 133.8).

38                  Mr Chong said that he did not want to give APRA or AMCOS a bare list of sales and core revenues from which they would unilaterally determine licence fees and in circumstances where he would not have any idea what figure they might determine was payable.  After receiving both EDI documents, he said that he was concerned that they were both drafts which might change and that they appeared to describe a system specification to allow interchange of information electronically between APRA and AMCOS and its licensees such as Monster. 

39                  Mr Chong also asserted that the fact that these documents were drafts was significant to him because Monster’s computer software would have to be altered to enable it to access the data and produce the specified reports.  That would entail a cost and, he asserted, more importantly the testing of Monster’s systems after they had been altered to ensure that the required changes did not create bugs or damage any part of the system.  He also expressed concern that an alteration of the computer system to accommodate a draft specification created the real possibility that if the final specification differed, there would have to be a subsequent alteration at additional cost and with additional testing procedures.  He understood that it was a computer industry rule and standard that computer systems not be altered by reference to draft specifications for those reasons.

40                  Mr Chong was taken through the draft EDI specification attached to the email of 4 March 2005 in cross-examination.  He was asked about his concerns to do with the draft EDI format by being taken to the requirements for different fields individually.  For example, he was asked about whether he knew enough about the systems to know what a header row was.  Mr Chong said that he did not know because APRA and AMCOS had never discussed it with him and he did not recognise the acronym ‘HDR’  as a symbol for the header row (T 132.45-133.5).  When he was taken to the descriptive definition in the draft EDI specification, it was clear that the acronym referred to a file header record comprising seven fields of mandatory information identifying with precision what was required.  Next, Mr Chong said that one of those fields was not readily available, namely the sender’s identification number.  Given that that was a number to be allocated to Monster, as sender, by APRA and AMCOS, his professed concern was transparently illusory (T 134.3-.14).

41                  After being taken through the draft document in cross-examination, which he had read at the time he received it, he agreed that it was relatively straightforward for Monster to provide information in that format, after making obvious assumptions (T136.18-.22).  He had made no investigation of the cost of attempting to comply with the draft format, despite what he had put in his affidavit to suggest this was a concern of his (T 136.39-.47).

42                  Mr Chong is a very intelligent person.  The draft EDI format was not difficult to understand and, when he was taken through it, it was obvious that he was readily able to understand it.  I do not accept his evidence that the reason he did not implement the draft, notwithstanding the email of 4 March 2005, was because of any concerns or difficulties he had with the document.

43                  Mr Chong also asserted that Schedule 2 of the licences required Monster to provide information about which works were APRA or AMCOS works, the unique identifying number of those works and the identifying telephone number of the IVR service.  He listed the problems he had with complying with the quarterly requirements in Schedule 2 is each licence as being that he had no way of knowing whether or not any particular ringtone was an APRA or AMCOS work or had an APRA or AMCOS identifying number or was sold through a particular one or more of Monster’s thirty or so IVR service lines.  But Mr Mallett had told him on 20 January 2005 that the second and third items of this list were not required.  I am not satisfied that Mr Chong had any difficulty concerning the identifying numbers or IVR phone lines.

44                  It was Monster’s obligation under the AMCOS IVR and SMS licences to provide a list to APRA and AMCOS of the musical works it wished to reproduce in the form of ringtones under the agreement within 14 days of the date of each licence agreement (cl 5.2).  Whether the relevant works were those of APRA or AMCOS was for Monster to ascertain.  I am not satisfied Mr Chong was concerned about this at all.  Monster did not provide a list under cl 5 of the AMCOS licences.  Other examples were put to Mr Chong in cross-examination of instances when he, or companies he controlled, including Monster, used works for which they had made no arrangements with the owner of copyright, but only ceased the user when the owner complained.  By 31 March 2005 no royalties had been paid by Monster under the IVR licences, which were expressed to have commenced on 1 July 2003, some 21 months before and none had been paid under the SMS licences which had been expressed to commence on 1 October 2004.

45                  I find that Monster and Mr Chong deliberately refrained from providing to APRA and AMCOS the information to the effect of that sought in the draft EDI specification as qualified by Mr Mallett so as to avoid paying for as long as possible what was due to the collecting societies.  Mr Chong gave no explanation as to Monster’s or his failure to communicate with APRA or AMCOS about any difficulties or concerns after the 4 March 2005 email.  This deliberate default continued throughout 2005.  The email of 4 March 2005 was the last relevant communication on the question of what APRA and AMCOS required to be provided.  There was no basis on which Monster was entitled to ignore the requirements in the email to use the template provided and to return the information as soon as possible.  Mr Mallett’s earlier conversation had identified the Telstra revenue returns as being sufficient to comply with the telecommunications service provider information specified in Schedule 2.

46                  I am satisfied that Monster was aware that APRA and AMCOS had specified to it the form in which the information required was to be provided for the purposes of each licence.  I do not believe Mr Chong’s evidence that he had any concerns or difficulties about the provision of that material in the form of the draft specification. 

THE IVR LICENCES DISPUTE

47                  On 24 March 2005 Mr Mallett wrote to Mr Chong noting that Monster had still not provided relevant Telstra revenue statements or any further information beyond what was in Monster’s letter of 11 February 2005.  Mr Mallett noted that that position was untenable.  He said there had been a failure to provide APRA and AMCOS with the information required to calculate the licence fees.  Acting on cl 8 of the agreements with APRA and cl 9 of the agreements with AMCOS, he informed Monster that on or after 25 April 2005 they would conduct an audit of the books of account and other records of Monster in order to obtain that information.

48                  On 14 April 2005 Mr Mallett notified Mr Chong that the audit would commence on 27 April 2005 and that APRA and AMCOS had appointed Deloitte as auditors. Among other things Mr Mallett noted that Monster should have available to the auditor statements provided by Telstra in relation to all IVR lines operated by Monster for the purposes of supplying ringtones, computer records detailing the mix of ringtone and non-ringtone material ordered by calls using those IVR lines and all other relevant records including computer records and associated metadata detailing the ringtones ordered from the commencement of the service to 31 March 2005.

49                  In late May 2005 Deloitte reported to APRA and AMCOS.  The key findings in its audit report  included the following:

(a)        Monster’s revenues excluding GST from downloads for all content types totalled about $7.23 million for the period 1 July 2003 to 31 March 2005 based on Monster’s financial records.  This was consistent both with revenues disclosed in monthly revenue statements provided by Telstra and Monster’s quarterly business activity statements.

(b)        Monster’s financial records did not contain a breakdown of revenues per content type so as to enable identification of whether they were earned for the supply of ringtones, games, colour pictures or other categories of services which Monster offered.

(c)        There was no record of payment or of provision for licence fees due to APRA or AMCOS in Monster’s financial records.

(d)        Revenue from ringtone and polyphonic downloads could not be conclusively calculated with the data provided by Monster.

(e)        Historical log files for the IVR server and database backup types were not provided or available in the information Monster provided to Deloitte.

(f)         While Deloitte had sighted the log file for the IVR server on 29 April 2005, it was missing from the system when analysed again on 3 May 2005 and Monster provided no explanation for the anomaly.

(g)        It was not possible to validate independently database records based on the information provided by Monster to Deloitte.  This was said to be due to a number of factors including the masking of mobile numbers which purchased relevant services, the absence of or failure to provide log files and the absence of or failure to provide historical system backups.

(h)        Deloitte’s analysis of the electronic data provided by Monster in relation to sales and downloads suggested:

·                    Monster’s sales data could not be linked by volume or value to revenue figures set out in the Telstra statements, Monster’s own MYOB accounting records or its BAS statements;

·                    Notwithstanding that it was difficult, given the data provided by Monster, to ascertain definitively the number of downloads purchased by a customer in a single call session, it appeared to Deloitte that there was an inconsistency in the sales data which enabled Deloitte to imply:

-           in the case of monophonic and polyphonic ringtones, the number of single download sessions exceeded the number of double download sessions and the number of double download sessions exceeded the number of treble download sessions and so on;

-           however, for other content types (i.e. ones on which no royalties were due to APRA or AMCOS) unusually high frequencies of triple downloads were observed by Deloitte.  Deloitte noted that Monster had advised that that finding possibly indicated a ‘bug in the system’;

(i)         Deloitte said that it was not clear if there were business or commercial reasons for their conclusions from the electronic data analysis but that in the absence of explanation or additional reliable information of the kind that they had requested, Deloitte’s observations raised significant concerns as to the accuracy or legitimacy of the sales data provided by Monster.

50                  Deloitte regarded as significant what was described in the evidence as a ‘triple download spike’ in Monster’s computer records of sales activities.  Monster’s internal reporting had rows of data entries arranged under a number of columns.  The columns included a date and time column for the telephone call ordering the particular product or products.  There was provision for the caller number (where it was available) to be given, the identification of a port, a telephone number on which the call was made to place the order, the mobile number to which the service was to be sent, the identity of the mobile operator, the content type, the identification number within Monster’s records of the service provided, a commencement date and, critically, a column headed ‘num_of_dl’ (which was an acronym for the number of downloads).  The triple download spike was contained in the num_of_dl column.

51                  Deloitte had detected that out of a total of about 1.3 million downloads during the seven quarters they examined, there were about 700,000 entries in the number of downloads column with the recorded number 3.  They understood this to mean that the relevant download against which the number 3 was placed was the third download by the customer in a sequence of downloads.  However, only about 370,000 entries had the number 1 recorded in the number of downloads column and about 100,000 had the number 2.  Thus, the apparent number of third downloads recorded exceeded the apparent numbers of single and double downloads.  That did not appear to make sense, hence the explanation that was offered by Monster that there was a ‘bug in the system’.

52                  Deloitte also tallied Monster’s total data with data for monophonic and polyphonic services, for which royalties were payable to APRA and AMCOS and compared the download numbers with the other services Monster was providing its customers.  About 90,000, monophonic ringtones were recorded with one download in the number of downloads column, about 20,000 with two downloads and about 12,400 with three.  Likewise, there were about 83,000 polyphonic downloads with one download recorded, 20,000 with two and 13,000 with three.  So, while Monster’s records indicated that its other services attracted a massive number of entries with the number 3 in the number of downloads column, for the two royalty generating services, monophonic and polyphonic ringtones, the number of ‘third’ downloads was quite out of proportion to the other entries in the database.  The triple download spike thus occurred almost only in relation to non-ringtone sales.

53                  Monster received a copy of Deloitte’s report in June 2005.  Based on Deloitte’s report, APRA and AMCOS raised invoices on Monster on an interim basis for royalties on the IVR agreements.  APRA claimed an interim fee of $16,079.94, while AMCOS claimed an interim fee of $188,867.35.  APRA and AMCOS also claimed the audit costs of $37,400 as due under the relevant licences.  When Monster failed to pay any of these invoices, AMCOS caused a creditor’s statutory demand under s 459E(2)(e) of the Corporations Act 2001 (Cth) to be served on Monster alleging non-payment of the $37,400 debt for the audit fee.  Ultimately, Monster paid that fee in late July 2005, within the time permitted under the statutory demand.

54                  On 22 July 2005 Banki Haddock Fiora wrote to Monster’s new solicitors, CG Gillis & Co, demanding full payment of the licence fee invoices by 29 July 2005.  Monster did not pay any money for licence fees within that time.  Thus, APRA and AMCOS had received no IVR royalties at all from Monster for the term of the IVR licences commencing on 1 July 2003.  On 17 August 2005 AMCOS and APRA terminated each of the IVR licences.

55                  Soon afterward Banki Haddock Fiora wrote to Monster saying that they were instructed that APRA and AMCOS would withdraw the notice of termination if Monster paid the full amount of the licence fee invoices by 25 August 2005.  CG Gillis & Co responded on 25 August 2005 raising a number of arguments that the notice of termination was invalid.  Only one of those arguments is still pressed.  That is that APRA and AMCOS had over claimed because they had applied gross call revenues of about $8.34 million instead of the amount of net call revenue of about $7.2 million to the calculation of royalties.

56                  After APRA and AMCOS had given the notice of termination of the IVR agreements on 17 August 2005, Bank Haddock Fiora sent a facsimile to CG Gillis & Co threatening to initiate ‘take down’ procedures which involved seeking to have Telstra disconnect Monster’s IVR services.  Ultimately, Telstra did not act on a notice that was served, although had it done so it would have considerable impact on Monster’s overall business.

57                  On 14 September 2005 Monster offered to pay the full amount of the outstanding interim IVR royalties invoices in consideration of APRA and AMCOS granting new licences together with certain other conditions.  Thereafter, the solicitors for the parties communicated with each other exchanging draft new IVR licences.

58                  On 16 September 2005 Monster paid APRA and AMCOS $150,000 and on 14 October 2005 the balance of $54,947.29 owing under the two IVR licence invoices issued earlier that year was paid. 

59                  On 24 October 2005 Banki Haddock Fiora sent for execution by Monster a draft agreement settling their present dispute on the old IVR licences, together with draft new IVR licences commencing with effect from 18 August 2005.  CG Gillis & Co responded on 27 October 2005 with some proposed variations to the draft documents.  The next day Banki Haddock Fiora responded with a set of draft documents which simply incorporated the changes suggested by Monster’s solicitors.  No response to that letter of 28 October 2005 was received from Monster until 7 February 2006 when CG Gillis & Co returned the three executed agreements to Banki Haddock Fiora.  In the meantime, the parties had had a substantial dispute over the SMS licences, which, as will appear shortly, were terminated by APRA and AMCOS on 12 December 2005.

SMS LICENCES DISPUTE

60                  On 2 September 2005, Banki Haddock Fiora wrote to CG Gillis & Co noting that, despite requests, Monster had failed to provide APRA and AMCOS with any revenue or music use information for the three quarters ending 30 June 2005.  In addition, the letter stated that the revenue and music use information required to be provided within 30 days after the end of each quarter under schedule 2 of the SMS licences had not been provided.  It demanded, pursuant to cl 10.1(a) of the APRA SMS agreement, and cl 11.1(a) of the AMCOS SMS agreement that Monster provide each of APRA and AMCOS with its music use and revenue information in respect of the 3 quarters specified.  The references to the two clauses were to the termination provisions in each SMS agreement which entitled the licensor to terminate it immediately by notice to the licensee if the latter had breached any term of the agreement and failed to remedy the breach within 7 days after being required in writing to do so by the licensor.  APRA and AMCOS demanded, pursuant to their rights under the SMS agreements, that within 7 days Monster provide them with its music use and revenue information in respect of the three quarters.  On 26 September 2005 Banki Haddock Fiora wrote to CG Gillis & Co, confirming that the SMS agreements remained on foot, but made a further demand for the music use and revenue information for the three quarters ending 30 June 2005.

61                  Banki Haddock Fiora wrote again on 30 November 2005, this time in noting that APRA and AMCOS had not received Monster’s revenue and music use information for the 4 quarters to 30 September 2005.  A further demand was made, invoking each of the termination clauses, for that information to be provided within 7 days.  It is common ground that Monster did not provide any SMS licence information in answer to any of the 3 letters of demand.  Thus, on 12 December 2005 Banki Haddock Fiora wrote to CG Gillis & Co terminating each of the SMS agreements.  It is in that context that consideration needs to be given as to whether the offer of APRA and AMCOS to enter into new IVR agreements, which had been made on 28 October 2005, continued to remain open for acceptance up to 7 February 2006.

62                  In late January 2006 Monster made a payment of $15,000 to APRA and AMCOS said to be on account of amounts due under the SMS agreements.  Monster paid a further $15,000 on 16 February 2006.  On 7 April 2006, Monster paid a further $80,891.76.  That was the last payment which Monster has made to either of the applicants.  The January 2006 payment was said to be on account of amounts due under the SMS licences.  The money paid in February 2006 was not able to be allocated to any particular obligation of Monster by Mr Mallett.

63                  On 17 February 2006 APRA and AMCOS commenced these proceedings.

ISSUES

64                  The following issues arise:

1.         What is the proper construction of the expression ‘retail price’ in the SMS licences?

2.         Did APRA and AMCOS validly terminate the SMS licences on 12 December 2005?

3.         What is the proper construction of the expression ‘net call revenue’ or ‘NCR’ in the IVR licences?

4.         Did APRA and AMCOS validly terminate the IVR licences on 17 August 2005?

5.         Was the offer of APRA and AMCOS made on 28 October 2005 to enter into new IVR licences and to settle the dispute:

                        (a)        open for acceptance by Monster as at 7 February 2006;

                        (b)        validly accepted by Monster on that date?

6.         Is Monster entitled to an order that APRA and AMCOS grant it an IVR licences or its equivalent?

7.         What is the quantum of licence fees payable by Monster for sales of ringtones or, APRA and AMCOS having elected to sue for damages, the damages payable for the infringements which occurred by sales at such times as Monster was not licensed?

8.         Are APRA and AMCOS entitled to additional damages under s 115 of the Copyright Act 1968 (Cth)?

ISSUE 1:         WHAT IS THE PROPER CONSTRUCTION OF THE EXPRESSION ‘RETAIL PRICE’ IN THE SMS LICENCES?

65                  Monster argued that the expression ‘retail price’ in Schedule 1 of the SMS licences did not mean the price which Monster advertised to its customers that they would have to pay for the service.  Rather, Monster argued that ‘retail price’ was, in effect, what it received after Telstra or Monster’s other telecommunications service providers and others had deducted their fees and charged from the advertised price which they had collected from the customer. 

66                  Such a construction would defeat one of the principal purposes of the SMS licences.  The APRA SMS licence was expressly granted for the purpose of communicating the ringtones via telecommunication services (cl 1.1).  The licence operated to authorise Monster’s use of telecommunications networks to deliver an SMS download to its customer.  If Monster’s construction were correct, part of the advertised price paid by the customer to receive the download would not be caught for royalty purposes.  The licence authorised Monster to enter into the transaction through the use of the telecommunications networks by which Monster provided the download.  The result of Monster’s construction would be that the telecommunications carrier would communicate the downloaded ringtone but would not be subject to any royalty for that act of communication and Monster would only be charged for its act of communicating the work via the telecommunications network to the customer.  There would thus be a lacuna in APRA’s collection of royalties because that part of the price charged to Monster’s customer which represented the fee or charge of the telecommunications network would be excluded.  The position is analogous under the AMCOS SMS licence.

67                  A commercial purpose of the SMS licences was to enable APRA and AMCOS to receive a percentage of the earnings of those seeking to exploit copyright works over which they had rights.  The SMS licences authorized Monster to use telecommunications networks to communicate and reproduce the copyright ringtone.  In ordinary English usage, ‘retail price’ is the amount paid by the customer for the goods or service.  It is not the net amount the retailer receives after paying a sum not disclosed to the customer for the right to sell the goods or service.  The term ‘retail price’ should be construed so as to avoid it making commercial nonsense or working commercial inconvenience, as Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ said in Zhu v Treasurer of NSW (2004) 218 CLR 530 at 559 [82].  They also said that the commercial purpose of reasonable persons in the position of the parties was relevant, as were the genesis of the transaction, the background, the context and the market in which the parties were operating, as known to each of them (218 CLR at 559 [82]).

68                  A significant commercial purpose of the SMS licences was to enable the whole download procedure to be authorised by the licensors and for the money generated by the exploitation of the rights they granted to be used as the basis for calculating the royalty fee due respectively to each of APRA and AMCOS.

69                  Moreover, it would be a very odd construction of the ordinary English language term ‘retail price’ to divorce the price advertised by Monster to the public as the price payable for the download, from the price on which Monster was liable to account for royalties.  Monster organised through its various telecommunication contracts and licences with APRA and AMCOS, a situation in which members of the public could use their own telephones to obtain a service Monster had for sale.  Monster contracted with the public by offering to sell the SMS download to them for the price of $3.50 in its advertisements.  That involved Monster becoming an agent, or using agents, to ensure that the transaction was carried out so the consumer received that for which he or she paid.  Monster needed to charge its customer a price to cover its costs of delivering the download.

70                  The use of agents raises issues concerning privity of contract in commercial dealings where people buy and sell goods and services over the internet, by use of the telephone or SMSs.  No doubt many of these arrangements hide, in their simplicity, a web of underlying contractual relationships.  But the customer who read an advertisement such as Monster placed in magazines, and sent an SMS would believe that they were paying Monster for the service, even if it be by the agency of the telecommunications network.  As part of that arrangement, Monster entered into contracts which entitled the telecommunications network to retain a certain part of the price Monster advertised for the sale of the download. Nonetheless, that arrangement between Monster and the telecommunications network does not change the fundamental character of the advertised price from being the retail price.

71                  The use of the concept of agency to overcome the need for privity is a technique which was described in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 193 [79] by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ adopting the words of Lord Bingham of Cornhill (in Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 744) as ‘a deft and commercially-inspired response to technical English rules of contract, particularly those governing privity and consideration’.  As their Honours went on to note in the case of a stevedore seeking the benefit of a Himalaya clause against a consignee of damaged cargo, courts have been ready to conclude that the carrier was acting with the stevedore’s authority.  As Lord Wilberforce said in his classic opinion in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd  [1975] AC 154 at 167E, the law of contract takes a practical approach in commercial situations ‘… often at the cost of forcing the facts to fit uneasily into the slots of offer, acceptance and consideration’.  Even if Monster be correct to say that at the end of the day it received a lesser sum than that which the customer paid for the download, that was a result of Monster entering into arrangements with the telecommunications networks, perhaps on behalf of the customer or perhaps on its own behalf, it matters not, for the purposes of ensuring that the customer bought the download at the overall price Monster advertised that it was charging. 

72                  For these reasons, I am of opinion that ‘retail price’ has its ordinary and natural meaning, namely the price at which Monster advertised the downloads for sale. 

QUESTION 2:  DID APRA AND AMCOS VALIDLY TERMINATE THE SMS LICENCES ON 12 DECEMBER 2005?

73                  During the whole of the period in which the SMS licences operated Monster never complied with its obligation, in Schedule 2, to supply within 30 days after the end of each quarter, each APRA and AMCOS with copies of its actual revenue statements from its telecommunications service provider.

74                  On 2 September 2005 Banki Haddock Fiora wrote to CG Gillis & Co referring to requests from APRA and AMCOS that Monster provide its revenue and music use information for the quarters ending 31 December 2004, 31 March 2005 and 30 June 2006.  Nothing had been provided previously. 

75                  I am of opinion that APRA and AMCOS were entitled to terminate and validly terminated each of the SMS licences on 12 December 2005 because no actual revenue statement of Monster’s telecommunications carrier or service provider for its SMS services referred to in schedule 2 to each SMS licence had been supplied by Monster.

76                  Moreover, as I have found above, Monster had not provided APRA and AMCOS with the draft EDI format information, contrary to the requirements specified in the email of 4 March 2005.  I am satisfied that this was a breach of cl 5 of the APRA and cl 6 of the AMCOS SMS licences.

77                  Monster pointed out that there was an apparent anomaly in the SMS licences.  They provided that the licensee must within 14 days after the end of each quarter provide (e.g.) APRA with the revenue and music information described in Schedule 2 ‘in the form prescribed by APRA from time to time’.  However, Schedule 2 provides that while 8 particular items had to be provided within 14 days, the copies of the actual revenue statements of the telecommunications carriers and service providers and others had to be provided within 30 days.  Reading the licences as a whole, I am of opinion that the licensee’s obligation in relation to those revenue statements in Schedule 2 and cl 5 of the APRA (or cl 6  of the AMCOS) SMS licences should be read as allowing the licensee 30 days to provide those revenue statements as specifically referred to in Schedule 2.

78                  Next, Monster argued that if APRA and AMCOS had not prescribed a form, no obligation arose under either of the respective cll 5 or 6.  That obviously is correct.  But, for the reasons I have already given, I am of opinion that the form was sufficiently prescribed by either Mr Mallett’s conversation with Mr Chong in February or March 2005 and or by the email of 4 March 2005.  Monster submitted that the demand of Banki Haddock Fiora to CG Gillis & Co made on 2 September 2005 for revenue and music use information did not refer to the form prescribed.  In my opinion that was not necessary.  I find that a form had been prescribed for the provision of the information by Mr Mallett saying that Telstra statements and Monster’s sales records could be given.  Mr Mallett’s reference to Telstra would have been understood by Mr Chong to relate to whatever entity was Monster’s telecommunications service provider for each of the IVR and SMS services.  APRA and AMCOS had performed their contractual obligation.  Monster was entitled to present them with information in any particular compilation which met the form Mr Mallett described in the conversation.

79                  Monster also argued that because no password was given to it, APRA and AMCOS had not prescribed the form.  I am of opinion that that argument has no substance.  The absence of the password did not prevent Monster from supplying the information in the format required.  It would be APRA’s and AMCOS’ problem that there was no password.  Monster never sought a password or raised this issue as a difficulty.  Leaving aside any implied duty of parties to a contract to co-operate, it seems to me that there was no necessity for a password to be provided to enable Monster to comply with its contractual obligations.

80                  The difficulty suggested by Monster that it was necessary to know whether the material had to be provided in a document or in a particular electronic format, in my opinion, is of no moment.  If I am wrong in my view that the email of 4 March 2005 and Mr Mallett’s earlier conversation with Mr Chong were specifications for the purposes of the licences, if APRA and AMCOS left open the way in which the information could be supplied, by requiring only that they have particular pieces of information, Monster was free to select whatever means fell within that description with which to discharge its obligation to provide the relevant material.  By reference to the items set out in Schedule 2, Monster would be able to know what sales information had to be included.  It was free to select the particular arrangement and presentation of that material in any way it chose.  APRA and AMCOS could not complain that it did so.  It could not cause Monster inconvenience to supply such information.

81                  Next, Monster argued that in some way the communications of 20 January 2005 concerning the draft EDI specification and the fact that the email of 4 March 2005 resent the draft EDI specification led to the result that the 4 March 2005 specification could be ignored by Monster.  It also relied on Mr Mallett’s evidence that there was no prescribed format as at January, February or March 2005 (T 101.27-.29).  That statement cannot override the legal effect of the 4 March 2005 email which was not the subject of discussions between the parties.  At best it may reflect Mr Mallett’s lay understanding.  I reject that argument.  The communications in January 2005 were made in a context in which the parties were negotiating draft licence agreements.  By 4 March 2005 the licences had been entered into and contractual obligations then existed between the parties.  The 4 March 2005 email required implementation or a response.  None was given by Monster.

82                  I am satisfied that Monster had no bona fide reason for failing to provide the information required.  As I have explained above, the conversation between Mr Mallett and Mr Chong which occurred between 11 February and the 4 March 2005 email prescribed a form and format.  Even if Mr Mallett, in giving evidence, may not have understood the legal effect of what he had said and APRA and AMCOS had done, I find that there is no evidence that he communicated to Monster or Mr Chong his understanding after the email of 4 March 2005 was sent.  In Mr Mallett’s earlier conversation with Mr Chong, he was seeking to get the relevant information.  He told Mr Chong how to provide it.  And the email of 4 March 2005 also specified what would suffice.  That was prescription enough.  APRA and AMCOS did not suggest or give encouragement to Monster that it delay providing the information.

83                  At the time the contracts were entered into both parties knew that there was no prescribed form in the sense of a document with mandatory fields for the provision of the required information. But they also knew that the draft EDI specification identified, as the 4 March 2005 email said, each mandatory field for which Monster was required to provide information.  That sufficed to make it a form prescribed by and a format acceptable to APRA and AMCOS.

QUESTION 3:           WHAT IS THE PROPER CONSTRUCTION OF THE EXPRESSION ‘NET CALL REVENUE’ OR ‘NCR’ IN THE IVR LICENCES?

84                  Clearly enough, the means of a customer ordering and paying for the download of a Monster ringtone or other service involved a number of interrelating relationships between Monster, the telecommunication companies and its own supplier of telecommunication services Telstra on the one hand, and the customer on the other.  Monster advertised that a IVR service would cost, say, $3.96 per minute.  A customer who telephoned and placed an order accepted liability for that charge in return for the service of receiving, among other things, the download.  But the relationships were far more complex, as the definition of gross call revenue recognised, although few customers would have appreciated this themselves.  First, the customer’s telecommunication service provider’s network would be used to collect from the customer the charge of $3.96.  The telecommunication service provider may or may not have been Telstra.  That service provider would have had to pay Telstra or Telstra would have had to account for that money internally.  Needless to say, each telecommunication service provider participating in this arrangement would be expected to take some part of the $3.96 per minute fee for itself.  Then, pursuant to the contract between Telstra and Monster, Telstra had to account for an agreed sum to Monster.

85                  It is clear that the commercial purpose behind the definition of gross call revenue was to capture the fact that the customer of Monster would be paying more than ultimately would be made available to Monster after it had passed through the complex of telecommunication company service providers.  Next, net call revenue was to be calculated by making 2 deductions about which the parties disagree.

86                  The first issue is this.  When the definition of net call revenue referred to deducting ‘bad debts actually written off’ the parties recognised that some allowance needed to be made to take account of the difference between the revenue which accrued from customers making orders and those customers who, in due course, would not pay for those services.  Monster contends that this phrase should be construed as requiring a calculation in each quarter that identifies every defaulting customer to the telecommunications suppliers which must then be deducted from the gross call revenues.  On the other hand, APRA and AMCOS point to the fact that in Monster’s contract with Telstra an allowance or provision of 5% for bad debts is made in each account Telstra sends.  Mr Mallett’s evidence was that all other licensees have similar arrangements with their telecommunications provider.  In the other licensees’ returns to APRA and AMCOS they deduct the contractual allowance or provision percentage for bad debts in their contracts with their telecommunications supplier.  Again, it is common ground that if Telstra ultimately made an adjustment to the amount of bad debts the subject of the 5% provision in each bill, that adjustment could be reflected in a calculation of net call revenue at the time it was made.

87                  The effect of Monster’s construction of the requirement to calculate net call revenue has to be considered in the commercial context in which the parties were dealing.  Mr Mallett said that the industry reported bad debts written off by applying, universally in his experience, the bad debt provision charged in the telecommunication services provider agreement with the licensee, in the matter in which it is sought by APRA and AMCOS to apply the 5% provision actually charged by Telstra on Monster’s telephone services.

88                  Mr Mallett said that APRA and AMCOS had never had a licensee who had sought to have a later adjustment, based on actual bad debts, made to the contractual percentage figure used as a provision for bad debts by the telecommunication service providers and licensees.  He said that the amount of the provision might vary from licensee to licensee and from month to month for licensees.  He said that it was a rolling provision and that it provided the best way of calculating the sum.  And so far as Mr Mallett was aware neither APRA or AMCOS had ever been provided with a figure other than the contractual provision (T87.1-.42).  But he said that if the actual experience were different to the amount of the provision, then there might be an adjustment further down the track (T86.45-87.15).

89                  The use of the provision in the telecommunication service providers contract, which is actually the subject of a payment or an actual deduction from the revenue of the licensee by the provider, makes good business and commercial commonsense.  Moreover, it appears, from Mr Mallett’s evidence, to be the practice in the industry.  After all, he was the person who was responsible within APRA and AMCOS for dealing with these issues from time to time.  I accept his evidence.

90                  A consequence of Monster’s argument is that no deduction should be made from gross call revenue for the ‘provision’ being the actual money deducted from Monster’s receipts by Telstra.  Rather, Monster says that the net call revenue should be increased, hence increasing the quantum of its prima facie liability for licence fees, by adding back the 5% provision.  Monster would then be assessed for royalty on the false basis that it had received money in fact when Telstra had retained it Monster would thus pay royalty on money it did not receive.  Unless and until Telstra ultimately provided some definitive calculation of the actual adjustment, Monster would be out of pocket.  That would postpone contractual certainty as to what was due and payable as a licence fee for, perhaps over 12 months until, for tax or other purposes, a decision was made by Telstra and possibly Monster, to write off particular debts.  And, Monster’s construction involves difficulty of calculation and inconvenience which again suggests that it is not likely that a reasonable person in the position of the parties would have adopted it as against the one which in my opinion is appropriate.

91                  I am of opinion that the proper construction of the expression ‘bad debts actually written off’ in the definition of net call revenue is the sum for bad debts which Monster was required to pay to Telstra under its contract as and when Telstra issued bills for that amount.  There is no doubt that Telstra actually reduced the amount of the money it paid to Monster pursuant to its contract by the amount of 5% in accordance with the bad debt write off provision.  That being so, Monster actually incurred and paid to Telstra that 5% for bad debts.

92                  Like all provisions in accounts, bad debts having been provided for they reduced the amount of profit or revenue in the period of account.  But in the way in which Monster’s contract with Telstra actually worked, Monster paid cash (by receiving 5% less) when Telstra accounted to it.  Because it was in the nature of a provision, the bad debt payment was capable of being reversed when, perhaps happily, the debtor paid even though at the time of the original write off, it was not expected that such a result would occur.  Telstra had bargained with Monster for the provision of its services subject to the 5% deduction from every payment Telstra made for the supply of the ringtones and other downloads which Monster had sold to consumers.  Telstra was, in effect, a collection agency for Monster entitled to take its own share of revenues and bearing some risk as to uncollectible debts from Monster’s end customers (hence the concept of gross call revenue to which I have referred).

93                  The second disputed question of construction is the meaning of the words ‘the connection fee actually charged by the telecommunication service provider responsible for providing the carriage of the IVR service’.  It is common ground that Telstra retained 15¢ per call for every IVR service and that this sum should be deducted in the calculation of gross call revenue.  APRA and AMCOS say that that 15¢ charge was within the definition of the connection fee so as to be a deduction from gross call revenue to produce net call revenue.  Mr Mallett said that APRA and AMCOS calculated gross call revenue after deducting the 15¢ (T 85.16-.35).

94                  Monster contends that there are four further sums which fall within the definition of a connection fee.  Each of those is found in the schedule of charges in the info [sic] call service provider agreement between Telstra and Monster.

95                  The first two are against the marginal heading ‘Connection Charge’.  They are the new info call service provider establishment charge of $1,000 and the cost of $50 per number for the allocation of each new info call plus number.  The info call numbers were the 1900 numbers.  I am of opinion that charges to establish the telephony service through which the business is conducted which are described in the agreement itself as connection charges within are the ordinary and natural meaning of the words ‘connection fee actually charged’ in Schedule 1 of the IVR licences.  Accordingly, I find that each of the amount of $1,000 as an establishment charge and the $50 per number for each 1900 number used by Monster was a connection fee actually charged by Telstra to Monster and should be deducted from gross call revenue to calculate net call revenue. 

96                  The third item which Monster argued falls within the meaning of connection fee in Schedule 1 is the call the charge of $0.003 per second for an info call service excluding the first 24 seconds.  Of its nature this charge could only be incurred 24 seconds after a connection was made.  Connection of a call to Telstra’s service thus was not a consequence of and did not depend upon the payment of this charge.  It was simply payable after a certain time elapsed (24 seconds) for the duration of the subsequent part of the telephone call.  I do not consider this to be within the ordinary and natural meaning of a connection fee.  The call would be free of this charge if it lasted for less than 24 seconds.

97                  The fourth item which Monster said should be included as a ‘connection fee’ was described in its written submissions as ‘non-telecommunications service charges, calculated according to a scale of average monthly gross revenue for a 3 month period’.  This referred to charges which the info call service provider agreement described as including Telstra’s expenses for billing, marketing and administration.  These charges are not within the meaning of a ‘connection fee’.  Their nature is accurately described as ‘non-telecommunications service charges’ – that is, as a charge for services outside telephony connection.

98                  Had the parties intended that charges of the latter kind should be excluded from net call revenue, it would have been easy to do so by leaving out the word ‘connection’ from the description of the amount to be deducted.  Then all the telecommunications service provider’s fees actually charged would be excluded from net call revenue.  General fees payable to the providers for their overall services in relation to provision of telephony services are not within the meaning of ‘the connection fee actually charged’.

99                  The commercial context in which APRA’s and AMCOS’ IVR licences operated was one in which the consumer was being charged by Telstra (or other telecommunications service provider) on a time basis for IVR calls.  The charge was at a rate advertised by Monster in connection with the pricing of the download services Monster was offering to customers.  Moreover, it was known to both parties at the time the licences were entered into that there were connection charges which were readily identifiable and easy of calculation.  They were the 15¢ per call or like fee charged by the telecommunications provider directly to the customer (which it is common ground should not be included in net call revenue) and what the telecommunications carrier said was such a fee. 

100               Monster’s expert accounting witness, Mr Peter White, was a partner of Bentleys MRI Sydney.  He was instructed to use Monster’s construction of ‘connection fee actually charged’ in calculating the net call revenue.  He said that to calculate the actual net call revenue for the 3 years ended 30 June 2006 using this construction would involve in excess of 10,000 calculations and he had not had time to do that exercise.  More revealing was his observation that it was not possible to calculate that net call revenue ‘… as it is unclear what charges have been made by Telstra’.

101               Mr White’s evidence showed that if net call revenue were to be calculated so as to take account of the third and fourth items suggested by Monster, the exercise would be commercially and practically highly inconvenient if not impossible.

102               The words ‘connection fee’ were used in the commercial context of a telecommunications service provider’s fees for IVR services for the purpose of retaining, all revenue on which royalty was chargeable gained from end customers that both the licensee and its telecommunication service provider earned from selling the downloads on a time cost for the phone call to the end customer except for two items.  The first, bad debts actually written off, excluded revenue not received by the licensee.  The second exclusion was what the telecommunications service provider was entitled to retain as, in effect, flag fall charges to Monster and the end customer for establishing the connection by which it and the licensee then earned revenue from the duration of the call.  It would be contrary to the purpose of the IVR licences to exclude as a ‘connection fee’ any portion of the time based earnings of the licensee and its telecommunications service provider derived from the exploitation of the copyright works.  Moreover, the complexity and difficulty of calculating Monster’s last two suggested deductions tells against an objective intention that they be included in the concept of a ‘connection fee’.

103               In my opinion Monster’s construction would lead to a result contrary to common sense (cf:  Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 400 citing Oliver LJ in Exxon Corporation v Exxon Insurance Ltd [1982] Ch 119 at 144 where recourse to commonsense in construing an expression in a statute was allowed).  A similar approach is apposite in construing agreements:  cp:  Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 at 682E-F per Lord Diplock).  As Lord Diplock said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201E:

‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.

104               Lord Reid once said that in arriving at the proper construction of a contract:

‘The fact that a particular construction leads to a very unreasonable result must be a relevant consideration.  The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear:  L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251E.’

105               Monster submitted that this was not an available approach to construction and that I was bound to follow what it argued was the different approach in Fitzgerald v Masters (1956) 95 CLR 420.  In that case, of course, there was an obvious mistake.  The question was how should the Court construe the language used.  McTiernan, Webb and Taylor JJ said (95 CLR at 437):

‘It is trite law that an instrument must be construed as a whole.  Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and commonsense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words(cf.Norton on Deeds 2^nd ed (1928) p 98)’ (emphasis added)

106               Their Honours’ approach is not inconsistent with Lord Reid’s or Lord Diplock’s approaches.  After all, the purpose of construction of contracts is to ascertain by reference to the words used in the factual matrix in which the parties dealt with one another what an objective person would reasonably understand the parties to have intended.  And, as Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at 439 [10];  186 ALR 289 at 293:

‘ [10] In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities (In particular, speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1381-1383-1385;  [1971] 3 All ER 237 at 239-241;  L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261;  and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-997;  [1976] 3 All ER 570 at 574-576) which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract:  (Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996;  [1976] 3 All ER 570 at 574)

“… presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

Such statements exemplify the point made by Brennan J in his judgment in Codelfa:  ((1982) 149 CLR 337 at 401)

“The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.”’

107               Gleeson CJ, Gummow and Hayne JJ said in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181 at 188:

‘Interpretation of a written contract involves, as Lord Hoffmann has put it (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912;  [1998] 1 All ER 98 at 114.  See also the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW)(1982) 149 CLR 337 at 350-352, and of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali  [2002] 1 AC 251 at 259):  “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”  That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen's ironing board (cf Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 282, per Lord Clyde).’

108               It is necessary to construe an agreement so as to avoid making it commercial nonsense or working commercial inconvenience.  The commercial purpose of the definitions, that is to say the purpose of a reasonable person in the position of the parties to the contract, is relevant.  That in turn requires attention to the genesis of the transaction, the background, the context, the market in which the parties were operating, as known to both parties:  Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82].

109               Accordingly, the $0.003 per second and non-telecommunications service charges should not be deducted from net call revenue.

QUESTION 4:           DID APRA AND AMCOS VALIDLY TERMINATE THE IVR LICENCES ON 17 AUGUST 2005?

110               APRA and AMCOS say they were entitled to terminate the IVR licences because the interim fees invoiced after the audit were not paid within 14 days.  By cll 6.2 and 6.3 of the APRA IVR licence (cll 7.2 and 7.3 of the AMCOS one) Monster had to pay any invoice issued by the licensor within 14 days after the date of the invoice.  An invoice for additional licence fees issued after APRA received information under cl 8 (cl 9 of the AMCOS IVR licence) had also to be paid within this time (cll 6.3 and 7.3 respectively).

111               On 30 May 2005 APRA and AMCOS served Monster with interim invoices which had been raised following the audit.  The letter to Mr Chong and Monster enclosing the interim invoices said that APRA and AMCOS had calculated a minimum amount payable under the IVR licences based on the information provided to the auditors by Monster.  The interim invoices were said to be ‘not for the full amount that APRA/AMCOS will be claiming under the agreements.  By issuing the enclosed invoices we in no way waive of our rights to claim the full amount of licence fees owing’. 

112               On 22 July 2005 Banki Haddock Fiora wrote to CG Gillis & Co demanding full payment of the 30 May licence fee invoices by 29 July 2005.  Although the letter did not nominate the clauses of each IVR licence dealing with termination, it did say that if Monster failed to comply with the demand APRA and AMCOS would have no hesitation in enforcing their respective rights.

113               On 17 August 2005 Bank Haddock Fiora wrote to CG Gillis & Co terminating each IVR agreement pursuant to cl 10.1 of the APRA IVR agreement and cl 11.1 of the AMCOS IVR agreement, on the basis that no payment had been made of either of the interim fees the subject of the audit.  Since cl 6.3 of the APRA IVR agreement (cl 7.3 of the AMCOS one) had required the licensee to pay within 14 days after the date of an invoice the full amount of the invoice issued on receipt by APRA of information from an audit under cl 8, Monster was in breach of that obligation by the middle of June 2005.  The letter of 22 July 2005 to Monster’s solicitors made clear that the breach needed to be remedied within 7 days.  It was not.  That enlivened the powers of APRA and AMCOS to terminate each licence.

114               Under the IVR licences, Schedule 2 is in a different form to its counterpart in the SMS licence.  Items (i) and (j) are additional in the IVR licences.  In the IVR licences the licensee had to provide within 14 days of the end of each quarter a statement or statements from Telstra detailing gross call revenue and the necessary information to assess net call revenue.  The effect of item (j) in Schedule 2 is to make the statement or statements from Telstra, being its account, a document from which gross call revenue may be calculated and will provide the necessary information to assess net call revenue.

115               Monster argued that if APRA and AMCOS did not provide a format, a licensee in the position of Monster would not know how to supply the information to APRA and AMCOS in a form that was acceptable for the purposes of cll 5 and 6 of the respective licences and item (i) of Schedule 2.  I have found that Monster was aware of the requirements of APRA and AMCOS from 4 March 2005.  Monster argued that it would not know whether to provide the information in documentary form or electronically or if it did in what particular format.  I am of opinion that since Mr Chong never complained to Mr Mallett after Mr Mallett told him what APRA and AMCOS would be satisfied with, the parties understood what it was that had to be provided, namely Telstra accounts and the sales information.  The sales information could be in the form in which Monster produced it for its internal purposes.  Exhibit 1, for example, is a printout of the detail of Monster’s computer records of sales.  It gave sufficient information needed to analyse the sales, albeit that when the auditors actually analysed that material they discovered the treble download spike.

116               In cross-examination Mr Mallett acknowledged that his calculations, including those for the invoices dated 30 May 2005, invariably used the provision of 5% for bad debts in Monster’s info call service provider agreement with Telstra, rather than an exact calculation of the final adjustment for bad debts (T 86.44-87.10).  In that context, Monster sought to rely upon Mr Mallett’s concession in cross-examination that the invoices of 30 May 2005 had not been calculated strictly in accordance with the formula in Schedule 1 (T 91.40-.44).  However, I have found that the method of calculation using the 5% percentage figure did accord with the requirement in Schedule 1 to deduct ‘bad debts actually written off’.

117               Monster argued that there had to be, first, a form prescribed under cl 5 of the APRA IVR licence (cl 6 of the AMCOS one) for Monster to have any obligation to provide its revenue and music use information.  Next, it argued that any invoice which APRA calculated had to be calculated in accordance with Schedule 1.  APRA and AMCOS had relied on the material in Deloitte’s audit conducted in May 2005 to calculate the invoices rendered on 30 May 2005.  Monster said that if those invoices were not prepared in accordance with Schedule 1, there was no basis on which APRA and AMCOS could terminate the IVR licences.  Monster pointed to the fact that it was common ground that in performing the audit Deloitte did not apply Monster’s construction in its analysis.  Relevantly, on my findings this means that the IVR interim invoices were calculated without deducting any connection fees other than the 15¢ per call charge.  Thus, Monster argued that the calculations performed by APRA and AMCOS on the basis of the audit report were not undertaken in accordance with cl 4 and Schedule 1.  Therefore, it said that the interim invoices were not valid.

118               It follows from my findings that there was a minor error in the way APRA and AMCOS approached the calculation of the IVR licence invoices dated 30 May 2005 because they did not take account of the initial connection fee of $1,000 or the $50 per 1900 number.  The invoice adjustment sheet for the two invoices explains how each was calculated.  They were arrived at after deducting 5% of gross revenue received by Monster in accordance with the provision in the Telstra info call service provider agreement.  That led to a calculation of net call revenue of $8,344,634.82 derived from Telstra’s statements for the period from August 2003 to March 2005 inclusive.  This represented the total revenue paid by customers less the amount of Telstra’s bad debt provision.  It did not include the 15¢ per call which Telstra had separately debited to the customers and had not shown in its statements.

119               The figure for net call revenue, however, should be reduced by the $1,000 connection fee and $50 per 1900 number connection fee which I have held to be properly deductible from gross revenue.  However, those amounts are quite immaterial in the overall total of net call revenue used in the interim fee calculations.  Even if there were 100 of the 1900 numbers, that would mean that the net call revenue figure used was overstated by $6,000 (being $1,000 for the connection fee and $5,000 ($50 x 100) for the 1900 numbers) that is a small fraction of 1% of the total of $8.345 million.

120               The adjustment sheet makes assumptions, because the data provided by Monster did not make clear how many downloads represented monophonic and polyphonic ringtones.  There was a uniform assumption applied to the whole of the data that 18.44% of all of the downloads Monster provided to its customers were of ringtones on which APRA and AMCOS were entitled to royalties.  The AMCOS interim fee was calculated using a factor that 90% of those downloads were works the subject of the AMCOS IVR licence, although AMCOS’ analysis indicated that 97% of the items were in that category.  The 10% licence fee of $138,487.59 (before GST) actually invoiced thus represented a sum that was substantially smaller than it would have been had the 97% figure been used.

121               A similar adjustment was made in the APRA interim fee of $14,618.13.  For that calculation it was assumed 95% of the works for which Monster supplied downloads in the period were covered by the APRA IVR licence.  APRA’s analysis had indicated that the examination of Monster’s records showed that 99% of the relevant items downloaded was a closer approximation.  Mr White and the expert accounting witness for APRA and AMCOS, Mr Woodley of Deloitte, agreed that there was nothing to show that the use of the 90% and 95% figures in the calculation in the adjustment sheet for the interim invoices was in error.

122               While cl 4 of the IVR licences required the licensee to pay the licence fee calculated in accordance with the formula in Schedule 1, cl 6.3 of the APRA IVR licence (and cl 7.3 of the AMCOS one) permitted APRA to issue an invoice for any additional licence fees payable on receipt of the audit information.  The audit information indicated that Monster’s record keeping did not allow precise calculation.  Monster argued that the new calculation under cl 6.3 must be mathematically precise.  It referred to the obligation under cl 6.1 that APRA was obliged to calculate the licence fee for the quarter in accordance with cl 4 on receipt of information under cl 5 (that is in accordance with the formula in Schedule 1).  The information under cl 5 was what Monster was obliged to provide in accordance with Schedule 2 in the form prescribed by APRA.  Once an audit had to be conducted, and additional fees became payable, the IVR licences contemplated that some degree of approximation or estimation may be required.  The IVR licences recognized that it may not be possible for APRA and AMCOS to be precise, for the very reason that an audit was required.

123               If the licensee failed to keep proper accounts by reference to which fees could be precisely calculated, APRA or AMCOS would have to work on an estimation based on the information from the auditor.  And, of course, a licensee could frustrate the issue of any invoices by APRA and AMCOS by failing to provide some or all of the information necessary to make the calculation in Schedule 1 of the IVR licences.  That is just what Monster did before APRA and AMCOS exercised their right to have an audit in April 2005.  A licensee in Monster’s position could hardly rely on its own default in providing, or even recording, accurate information from which mathematical precision was possible (New Zealand Shipping Company Limited v Societe des Ateliers et Chantiers de France [1919] AC 1;  Suttor v Gundowda Pty Limited (1950) 81 CLR 418).

124               Monster made no complaint at the hearing about the estimation processes used in the calculation of the interim invoices.  That was a commonsense approach.  I am not satisfied that there was any error in the calculation of the two interim invoices.  The process involved, necessarily and without complaint by Monster, the need to make estimations.  In my opinion any failure to include in the calculations in the interim invoices of 30 May 2005 the two deductions for connection fees which I have found ought to have been included had no effect on the validity of the invoices.  The connection fees were for sums which were immaterial to the result.  Having regard to the assumptions used by APRA and AMCOS in calculating them, I am not satisfied that the interim invoices overstated the exact amounts which would have been due had precise calculations then been possible. There was no basis upon which Monster could have failed to have paid the interim invoices in accordance with the requirements of each IVR licence within 14 days of their date.

125               I am satisfied that no less than the sum claimed in each interim invoice was owing by Monster to APRA and AMCOS respectively on 30 May 2005.

126               Accordingly, I am of opinion that APRA and AMCOS were entitled to terminate the IVR licences when they did on 17 August 2005. 

QUESTION 5:           WAS THE OFFER OF APRA AND AMCOS MADE ON 28 OCTOBER 2005 TO ENTER INTO NEW IVR LICENCES AND TO SETTLE THE DISPUTE OPEN FOR ACCEPTANCE BY MONSTER AS AT 7 FEBRUARY 2006 AND, IF SO, WAS IT VALIDLY ACCEPTED BY MONSTER ON THAT DATE?

127               Mr Mallett gave instructions for Banki Haddock Fiora’s correspondence in late October 2005 in which APRA and AMCOS offered to enter into a resolution of the earlier dispute and to issue new IVR licences to Monster.  When the letter from CG Gillis & Co of 7 February 2006 (Ex 2) was received, Mr Mallett’s lay understanding was that Monster, by Mr Chong as its managing director, had executed all three forms of agreement which had been sent with Banki Haddock Fiora’s letter of 28 October 2005.  I am satisfied that a reasonable person in the position of the parties would have understood the new IVR licences to have been executed by Mr Chong on behalf of Monster.  It was the only client on whose behalf CG Gillis & Co appeared to have written on 7 February 2006. 

128               Monster argued that the offer of 28 October 2005 was open to be accepted over three months later on 7 February 2006.  In general, the law implies that when no time limit for the exercise of a right is stipulated, the right may be exercised within a reasonable time unless there are indications to the contrary:  Reid v Moreland Timber Co Pty Limited (1946) 73 CLR 1 at 13 per Dixon J.  I am of opinion that this statement of the rule, coming from a case in contract, is just as applicable to a case where an offer to enter into a contract is made.  Ordinarily in contract, absent an express provision to the contrary, where no time is fixed for performance, the parties are, or the party upon whom the obligation is cast is, obliged to perform within a reasonable time:  see e.g. Perri v Coolangatta Investments Pty Limited (1982) 149 CLR 537 at 545-546 per Gibbs CJ, 567 per Brennan J (with whom Stephen J agreed).  And, in Ballas v Theophilos [No 2] (1957) 98 CLR 193 at 197 Dixon CJ (with whom McTiernan J agreed) said that the implication of law, where a partnership deed limited no time for the exercise of an option, is that the option had to be exercised within a reasonable time.  Dixon J observed that the stipulations contained in the relevant clause itself affected what a reasonable time was.  Williams J, came to a like conclusion (at 98 CLR at 199).

129               At the time the letter of 28 October 2005 was sent, the parties were negotiating to resolve a dispute.  Monster needed certainty that it had valid IVR licences.  APRA and AMCOS had asserted that their terminations of the IVR licences on 17 August 2005 were valid and that Monster needed the new licences which were being offered.  The offer included a proposed agreement, inter alia, to effect a transition from the disputed termination of the IVR licences by the grant of new IVR licences to commence on 18 August 2005.  Clause 4.2 of that draft agreement acknowledged that APRA and AMCOS could at any time in the future make further claims for the payment of licence fees due under the terminated IVR licences (Ex 2).

130               Monster claimed that it made the payments of the sums claimed in APRA’s and AMCOS’ interim invoices of 30 May 2005 in consideration of the grant of new IVR licences.  Given that this was money already owing, and at the time Monster had paid nothing under the SMS licences, no consideration can be inferred to have been given by Monster for the grant of new licences.

131               Banki Haddock Fiora’s letter of 24 October 2005 to Monster’s solicitors enclosing draft documents for execution referred to a conversation on 21 October 2005.  Significantly it requested that Monster’s solicitors have its client sign and return both sets of agreements as soon as possible to Monster.  And then Banki Haddock Fiora would have their client sign them and return one set.  Monster’s solicitors responded on 27 October 2005 seeking amendments to be made.  The response on 28 October 2005 was immediate that the amendments were accepted.  So, at that time both parties knew of the dispute, the potential for uncertainty and of the existence of an offer to resolve the dispute on terms which, on 28 October 2005, appeared to be acceptable to each of them.  No impediment to immediate execution of the draft documents was apparent.  There was no reason why either side, or a reasonable person in the position of the parties, would think that any lengthy time to respond to the offer in the letter of 28 October 2005 was needed.  Indeed, the letter of 24 October 2005 had asked Monster’s solicitors to return all the signed agreements ‘as soon as possible’.  That requirement for timeous signature and return would have been understood by a reasonable person in the position of the parties to have remained a part of APRA’s and AMCOS’ renewed offer of 28 October 2005 even though it sought the documents ‘in due course’.  ‘Due course’, in the context, conveyed timeousness rather than open endedness.

132               After that, in the intervening three months to 7 February 2006, new and significant disputes emerged between Monster and its actual or putative IVR licensors.  Certainly when APRA and AMCOS terminated the SMS licences on 12 December 2005 a reasonable person in the position of the parties would have perceived that APRA and AMCOS were no longer prepared to enter into new contracts with Monster.  APRA and AMCOS point to the additional feature reinforcing such a conclusion that the IVR licences themselves involved dealing with large numbers of works and substantial sums of money, in a context where Monster, in the intervening period, had failed to execute the offered documents so as to evince a position of being contractually bound.  Between 16 October 2005 and 20 January 2006 it had not paid any royalties at all to APRA and AMCOS.  During this period Monster was not providing accounting material under the SMS licences or the IVR licences (which Monster was asserting had not been terminated).

133               Indeed, in late January 2006 the parties were negotiating a different and inconsistent offer being put forward by APRA and AMCOS (Ex 2).  At a conference between the parties and their solicitors on 31 January 2006, APRA and AMCOS announced that they would accept $450,000 in full and final settlement of any unpaid royalties due during the period the subject of the audit and, failing payment, they would commence proceedings claiming breach of copyright, damages and costs.  This was clearly an ultimatum.  It was also a new and obviously significantly different offer to that put on 28 October 2005.  In its solicitors’ letter of 7 February 2006 Monster replied to that offer, refusing it.  They sought more time and returned the executed IVR licences to take effect on 18 August 2005.  Monster then asserted that it did not believe that it owed any money for the audit period covered by Deloitte’s May 2005 report. Monster also asserted that the one week which APRA and AMCOS were prepared to allow it to investigate the new claim for $450,000 was an unreasonably short time. 

134               The rights and liabilities of the parties to a contract are determined by a reference to what each party by words or conduct would have led a reasonable person in the position of the other party to believe (Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179 [40]).  I am of opinion that the same principle should be applied to the evaluation of whether an offer, the acceptance of which would bring the parties into an actual contractual relationship, is capable of acceptance.  A reasonable person in the position of the parties would have regarded the offer of 28 October 2005 as not remaining open for an indefinite time.  Such a person would have said on 7 February 2006 that the offer of 28 October 2006 had lapsed some considerable time before.

135               For these reasons, I am of opinion that the offer made on 28 October 2005 was no longer open for acceptance when the SMS licences were terminated on 12 December 2005.  A reasonable person in the position of the parties would have considered that, if the offer had been open before the termination of the SMS licences, that event indicated that the offer could not be accepted thereafter.  If I am wrong in that view, I am of opinion that a reasonable person in the position of the parties would have had no doubt that the offer made in late October 2005 was no longer on foot at the time of the meeting of 31 January 2006 and was therefore incapable of acceptance thereafter.

WERE APRA AND AMCOS ESTOPPED FROM REFUSING TO GRANT NEW IVR LICENCES?

136               Monster’s case for estoppel was based on the negotiations in September and October 2005 in which APRA and AMCOS indicated that they would be prepared to grant new IVR licences effective from 18 August 2005.  Monster argued that at no stage did APRA or AMCOS seek to disabuse it from its assumption that those new licence agreements would be granted until Haddock Banki Fiora’s letter of 8 February 2006 suggested to the contrary.  It argued that APRA’s and AMCOS’ conduct prior to that time ‘was consistent only with the proposition that new IVR licences would be granted.  If their position had changed after October 2005, then it argued that it was incumbent, upon them to inform Monster of that change.  Instead, Monster carried on its business, secure, so it said, in the knowledge that new IVR licences would be granted.

137               Monster then argued that it would be unconscionable for APRA and AMCOS to resile from that representation.  Monster conceded that its argument for estoppel was weaker than its argument that it had new IVR licences based on the 7 February 2006 purported acceptance.  Accordingly, Monster conceded that if it failed to succeed on its case in contract, its case for estoppel could not succeed.  The concession was in my opinion correctly made.  I am of opinion that this argument has no substance for the reasons that I have given above.

138               There was no objective basis on which Monster could have believed that new IVR licences would be granted.  It chose for reasons it left unexplained not to return for over 3 months the executed IVR licences and agreement sent to its solicitors on 28 October 2005.  APRA and AMCOS did nothing to encourage or condone this inactivity. Rather, Monster’s inaction was quite consistent with its commercial behaviour, as demonstrated during Mr Chong’s cross-examination, of deliberately exploiting other persons’ copyright material without accounting for royalties or having a legal right to do so for as long as the owners did not take action against Monster for so acting.

139               I am not satisfied that Mr Chong had any belief, after the SMS licences were terminated on 12 December 2005, that APRA and AMCOS would grant Monster new IVR licences effective from 18 August 2005.  Mr Chong was, to my observation, far too astute to have any such belief.  He chose not to return, for over 3 months, the new proposed IVR licences executed by Monster which would have given certainty.  I do not believe that he, as the controlling mind of Monster, thought for a moment that APRA and AMCOS were, in effect, representing that the termination of the old IVR licences and the grant of new ones was a formality and was being held open indefinitely. 

DID APRA AND AMCOS ENGAGE IN UNCONSCIONABLE CONDUCT?

140               Monster argued that if there were no presently subsisting licence from APRA or AMCOS, it would be unconscionable for them, and thereby a contravention by them of s 51AC of the Trade Practices Act 1974 (Cth), to refuse to grant licences to Monster on standard terms and conditions.  Under s 51AC(1) a corporation, such as APRA and AMCOS, is prohibited from engaging in conduct in trade or commerce, in connection with the supply or possible supply of services to a person or corporation, such as Monster, that is, in all the circumstances, unconscionable.  Monster argued that APRA and AMCOS’ refusal to grant the licences to it would contravene s 51AC(1).  It referred to the non-exclusive specified considerations in s 51AC(3).

141               In Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 142-143 [43]-[44] Tamberlin, Finn and Conti JJ said that the primary emphasis of an analogue of s 51AC was on the conduct of the person in the position of the supplier of the services.  They said that the law was not, of course, intended to protect the reckless or the unreasonable and approved a statement by Spigelman CJ in Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 [121] that ‘[u]nconscionability is a concept which requires a high level of moral obloquy’.

142               No extrinsic material was put before me by the parties as to the statutory meaning of ‘unconscionable’ in s 51AC.  However, Tamberlin, Finn and Conti JJ referred to the second reading speech introducing s 51AC into the Trade Practices Act 1974 (Cth).  They identified that its purpose was to better protect the legal rights of small business and to ensure that small business could confidently deal with large firms.  They said that the concern of the Parliament was that there should be improved enforcement rights and access to remedies for small business (148 FCR at 143 [48]-[49]).  Earlier their Honours had said that the question posed by a claim under s 51AC was whether the conduct complained of was ‘unconscionable’ according to the ordinary and natural meaning of that term, having regard to the list of statutory considerations.

143               Monster submitted that for conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable had to be demonstrated.  It said that the factors which were of particular relevance in this case arose under s 51AC(3)(a), (j) and (k).  Monster pointed to the relative strengths of the bargaining positions of AMCOS and APRA as effective monopolists of copyright material in respect of or the power to grant licences for the performance in public throughout Australia.  It argued that it was not practically possible for Monster to carry on business in Australia involving the provision of ringtones to telephone users without a licence from APRA and AMCOS to communicate to the public the works in their repertories.  Monster alleged that contrary to s 51AC(3)(j), APRA and AMCOS are not willing to negotiate terms and conditions of a contract for the supply of services with it and that they did not act in good faith (s 51AC (3)(k)) (RCWS 89).

144               In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51 the High Court considered the incorporation into s 51AA of the Trade Practices Act 1974 (Cth) the concept of unconscionability in the unwritten law.  While s 51AC is a separate and freestanding statutory provision, the word ‘unconscionable’ is undefined in both s 51AA and s 51AC.  The latter section identifies a range of factors to which the Court may have regard in considering whether in all the circumstances the relevant conduct is unconscionable.  The factors identified in s 51AC(3) are, of course, not exhaustive,  but they have similarities to the features of unconscionability or unconscientious behaviour identified in decisions of Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.  In ACCC v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51 at 64 [11] Gleeson CJ observed that a person was not in a position of relevant disadvantage simply because of inequality of bargaining powers.  He said that many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests.  And the Chief Justice continued that unconscientious exploitation or another’s inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position for the purposes of s 51AA (214 CLR at 64 [14]).

145               However, a difference in bargaining positions is a factor which is one of the relevant circumstances that can be taken into account under s 51AC(3)(a).  In ACCC v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51 at 65 [15]-[16], Gleeson CJ pointed out that the critical disadvantage from which the lessees in that case suffered was that they had no legal entitlement to a renewal or extension of the lease;  that depended upon the lessors’ willingness to grant such rights.  In that context there was a compulsion to deal with the lessors which created a distinct disadvantage on the lessees, but not such as to attract the unwritten law of unconscionability to their position.  As Gleeson CJ said:

‘It is an everyday occurrence in negotiations for settlement of legal disputes that, as a term of settlement, one party will be required to abandon claims which may or may not be related to the principal matter in issue.’

He said that parties to commercial negotiations frequently use their bargaining power to ‘extract’ concessions from other parties but that was the stuff of ordinary commercial dealings (see too per Gummow and Hayne JJ at 214 CLR at 76-77 [55]-[57] and Callinan J at 112-115 [172]-[185]).

146               Monster gave no explanation for its failure to accept the offer of new IVR licences in the period following 28 October 2005.  Nor did it identify any conduct of APRA and AMCOS as being unconscionable while Monster did not reply to the 28 October 2005 letter.  Monster saw its own interests were served by it not pursuing that matter.  That only changed on 31 January 2006 when APRA and AMCOS made a threat to commence proceedings if Monster did not pay what they said was due by 8 February, the day after the letter of 7 February 2006 was sent.

147               I do not see any element of unconscientiousness or moral obloquy on the part of APRA and AMCOS in this situation.  Monster was advised by solicitors.  Mr Chong was well able to make commercial decisions in what he saw as being Monster’s and his own best interests.  For Monster’s and his own reasons, about which he gave no evidence, he chose not to take up the offer of new IVR licences at a time when it was obvious APRA and AMCOS were prepared to grant them in late October 2005.  And, because Monster had no licences, and was not continuing to trade without them, APRA and AMCOS were entitled to act as they did in seeking to enforce their rights to prevent infringement of copyrights in which they were interested.

148               I am of opinion that after 12 December 2005, not only did Monster have no IVR or SMS licences with APRA or AMCOS, it did not believe it had them either.

QUESTION 6:           IS MONSTER ENTITLED TO AN ORDER THAT APRA AND AMCOS GRANT IT AN IVR LICENCES OR ITS EQUIVALENT?

149               I am of opinion that no such order should be made.  Monster has committed serious breaches of the IVR and SMS licences in the past.  I do not think that it is appropriate to force APRA and AMCOS into a contractual relationship in the circumstances.  I am not satisfied that they would not negotiate the granting of new licences to Monster in good faith.  If Monster cannot obtain in such negotiations new licences from APRA, the Copyright Tribunal has power to settle their terms.  That power may also extend to the AMCOS licences in circumstances such as the present:   Re Powercom Interactive Media Pty Ltd (2003) 175 FLR at 8-9 [26]-[31] per Lindgren P.

QUESTION 7:           WHAT IS THE QUANTUM OF LICENCE FEES PAYABLE BY MONSTER FOR SALES OF RINGTONES OR, APRA AND AMCOS HAVING ELECTED TO SUE FOR DAMAGES, THE DAMAGES PAYABLE FOR THE INFRINGEMENTS WHICH OCCURRED BY SALES AT SUCH TIMES AS MONSTER WAS NOT LICENSED?

150               Monster was unlicensed from 18 August 2005 in respect of IVR services and from 13 December in respect of SMS services.  It is liable to APRA and AMCOS for damages for infringement.  APRA and AMCOS exercised their election to claim damages rather than an account of profits.  It is agreed that the appropriate sum by which compensatory damages should be fixed is what would have been payable under the licences had Monster been licensed.  That is a reasonable approach and I will adopt it.

151               Mr Mallett identified four licensees of ringtones from APRA and AMCOS which he said were comparable to the business operated by Monster.  The trading names of the licensees were Jamster, Bugal, Blue Sky Frog and Powercom.  He concluded that the proportions of ringtone downloads of all downloads in each of those competitors’ businesses over the periods he examined were between 40.94% and 66.17%.  This was based on the amount of licence fees paid to APRA and AMCOS by each of those licensees during the relevant licence periods.  Mr Mallett estimated, based on his comparison with the four competitors, about 41.31% of Monster’s revenue over its period of trading was attributable to ringtone services.  This led to a claim that total licence fees due to 30 June 2006 were $1 million of which only about $315,000 had been paid.

152               Mr Mallett agreed that there was no industry norm for the percentage of ringtones as part of the overall business of providers in the download industry.  So much is clear from his confidential material analysing the returns and licence fees paid by the four selected comparable licensees.  Each of those four was shown to be operating under different business models and using different marketing strategies to Monster.  None remained in business throughout the whole of the period under examination.  And, since July 2003, there had been two significant changes in the market.  First, in late 2004, SMS downloads began to be offered by Monster.  Secondly, in about October 2005 MP3 downloads began to be offered by Monster.  The introduction of each of those different methods of delivery affected Monster’s sales, revenue overall and its IVR business.  Once SMS downloads were commercially available, customers used them more often and in preference to IVR downloads.  No doubt this is due to the fact that the SMS calls are for a fixed price, whereas the price of IVR calls depends upon the length of time spent on the telephone ordering the relevant download or downloads.

153               Mr Chong identified Jamster’s marketing model as having a subscription customer base, which explained why its advertising expenditure dropped in 2006 once that subscription base had been established.  Jamster had a ‘ringtone club’ which allowed subscribers to download ringtones, logos and music news by paying a small sum per month to Jamster.  For that reason he did not regard Jamster’s business as being comparable to Monster’s.  He also showed that Bugle’s, Blue Sky Frog and Powercom’s advertising expenditures had become relatively minimal by 2006 which meant that each of them was not relevantly comparable at the present time.

154               Monster marketed its products exclusively through print media, particularly weekly and monthly magazine publications.  Mr Chong said that Monster’s most significant expense was advertising.  Mr Chong said that each advertisement created a short term demand for the products advertised.  He said that Monster had been the fourth largest advertiser in dollar terms in magazines for the providers of mobile downloadable products in the calendar year 2003.  In the following year, he said that Monster was the largest advertiser of such products in magazines, but had fallen to second in 2005, behind Jamster.  In the six months to June 2006 Monster had again become the largest advertiser in this area.

155               Mr Chong asserted that the introduction of MP3 ringtones created a demand that did not have any substantive impact on the sales of non MP3 ringtones.  In other words, he asserted that monophonic and polyphonic ringtone downloads remained a constant 18% of Monster’s revenue even after the introduction of the MP3 products which accounted for 14% of Monster’s download revenue after October 2005.  However, Mr Mallett’s analysis and summary of Monster’s monthly revenues shows no identifiable changes in its gross revenues for all downloads (including ringtones) until about May 2006 when Monster ceased offering MP3s.

156               Mr Chong explained in his evidence that draft financial statements for the year ended 30 June 2006 reflected a change in the organization of Monster’s business.  He wanted to segregate the IVR and SMS functions in the business and had split the revenues earned by them.  The draft financial statements recorded about $1 million as revenue for Monster’s receipts from its IVR business and about $2.75 million of revenue as ‘management fees’ in respect of the SMS business.  The management fee was received from Nomad Systems Pty Limited, a company which Mr Chong wholly owned and controlled.  Nomad derived income from SMS sales in the year ended 30 June 2006 and Monster extracted the management fee from Nomad.  Mr Chong said that Nomad had an IP platform for potential partners in an SMS business, but Monster did the marketing and advertising for that business.  He noted that Nomad had no staff (see Ex K).  Mr Chong acknowledged even though these accounts recorded Monster receiving IVR services revenue from Telstra, in fact the revenues were generated under a contract between Telstra and Chucky Communications Pty Limited entered into on 1 May 2005 in substitution for Monster’s previous contractual relationship for IVR services with Telstra (see Ex J ‘Chunky’ is a typographical error for ‘Chucky’, see transcript).  Even though Telstra had contracted with Chucky, it continued to pay the IVR revenues directly into Monster’s bank account.  Mr Chong said that Monster was the trading business.  Mr Chong realised that since September 2005 he had been aware of the desire of APRA and AMCOS to understand the role which Chucky had played in the activities of Mr Chong’s businesses and how it could receive revenue from Testra for the sale of IVR services without an IVR licence.

157               The experts’ need to indulge in competing hypotheses was caused by Monster’s record keeping.  They agreed that the triple download spike during the period October 2003 to April 2005 was unlikely to represent actual sales.  They said that there was a likelihood that it was caused by a system bug.  It was effectively removed from Monster’s system after 23 April 2005.  They identified that there was no evidence of data tampering with the IVR ‘quicks log files’ kept by Monster, but they were not able to examine all its relevant MySQL data files to verify the data (Ex A, pars 1-7).  The experts observed that in Monster’s records the proportion of download content represented by ringtones during the period between October 2003 and April 2005 was in the order of 18% (Ex 4 A8).

158               In addition, the experts observed that on 9 May 2005 at about midnight there was a significant decrease in the recorded download of all content types for which they agreed ‘no logical reason could be put’ (Ex 4, par A9).  That decrease has continued ever since (T 192.11).  What is more, the decrease was differential in its application to different types of downloads.  The experts agreed that there 80% less pictures, 70% less coloured pictures and about 23% less polyphonic ringtone downloads.  Thus, the number of database records for pictures declined from 3,500 in April 2005 to 698 records in May 2005.  As Mr Woodley said:

‘So you have had a significant drop off in contents across a number of categories, across all categories but significantly applying to the non-ringtone categories.’  (T 192.25)

159               No doubt, part of the explanation of the long term change was the fact that the popularity with consumers of IVR was in decline because cheaper SMS downloads had become possible in late 2004.  While there had been some teething troubles in the introduction throughout the industry of SMS, by May 2005 it had become established.  The experts could provide no explanation for the way in which the triple download spike occurred, why it was removed just before the audit was to commence, or why the radical change in reporting of downloads and Monster’s business occurred at midnight on 9 May 2005.  No-one from Monster explained any of these matters.

160               APRA and AMCOS argue that the inconsistencies and deficiencies in Monster’s record keeping, and the lack of explanation for the way in which its records were kept in relation to the number of downloads, suggest that not all of the ringtone downloads or their relative proportions in relation to total downloads were being accurately recorded in the period between October 2003 and April 2005.  Therefore, they said, the financial information necessary to calculate all royalties due on Monster’s copying or communicating their copyright material was not being properly kept.

161               Monster argued that the triple download spike was a ‘bug’ which applied both to ringtone and non-ringtone products.  It sought to demonstrate this by reference to examples, taken from its database which, certainly, showed that this could be so (Ex 1).  It said that the number of downloads column was clearly wrong and could be ignored because it was possible to search electronically and allocate types of sales to royalty and non royalty chargeable categories without any need to refer at all to the number of downloads column.  Monster denied any suggestion of wrongdoing in the recording of its information.

162               Monster did not call any evidence from its own internal resources (whether employees or outside computer consultants) who set up its computer software or were responsible for the input or analysis of data within Monster for the purposes of explaining why the software was set up in the way it was or how it operated in the way it did.  Most significantly, no explanation was given as to what function the number of downloads column was supposed to serve or how it came to work in the very odd way in which it did. 

163               There is no actual evidence that any tampering had occurred with the Monster data records.  Mr Chong denied that he had altered the system to produce the anomaly of the triple download spike. And he said, to the best of his knowledge and belief, no such alteration had taken place (T 175.19).  However, he emphasised, and I find, that he had a great understanding of Monster’s system and would know if somebody changed it significantly (T 175.25-.30).

164               Mr Chong was an astute businessman.  He would have wanted for his own commercial purposes an explanation of what was going on from those who reported to him in late April and early May 2005 when Monster’s records began showing radical changes in customer behaviour.  If the number of downloads column was a management tool, the correction of its operation on 23 April 2005 was significant.  And, the dramatic fall of 9 May 2005, differential as it was across Monster’s product lines, also went to the fundamentals of Monster’s business.  Mr Chong said that Mr Yap, Monster’s technology manager, left Australia in November 2005 with his family and Mr Chong has neither seen nor heard from him since and he does not know to contact him in Singapore.  That may be so.  But, I am of opinion that the absence of any explanation by Mr Chong as to what he understood, before Mr Yap’s departure, had occurred to his data base around the time of the audit is signal.  He must have perceived the significance of the problem with the triple download spike when the Deloitte audit report arrived.  The sudden and significant decline in the IVR business must also have come to his attention.  Mr Chong was conscious that nothing that he could say on this topic could assist his or Monster’s case (Jones v Dunkel (1959) 101 CLR 298).

165               In evidence he also claimed not to agree that there was such a thing as the triple download spike (T 176.15).  I reject that evidence.  Mr Chong was quite aware of the issues in the case and had read not only Deloitte’s May 2005 audit report but also the expert evidence.  As he said, he would know if somebody had changed his system significantly.  The triple download spike disappeared from Monster’s records after 23 April 2005.  Likewise, there was a significant fall in Monster’s recording of downloads on 9 May 2005.  The coincidence of both these occurrences with Deloitte’s audit cannot be ignored.  I find that Mr Chong was aware of these occurrences and that on the balance of probabilities they were due to some alteration of Monster’s computer systems of which he was fully aware.  Neither expert could explain either change.  They were significant, not to only Monster’s own record keeping but also to the calculation of its liability for royalties due under the IVR licences.  The only explanation which Mr Chong sought to give in his evidence was that Mr Yap had left the country six months later in November 2005.  These issues were clearly flagged by the time Mr Chong came to give oral evidence yet he provided no explanation.

166               The most natural inference is that Mr Chong feared giving any explanation about these significant changes in the recording of data within Monster’s systems:  Commercial Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418F-G per Handley JA;  Temora Shire Council v Stein (2004) 134 LGERA 407 at 427 [52] per Giles JA with whom Hodson JA and Pearlman AJA agreed.  I am not prepared to draw any inferences in favour of Monster and Mr Chong who have left entirely unexplained by evidence what happened within Monster’s own record keeping in its computer system.  I am not prepared to infer that Monster’s records of ringtone downloads or their proportions as part of the overall downloads to its customers for the period between October 2003 and April 2005 are accurate or reliable. 

167               The number of downloads could not possibly have dropped from 37,000 to 13,000 at midnight on 9 May 2005 without Mr Chong being aware that that had occurred (see T 192.4-.13).  As Mr Woodley said, this was a significant decrease in anyone’s language and it was not something that a business could undergo in virtually a day (T 192.32).  The experts agreed that there was no logical reason that could be given for that change (Ex 4 par A9).  About 97% of the triple download spike affected non ringtone content.  The dramatic fall in sales in May 2005 differentially affected ringtones and other downloads, ringtones suffering only a 23% fall while others suffered over 70%.  This differential related to the quantum of Monster’s liability for royalties.

168               I find that not all entries in Monster’s data base prior to 9 May 2005 reflected actual sales.  Like the experts, I am not able to analyse how these two substantial changes in Monster’s data records, which occurred in April and May 2005, affected Monster’s actual sales for IVR downloads over the period between October 2003 and April 2005.

169               Between July and September 2003, ringtone downloads accounted for about 40% of Monster’s IVR revenue.  While Monster may have introduced more graphics for customers to download in October 2003 and following, I am not persuaded by Mr Chong’s evidence that that accounted for the radical decline from October 2003 and thereafter from 40% of downloads being polyphonic or monophonic ringtones to only 20%.  It is probable that, over time, Monster’s IVR business developed and other products came to form a larger proportion of its IVR downloads than the 60% evident in its first quarter of operations.  There was also a gradual reduction in the number but not the proportion of IVR service downloads generally, not just of ringtones, once the introduction of the SMS service occurred in late 2004.

170               The number of IVR calls recorded on Monster’s Telstra revenue accounts increased between August 2003 and February 2004 and then gradually declined thereafter.  The decline became more marked at around February 2005 and quite sharp thereafter.  Monster’s net call revenue followed the growth and then slow decline of the actual number of IVR calls.  That indicated that the total number of downloads on IVR calls is likely to have been greater during the period between October 2003 and February 2005 than subsequently.  This is shown by a graph in Mr Woodley’s first report comparing from IVR data base records of Monster, the number of Telstra calls and the net call revenue recorded by Telstra.

171               Monster argued that Mr Mallett was wrong to base a claim for IVR royalties during the period between October 2003 and April 2005 on Monster’s overall ringtone downloads of 41.31% in January to March 2006.  It argued that although those results included MP3s, the introduction of the MP3 downloads added a new and significant line of business which substantially increased the proportion of ringtone downloads overall.  Monster pointed to the fact that there was no issue of corruption of data of SMS downloads.  These had remained relatively constant for monophonic and polyphonic downloads at about 20% of the total SMS downloads (when MP3 downloads were excluded).  It said that this suggested that the similar observation of the experts that ringtone downloads, excluding MP3s, were about 18% to 20% the IVR totals after April 2005 was an accurate reflection of the amount of downloads for those two types of ringtone throughout the relevant period between October 2003 and April 2005.  There is some force in that contention.  However, the proportion of about 40% for ringtone downloads in both the periods between July 2003 to September 2003 and January 2006 to March 2006, together with the absence of explanation as to what happened to affect the IVR records of Monster, justifies an inference of a higher figure.  It is likely that some part of the current market for MP3 ringtones must have been present earlier in the then market for available ringtones, in addition to the 18% to 20% of IVR downloads recorded by Monster as sales throughout the period between October 2003 and April 2005.  I am of opinion that it is likely that customers downloading what then were the only two forms of ringtone, monophonic and polyphonic, would have downloaded a larger proportion of ringtones than 18% to 20%.

172               The experts agreed that the proportion of downloaded IVR content, included in Monster’s records of all downloaded data represented by ringtones throughout the period October 2003 to April 2005, was in the order of 18%.  They said that data analysis of IVR content type by reference to the content identification field in Monster’s data base yielded a relevantly consistent ringtone download proportion of 18, excluding MP3s (Ex 4 A8 and A13).

173               Monster criticised Mr Woodley for asserting that some of its IVR records for the period between October 2003 and April 2005 did not represent actual sales.  He said that there were differences between Monster’s MySQL records to which he had access and its Telstra revenue statements.  He considered that if the MySQL entries were not of actual sales, then there were only two possible explanations for the discrepancies:  a ‘bug’ or deliberate tampering with the data base.  He accepted that each of those explanations was a theoretical possibility.  Both experts agreed that there was no issue of data tampering in Monster’s IVR Quicks logfiles (Ex 4 par A7).  They agreed that there was a likelihood that the triple download spike was caused by a ‘bug’ (Ex 4 par A6) and that it was unlikely to represent actual sales (Ex 4 par A4).  Mr White considered that data base tampering was unlikely because:

·                    the very large number of download records and call records generated each day would require editing of over 2,000 separate files on a real time basis;

·                    if tampering occurred, the file date and times would have to be altered to the date on which the tampering was done which would have had to be about midnight on each date of the files in the review period.  Mr White thought this was inherently unlikely;

·                    alternatively, Monster would have to utilize special purpose software to make the alterations, which Mr White thought unlikely.

174               Mr White had not seen any systematic pattern in the contentious data.   This indicated that no tampering had occurred.  Mr Woodley observed that any tampering would have had to be done in a sophisticated manner.  Nonetheless, neither expert could explain how the triple download spike originated, operated or ceased, other than to observe its presence in the data.  And they could not explain why Monster’s business records changed so radically on 9 May 2005.

175               Mr Woodley’s analysis  showed that after May 2005 there was a correlation between the ringtone proportions downloaded using IVR and SMS.  This included MP3s after their introduction by Monster in October 2005.  There was a slight decrease from the 20% in May 2005 to 15% in about August 2005, increasing to over 40% (including MP3) by January 2006.  These changes show that it is not possible to ascribe any constant value to the proportion of downloads of ringtone products during this period.  And, the unreliability of Monster’s data over the 19 months to April 2005 makes scientific precision for that period impossible.  I am not satisfied that it would be a true reflection of Monster’s business to ascribe 41% of its revenue as being attributable to ringtone downloads for that period as is suggested by APRA and AMCOS.  On the other hand, I am not satisfied that the ringtone content of about 18 for that period contained in Monster’s records is reliable.  I am of opinion that it is more likely than not that the figure was considerably larger than 18%, particularly towards the earlier part of the period.  Because each of the removal of the triple download spike bug and the 9 May 2005 fall differentially affected the proportion of ringtone downloads recorded in Monster’s system, I am satisfied that the figure of 18% is an understatement.

176               I formed the impression that both the experts were impressive, helpful and objective witnesses.  Mr Woodley had, however, a greater familiarity with a deal of the evidence than Mr White because the latter had done no analysis on some areas in issue where Mr Woodley had.  That is not a criticism of Mr White.  Rather it reflects that Mr White’s instructions and the material to which he was given access were more circumscribed.

177                In The Commonwealth v Amann Aviation Pty Limited  (1991) 174 CLR 64 at 83, Mason CJ and Dawson J said that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can.  They continued:

‘Indeed, in Jones v Schiffmann ((1971) 124 CLR 303 at 308) Menzies J went so far as to say that the “assessment of damages … does sometimes, of necessity, involve what is guess work rather than estimation”.  Where precise evidence is not available the Court must do the best it can (Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422 at 438 per Devlin J)’  See too at 174 CLR at 119 per Deane J, 138 per Toohey J.

178               This is a case where APRA and AMCOS cannot adduce precise evidence of what has been lost in Monster’s records.  Thus it is apt to do the best I can in assessing damages on the material available to me:  Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at 774 [38] per Hayne J with whom Gleeson CJ, McHugh and Kirby JJ agreed.

QUANTIFICATION

179               At the commencement of the 19 month period to April 2005, IVR downloads of ringtones were at the level of 40%.  The IVR method of delivery of ringtones was then the only one employed by Monster.  SMS only commenced to be used 1 year later.  Monster’s business was expanding in October 2003 and its revenues were increasing.  It is highly unlikely that within the month of October 2003 ringtone downloads fell from 40% to around 18% of all of Monster’s downloads.  While the expansion of the range of non ringtone downloads offered by Monster after September 2003 many explain a change in the proportion of ringtone downloads, such a change is more likely to have been gradual.  By May 2005, when Monster was the subject of the audit by Deloitte, both IVR and SMS ringtone downloads accounted for about 18 of all of Monster’s download revenue.  Later, when MP3 ringtone downloads were offered, overall ringtone revenues were closer to 40%.  Part of the explanation for the percentage of ringtone downloads in any pereiod must be what was on offer.  But no evidence was led, apart from the effect of introducing MP3 ringtones, as to whether and when new ringloads were actually offered by Monster in its advertisements and what impact that had on demand.

180               Mr Chong did an analysis which showed that in the period between December 2004 and March 2005, 26% of the SMS downloads were ringtones.  Some caution must be given to these figures because of the teething problems experienced generally by the download industry with the introduction of the SMS platform.  In the same period, he said that ringtones represented, on Monster’s data, only 12% of IVR downloads.  The latter figure is implausible.  It shows that Monster’s IVR data at that time was unreliable given that its subsequent trading has shown a rough correspondence between IVR and SMS ringtone downloads as a proportion of Monster’s overall revenues.  There is no reason on the evidence why customers would distinguish between ringtone and non ringtone downloads in this period when making IVR and SMS orders.

181               In my opinion, the proportion of IVR downloads which were ringtones in the December 2004 to March 2005 period is likely to have been closer to Mr Chong’s 26% SMS figure, making due allowances for the possible unreliability of SMS data at that time.

182               Precise calculation of the proportion ringtones in Monster’s IVR downloads during the period between October 2003 and April 2005 is not possible.  I find that there was a gradual decline from about 40% to about 20% over that period.  By March 2005 the proportion was about 25%, roughly in line with Mr Chong’s analysis of Monster’s SMS business results at that time.

183               I find that APRA’s and AMCOS’s entitlement to IVR royalties for the period between October 2003 and April 2005 should be calculated on the basis that 30% of Monster’s net call revenue was derived from the use of copyright works the subject of the IVR licences.

ISSUE 8:         ARE APRA AND AMCOS ENTITLED TO ADDITIONAL DAMAGES UNDER s 115 OF THE COPYRIGHT ACT 1968?

184               Monster failed to pay any royalties under the IVR or SMS licences prior to the termination of the IVR licences in August 2005.  It not only failed to pay any royalties under the SMS licences prior to their termination in December 2005 but it also did not provide even the simplest information in the form of its telecommunications service provider’s revenue statements.   Monster’s argument that these failures were based on its bona fide misconstruction of the licences in relation to whether or not a form was prescribed by APRA or AMCOS for the purposes of the licences has been rejected by me (cp DTR Nominess Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 at 432).  Indeed, I am not satisfied that Monster has provided the Court with full information as to the true position during the period between October 2003 and April 2005 for the reasons that I have given earlier.

185               The claim for additional damages under s 115(4) requires an applicant to prove, that an infringement of copyright has been established.  Once the IVR and SMS licences respectively were terminated in August and December 2005 Monster infringed the copyrights of APRA and AMCOS by continuing its business of supplying ringtone downloads.  That infringement continues to the present time. 

186               The next question under s 115(4)(b) is for the Court to be satisfied that it is proper to make such an award having regard to all relevant matters, including but not limited to:

·                    the flagrancy of the infringement;

·                    the need to deter similar infringements;

·                    the conduct of Monster and Mr Chong after any act constituting the infringement, or if relevant, after they were informed of the alleged infringement;

·                    any benefit shown to have accrued to Monster or Mr Chong by reason of the infringement.

187               Here, after each licence’s termination, Monster negotiated with APRA and AMCOS for new licences to be put in place.  Had the negotiations been successfully concluded this would have resulted in there being no infringement.  There was no explanation by Monster as to why it failed until 7 February 2006 to return executed IVR licences and the settlement agreement forwarded with Banki Haddock Fiora’s letter of 28 October 2005.  The arguments may have occurred between the parties as to the quantum of APRA’s and AMCOS’ claim for further royalties from the period the subject of Deloitte’s audit could not have affected entry into the new arrangements proposed in the 28 October 2005 letter which envisaged the right of each of the parties to contest the amount of royalties due or claimed.  Monster’s failure to return the executed agreements was, in my opinion, deliberate.  It knew that it had no licence to use APRA’s and AMCOS’ copyright material while ever licences were not in place.

188               Mr Chong gave evidence-in-chief that, on the basis of the conduct and statements by APRA and AMCOS preceding the letter of 24 October 2005, he assumed they would grant Monster binding licences effective from 18 August 2005 in respect of IVR downloads of ringtones. Alternatively, he said, he assumed that in respect of IVR ringtones, Monster would be able to communicate to the public, APRA’s and AMCOS’ works for which they were entitled to grant licences.  He said that on the basis of that assumption, Monster continued to operate its ringtone business.  He also referred to APRA and AMCOS’ willingness to accept the licence fees paid on 16 September 2005 and 14 October 2005 as part of that assumption.  Given that those sums were due under the invoices rendered on 30 May 2005 it is unlikely that APRA and AMCOS would have refused to have received that money paid very substantially later after the invoices were rendered. That is, Mr Chong knew that there were no IVR licences in place but assumed that Monster would be granted them apparently, at any future time it chose, regardless of what it did in the interim.  I do not believe this evidence.  No businessman of his astuteness would have thought APRA and AMCOS would allow the licence position to remain unresolved indefinitely while Monster failed to provide information or prompt payment.

189               On the other hand, on and after 31 January 2006, APRA and AMCOS indicated to Monster that they were prepared to accept a sum substantially greater than I have found was due as the price for the grant of new IVR and SMS licences.  In that situation, Monster would either have had to cease any ringtone downloads entirely as part of its business or accede to APRA’s and AMCOS’ demands.

190               By its infringing conduct Monster has benefited from sales of the copyright works.  One of the purposes of an award of additional damages under s 115(4) is to penalise a defendant or respondent for its conduct of infringement.

191               I have considerable reservations about Mr Chong’s credibility.  Initially, he gave evidence that he believed that the downloading of the MP3 files that he had caused to be created was lawful and was absolutely sure about that.  But, when confronted by correspondence Monster had received on that topic from Music Industry Privacy Investigation Pty Ltd, he then agreed that he was absolutely certain it was unlawfull (PCWS2 pars 27-28).  It would obviously have been disadvantageous to Mr Chong to have said that he engaged in a business which he believed to be unlawful.  Counsel for Mr Chong and Monster asked me to interpret his evidence as being directed to two different points in time, the first, being addressed to what he believed when he commenced the MP3 downloading and the second, to when he discovered what was happening was not legal.  I do not accept that explanation.  His evidence that what was done was lawful was given clearly and was unequivocal.  Mr Chong had every opportunity to qualify it at the time.  I formed the impression that he saw it to his advantage to portray himself as not having acted unlawfully.

192               Mr Chong said that he had been in Singapore and Taiwan establishing similar businesses for 13 weeks between March 2005 and November 2005.  In the previous year he had given evidence to the Migration Review Tribunal.  He claimed that his visa to remain in Australia ought be reinstated because his presence was material to the continued operation of Monster’s business and its essential success.  He agreed that nothing had changed in these respects between the time he gave his evidence to the tribunal and the period in 2005 when he was away overseas.  But he claimed his activities overseas in 2005 had distracted him from Monster’s business and he was unable to direct sufficient attention to consider how he might prepare proper returns to APRA and AMCOS.  I do not accept that he was distracted as he claimed.

193               On 20 May 2005 the solicitors for a photographer, Anne Geddes, wrote to Monster and Mr Chong seeking undertakings that the use of one of her photographs in Monster’s advertising for downloads would not be continued.  I infer that Mr Chong ignored that letter because on 20 June 2005 Ms Geddes commenced proceedings for infringement in the Victorian Registry of the Court (Ex H).  Monster’s Victorian lawyers, Blake Dawson Waldron, wrote to Ms Geddes’ lawyers on 17 July 2005 asserting that after receipt of the letter of 20 May 2005 Monster promptly removed the copy of the photograph from its systems some time in late May or early June 2005.  Monster’s explanation was that the photograph had been purchased in a CD-ROM in late 2003 from Integrated Marketing Communications Pty Ltd, a Singaporean company, and that Monster had understood that it was free to use images from that source in its services.  It said that the Singaporean company now no longer operated (Ex H).  The proceedings were settled in late August 2005.

194               Yet, in cross-examinaiton Mr Chong agreed that Monster was still advertising other images received from the same source.  He claimed that he really believed that Monster had a legal right to sell those images.  He then gave this evidence  (T170.28-172.3):

‘MR LEEMING: ... My question to you and I wish to give you as full an opportunity as you can have to explain your evidence, is why you say in March this year you believed that you had the right to sell Buffy and 50 cent and Scooby Doo notwithstanding that the source of that right was this defunct Singapore company and you had already gone through the experience with Ms Geddes' works that it didn't have the rights to sell some of the products they were supplying to you.  I want to give you as much opportunity as you need to respond to that? ... I can't give you a straight answer until deciding what is and what is not that we had a right to, if that is what you are saying.  I am not understanding.

HIS HONOUR:   I think what Mr Leeming is asking you is, you had the experience of dealing with litigation in this court in Victoria brought by Ms Geddes to say you had no right to sell the picture that you received from the Singapore company? ... Yes.

And he is saying, well after you had actually gone to court and decided you should pay damages and settle the proceedings? ... Right.

How could you have any confidence that anything else you got from the Singapore company they had a right to give to you so that you could market it without infringing people's copyright? ... We can't be absolutely sure, your Honour.  So in terms of confidence we don't know for a fact either way, one way or the other.

Well, Mr Leeming is asking you how in March you could have believed, having had the bad experience with Ms Geddes from the Singapore companies that anything else they gave you they had a right to give you when you couldn't contact them and you had nothing else to, as I understand your evidence, to show that they had the rights to sell you things they said they sold you? …That is right.

So that is what I think he is asking you.

MR LEEMING:   Your Honour has it exactly? …I don't know how to answer that.  I am just believing that they do have.

That is because there isn't an answer.

MR JACKMAN:  Please let him finish.

MR LEEMING:   I'm sorry, did you have something else to say? … No.

I think you said I have nothing else to say? … I don't know how else to explain this point of what we believe is that they have a right to give us .  I think that is what we are trying to get at. We looked at the pictures as I have just explained before.  A lot of these pictures are what we use maxims or copy lines, nice lines one or two things, we don't know even if somebody owns the copyright and I could be infringing.  But if I had to take off everything, but we try to create but we don't create as much as we do.  A lot of them approach us.  For instance, Ford.  If Ford approaches us then we will talk to the company, Express Publications, and ask them and say you give us this, you say we can use it to advertise.  That is how we work.

Can I suggest to you, Mr Chong, that the reason you are finding it difficult to explain why in March 2006 you believed that this Singapore company did have the rights to permit you to sell Buffy and 50 cent and Scooby Doo images is because you didn't believe that in March 2006? … We believed we do.

Instead in March 2006 you believed there was at least a real risk that they did not have, that is the Singapore company, did not have those rights to licence for your commercial purposes? … We believe we do.  If we are given a letter saying we don't then we will stop it immediately.  I just can't explain it any other way.  That is the policy we try to adopt so we don't fight with owners of intellectual property.

And the reason that you are refusing to agree to the questions I am putting to you is that you know if you do it will impact adversely you and your company's prospects in this litigation, that is the reason, isn't it? … No, not for that reason, no.  Can I elaborate please?

Of course? … If I were to advertise anything and everything of any brand, I am just coming an example for Ferrari or Playboy or something then it is wrong because then we advertise everything.  But there comes a time when what you have is what you have and the rest of it you stop doing it.  In our world we stopped what we call backyard sales guys who doesn't give us the real rights, if I could use that word. So we have stopped doing that.  So if I say I would advertise anything and everything that is ridiculous because I would be infringing every one on earth in terms of copyright.’   (emphasis added)

195               And, these were not the only instances in which Monster had advertised and sold to the public downloads for which it had or may have had no rights but simply took the chance of infringement of others’ copyright.  For example in 2005 Monster advertised and sold images of Australian Football League Club logos for downloading on to mobile phones.  He said that after talking with representatives of the League he came to appreciate that Monster did not have the rights to offer those for sale.  He also said that Monster was able to sell a download in relation to Ford, the car manufacturer, because there was a relationship with a publication that dealt in the motor industry from which that logo was obtained.  He claimed to have understood that the magazine had the rights assigned from or licensed from Ford and that they were able to give Monster such a licence. 

196               Mr Chong’s and Monster’s attitude to respecting the copyright of others was in essence what he said when confronted with his conduct in relation to Ms Geddes’ photograph and the AFL and NRL rights:

‘Our policy is if someone tells us that you don’t have the right, the first thing we do is we do not argue with them because they say they have the rights so we pull back.’

197               In my opinion this attitude was quite reckless.  It did not recognize the need to respect other people’s commercial and legal rights in their property, including copyright, with which he and it dealt.  I infer that his attitude was that he would continue marketing any material notwithstanding a belief that there was a real possibility that Monster had no rights to do so, just as he did with material on the CD-ROM from which Ms Geddes’ photograph was taken.  He deliberately closed his eyes to the lawfulness of this activity.  That is consistent with Mr Chong’s and Monster’s apparent unwillingness to give any proper information or accounting to APRA and AMCOS for the copyright material which, again, Monster sought to exploit in its business. 

198               In Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 93A-B, Burchett J (with whom Lehane J agreed at 104F) applied an earlier statement he had made in Autodesk Inc v Yee (1996) 68 FCR 391 at 394 that in Australia additional damages may be given upon principles corresponding to those governing awards of aggravated and also exemplary damages at common law.  He said that the Act had objectives other than compensation (75 FCR at 93E-F).  Each of the factors referred to in s 115(4)(b) is sufficient in itself to sustain an award of additional damages.  It is not necessary that each of them must be proved, rather that the relevant conduct of the defendant or respondent in the circumstances warrants an award.  Tamberlin J came to a similar conclusion (75 FCR at 102E-104E).  He noted the importance of preserving a broad unfettered discretion in relation to additional damages so far as quantum was concerned (75 FCR at 104D) and, that broad discretion should not be formulated in any arithmetic or mechanical way (75 FCR at 104C).   I do not think that this is a case of mere mistake or neglect (75 FCR at 93C;  Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70; (1975) 12 ALR 685 at 90).

199               In FNH Investments Pty Ltd v Sullivan (2003) 59 IPR 121, at 127 [26]-[27], Whitlam, Moore and Kiefel JJ held that the new existence of a contractual relationship between a copyright owner and an alleged infringer did not preclude the award of additional damages under s 115(4).  There, a contract existed for the provision of photographs and, provided that certain sums were paid, a licence would be granted to use the photographs.  The infringement occurred before the full licence fee was paid.  The situation in the present case is different because prior to the termination of the IVR licences on 17 August 2005 and the SMS licences on 12 December 2005 Monster was licensed to use APRA’s and AMCOS’ works but was in breach of the respective licences because it had not provided proper information or paid sufficient royalties.  At the time of each licence’s termination, no royalties whatsoever had been paid under it.  Thereafter Monster continued to use, and Mr Chong continued to participate in Monster’s use of, copyright works knowing of the lack of any licence to do so.  I am conscious that there were negotiations ongoing between the parties, which had they been successfully concluded would have resulted in authorisation for the period of the use.  Nonetheless, Monster for its own commercial purposes chose not to have that authorisation, particularly in respect of the IVR licences after 28 October 2005.  I am of opinion that this behaviour showed a contumelious disregard of the rights of APRA and AMCOS in their copyright material. 

200               I think that Mr Chong’s attitude, which was also Monster’s, towards the non-payment of royalties to APRA and AMCOS was quite flagrant.  Mr Chong thought he could get away without paying for what was due just as he did with trying to get away with using other people’s rights without having first made any, let alone, proper arrangements for their use.  I think there should be an appropriate marking of the Court’s disapproval by a significant award (see Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 102-103;  cp:  Australian Performing Right Association Ltd v Pashalidis (2000) 48 IPR 610 at 619 [32] per Moore J).

201               Monster’s and Mr Chong’s conduct merits a substantial amount of additional damages being awarded so as to mark disapproval of its infringing conduct and to deter others from engaging in similar behaviour.  During the 3 year period to 30 June 2006 Monster’s total revenues from all its telecommunications service providers accounts total over $19 million.  These include considerable revenues generated by the infringements.  But the use of ringtone downloads was a means of attracting Monster’s customers to all its advertised products.  In my opinion, on the basis of my findings, I should fix the amount of additional damages at $100,000.

202               An award of additional damages should not impose a punishment greater than would be imposed if the conduct were criminal (XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 at 463 per Gibbs J).  The defendant’s financial circumstances are a relevant consideration (XL 155 CLR at 461 per Gibbs CJ, 472 per Brennan J) as has been the period of the conduct and its circumstances.

CONCLUSION

203               I am satisfied that there is a real risk that Monster and Mr Chong will continue to infringe APRA’s and AMCOS’ copyrights unless restrained.  It is appropriate to grant injunctive relief to prevent Monster’s continuing infringements:  Universal Music Australia Pty Limited v Cooper [2005] FCA 1878 at [13].

204               Having regard to my findings, it is necessary for calculations to be made as to the precise sums to be awarded by way of damages.  I will direct the applicants to bring in short minutes of order to give effect to my reasons.  This will allow the respondents to check the calculation of any royalties.  It follows that the respondents should pay the applicants’ costs.

Associate:

Dated:         21 December 2006