FEDERAL COURT OF AUSTRALIA

Tenderwatch Pty Ltd v Reed Business Information Pty Ltd [2008] FCA 931

ACCOUNT OF PROFITS – infringing work used by infringer in delivery of seminar – whether there should be an apportionment of revenue – whether deduction from profit should be allowed for time spent by infringer in preparation of seminar

Colbeam Palmer Limited and Another v Stock Affiliates Pty Limited (1968) 122 CLR 25 cited

Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 cited

Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585

Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96 cited

Sheldon v Metro-Goldwyn Pictures Corp 106 F 2d 45 (1939) cited

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

TENDERWATCH PTY LTD ACN 006 251 396 T/AS TENDERSEARCH v REED BUSINESS INFORMATION PTY LTD 000 146 921 T/AS REED CONSTRUCTION DATA AND REED INFORMATION SERVICES and JOSEF JOHANNES (HANS) WALLZ T/AS TENDERING & BUSINESS FACILITATION ABN 36 033 829 366

VID 184 of 2008

HEEREY J

19 JUNE 2008

MELBOURNE

THE COURT ORDERS THAT:

1.                  The second respondent pay the applicant $2,311.69 plus costs to be taxed, including reserved costs.

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

REASONS FOR JUDGMENT

THE COURT:

1                     The applicant Tenderwatch Pty Ltd carries on a business which includes conducting training seminars on tender responses, that is to say the preparation of documents in response to invitations to submit tenders.  For the purpose of such seminars it has developed over the years a detailed manual called the “Original Manual”.

2                     In early 2006 the second respondent Mr Hans Wallz approached Tenderwatch and offered his services.  The parties entered into a retainer agreement dated 29 August 2006 which included provisions that Mr Wallz would keep certain information confidential to Tenderwatch and that copyright in works would vest in that company.  Mr Wallz was given access to the Original Manual and used it to conduct three seminars on behalf of Tenderwatch in September and October 2006.

3                     In December 2007 Mr Arthur Thompson, the sole director of Tenderwatch, came across a brochure published by a competitor, the first respondent Reed Business Information Pty Ltd, promoting a one day tender response workshop.  Reed’s brochure stated that it had “teamed up with TBF (Tendering and Business Facilitation) to provide a workshop”.  TBF was, to Mr Thompson’s knowledge, a business name used by Mr Wallz and indeed he was identified in the brochure as a “director” of TBF and as an experienced person in the industry.

4                     On Mr Thompson’s instructions an employee of Tenderwatch, Ms Shelley Ryder, attended Reed’s workshop as a registered participant.  It was held on 13 March 2008 at the North Sydney Harbourview Hotel.  Ms Ryder and other participants were handed a bound manual entitled “Responding to Tenders Workshop” (the Reed Manual) which appeared to be substantially the same as the Original Manual.

5                     As a result of Ms Ryder’s report of proceedings at the Reed workshop, Tenderwatch commenced the present proceeding against Reed and Mr Wallz alleging copyright infringement, misleading and deceptive conduct and misuse of confidential information.  Only the copyright claim is relevant for present purposes.

6                     Tenderwatch has settled with Reed.  On 18 April 2008 Mr Wallz consented to various orders including an injunction against reproduction or publishing of the Reed Manual, delivery up of infringing copies and the provision of affidavits and discovery as to profits.

7                     Tenderwatch has elected for an account of profits.  The application was heard on 27 May 2008.  Tenderwatch was represented by Mr Trichardt of counsel.  Mr Wallz represented himself.

8                     Mr Wallz deposed that 21 copies of the Reed Manual were produced, and 17 people attended the Reed workshop.  Each participant received a copy of the document.  The remaining copies, and all electronic and paper material relating thereto, have been destroyed.

9                     Mr Wallz invoiced Reed, and was duly paid, the sum of $2,711.71 for conducting the workshop.  Mr Wallz stated that his minimum daily fee is $500 per day, and that he had “spent twenty one days compiling the (Reed Manual) at a cost of $10,500 ($500 x 21)” and “fourteen days preparing the delivery and presentation of the workshop at a cost of $7000 ($500 x 14)”.  He also stated he had spent $153.50 on printing copies of the Reed Manual.  As a result of these costs, Mr Wallz claimed to have made a loss of $14,942.39.  Mr Wallz also stated that $246.52 of the sum received from Reed in payment for his services in presenting the workshop represented GST, which he is obliged to pay to the Australian Tax Office.

10                  Tenderwatch claims the whole sum of $2711.71 as profit for which Mr Wallz must account.  Mr Wallz disputes this on the basis that the printing costs, and the “cost” of his own time in compiling the Reed Manual and preparing for the workshop, should be deducted from that sum, as well as the GST component. 

11                  Two issues arise:

·        What proportion of Mr Wallz’s gross receipts is attributable to the copyright infringement?

·        What costs are properly allowable in calculating the profit for which Mr Wallz is to account?

Apportionment of revenue

12                  In Dart Industries Inc v Décor Corporation Pty Ltd (1993)179 CLR 101 at 121 Mason CJ, Deane, Dawson and Toohey JJ cited with approval what was said by Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 42-43:

The true rule, I consider, is that a person who wrongly uses another man's industrial property – patent, copyright, trade mark – is accountable for any profits which he makes which are attributable to his use of the property which was not his…

If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man's property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple.  In such a case the infringer must account for all the profits which he thus made.

Windeyer J had earlier (at 37) drawn a distinction between patent and trade mark infringement (the instant case being the latter).  If a patent infringer sells an article made wholly in accordance with the invention and thereby obtains more than it cost him to acquire or make it, he is accountable for the difference as profit because he has “infringed the patentee’s monopoly right to make, use, exercise and vend the invention” (that being the statutory test of infringement then applicable).  However, the profit for which a trade mark infringer is accountable is not the profit from selling the article itself but the profit from selling it under the trade mark.

13                  Dart itself was a case of patent infringement, the patent being for press button seals used to seal plastic kitchen canisters.  The trial judge had allowed for the whole profit on the basis that sales of the canisters were attributable to the invention.  The Full Court of the Federal Court reached the same result, reasoning that “what characterised the infringing product was the press button lid, without which this particular canister would neve have been produced at all”.  The High Court majority (at 121) noted that there was “some divergence” between the trial judge and the Full Court but considered nevertheless the “overall approach” of both was correct.

14                  Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96 concerned confidential information as to a particular style of brassiere.  Pennycuick J at 108-109 rejected an argument that profits should be limited to the amount by which the profit exceeded the profit the defendant would have made if it had manufactured the article without the use of that information.  In his Lordship’s view

the manufacture of the article in question of itself involved the use of the confidential information and the defendants could not have manufactured that article at all without the use of the confidential information.

That case seems closely analogous to the present one.

15                  In the present case the presentation of Mr Wallz at the Reed workshop involved blatant and wholesale copying of the Original Manual, particularly of its structure and layout.  As already mentioned, participants were each given a copy of the Reed Manual which was substantially the same as the Original Manual.  Mr Wallz used slides which contained headings and information the same as that contained in the Original Manual and substantially the same as slides produced and used by Tendersearch.  Mr Wallz frequently referred to the content of the Reed Manual as a supplement to the projected slides.  Twice during the course of the day Mr Wallz handed out documents containing exercises.  Attendees broke into groups and worked on these exercises.  These had similarities in content and layout to like documents created and used by Tendersearch although the similarities are not as striking as those between the Reed Manual and the Original Manual.

16                  While doubtless Mr Wallz made use of his own knowledge and experience in relation to tender responses when he conducted the Reed workshop, he would not have been able to take up the opportunity to do so had it not been for his use of the Original Manual.  That use was fundamental to the presentation of the workshop.  The case is similar in that regard to Dart and Peter Pan.  The gross revenue received by him should be the starting point for the calculation of profit.

Calculation of profit

17                  In Dart at 112 the majority cited a lengthy passage from the judgment of Harvey CJ in Eq in Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585 at 593 which commences:

Under no circumstances can (the patent infringer), in my opinion, deduct interest on his capital employed in the business.  Under no circumstances can he claim any remuneration to himself, nor under any circumstances can he claim in my opinion any director’s fees for carrying on the business.

His Honour goes on to say that the only expenses to be deducted are those “solely referrable to the manufacture of the [infringing] machines”.  The majority in Dart at 115 et seq discuss this latter part of the statement by Harvey CJ in Eq and point out, referring to a number of United States authorities, that the statement does not take account of opportunity cost suffered by an infringer in certain circumstances, as for example, where there is no excess capacity and the infringer would have been able to manufacture alternative products.  In the circumstances which arose in Dart the majority at 119-120 held that some proportion of overheads attributable to the manufacture of the infringing products should be taken into account.

18                  However, nothing that the majority said in Dart casts doubt on the opening part of Harvey CJ in Eq’s statement quoted above.  It would be wrong in principle to allow Mr Wallz a deduction for the time he had spent working up his presentation with the aid of Tenderwatch’s Original Manual.  This would be tantamount to making a copyright owner pay an infringer for the time and effort spent in infringement.  As was said in Sheldon v Metro-Goldwyn Pictures Corp 106 F 2d 45 (1939) at 51, “a plagiarist may not charge for his labour in exploiting what he has taken”.

19                  For the purpose of an account of profits an infringer can only claim costs in fact incurred (including costs attributable to the infringing work: Dart).  The infringer cannot claim costs not actually incurred, even though they might reasonably have been incurred.  Thus in LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24 the infringer company had paid salaries to its directors but submitted a report of a consultant purporting to set out a “fair remuneration”, which was in the order of three times that actually paid.  Lindgren J at [178] rejected this claim, pointing out that the plaintiff must take the business of the infringer as it is.

20                  The present case is not precisely on all fours with LED Builders because the infringer Mr Wallz was a sole trader and did not employ anybody.  However, as a matter of ordinary business practice the “profit” he made for conducting the Reed workshop was the amount he received from Reed less his actual outlays.  If his time spent was truly worth what he says, presumably he would have charged Reed $17,500.  By way of example, if a barrister charged $1,000 for an opinion, he or she would not calculate the number of hours spent and determine that there was a “profit” of, say, $300.

21                  The cost of printing and GST are properly allowable because they have reduced the actual profit or benefit derived by Mr Wallz from the infringement.

22                  Accordingly the profit for which Mr Wallz must account is $2,311.69 being his gross receipt from Reed of $2,711.71 less printing costs of $153.50 and GST of $246.52.

Orders

23                  There will be an order that Mr Wallz pay Tenderwatch $2,311.69 plus costs to be taxed, including reserved costs.

Associate:

Dated:         19 June 2008