FEDERAL COURT OF AUSTRALIA

Flashback Holdings Pty Ltd v Showtime DVD Holdings Pty Ltd [2008] FCA 1541

Copyright Act 1968 (Cth) ss 102, 103, 115, 116, 120, 121, 125

Bodley Head Ltd v Flegon [1972] RPC 587

Matthews v Doctrieve Corporation Pty Ltd (2003) 59 IPR 155

Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67

FLASHBACK HOLDINGS PTY LIMITED v SHOWTIME DVD HOLDINGS PTY LTD, INTERFREIGHT LOGISTICS PTY LTD and WILLIAM NIGEL HEYDON LESLIE

NSD 680 OF 2008

PERRAM J

17 OCTOBER 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The proceeding is stayed until the Applicant joins Absolute Home Entertainment 2004 Limited as an applicant or as a respondent but is not stayed to the extent necessary for that joinder to occur.

2.                  The Applicant’s notice of motion filed 9 September 2008 is dismissed with costs.

3.                  The First and Third Respondents’ notice of motion filed 15 August 2008 is dismissed.  The Applicant is to pay the costs of that notice of motion.

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

REASONS FOR JUDGMENT

Introduction

1                     The Applicant, Flashback Holdings Pty Limited (“Flashback”) claims to have an exclusive licence to distribute in Australia a range of children’s DVDs and to have the other rights of the copyright owner in Australia.  The First Respondent, Showtime DVD Holdings Pty Ltd (“Showtime”), imported a number of those DVDs into Australia and sold some of them.  Subsequently Flashback commenced proceedings against Showtime and others alleging that the copyright in the films had been infringed by that importation and sale. 

2                     Showtime and the Third Respondent, Mr Leslie, claim that Flashback is obliged to join to the proceedings the licensor from whom it claims to hold its exclusive licence.  So far Flashback has not done this.  Instead it has filed a motion seeking the leave of the Court to proceed with its action without joining the licensor.  Showtime and Mr Leslie have filed a motion seeking to restrain Flashback from continuing with the proceedings unless and until it joins the licensor.  The issue between the parties on these two applications is whether that leave should be granted to Flashback.    

Facts

3                     Absolute Home Entertainment 2004 Limited (“Absolute”) appears to be an entity having the right of ownership of copyright in a range of about 30 children’s DVDs in Australia.  These DVDs include such classics as “Little Orphan Annie”, “Snow White” and “Black Beauty”.  Absolute seems to operate from Glen Eden in Auckland, New Zealand.  It is not clear whether it is incorporated in New Zealand although the parties appear to have proceeded upon the basis that it is. 

4                     Showtime alleges that on 13 June 2007 it entered into a non-exclusive licence agreement to distribute the DVDs in Australia.  The terms of that agreement do not appear in Showtime’s defence and they are not otherwise in evidence.  Flashback alleges that, some months later on 18 September 2007, it entered into an exclusive licensing agreement with Absolute to distribute the same films in Australia.  On its face there is an apparent conflict between these two arrangements.  Absolute appears to have granted inconsistent rights.

5                     Flashback alleges that since 18 September 2007 (an allegation that is inconsistent with the particulars that were provided) Showtime imported into Australia 90,000 of the DVDs and further that it sold 30,000 of them.  The importation and sale of such a copyright work without the licence of the copyright owner is taken to be an infringement of that copyright by reason of ss 102 and 103 of the Copyright Act 1968 (Cth) (“the Act”). 

6                     On 14 May 2008 Flashback commenced proceedings in this Court seeking declarations as to the fact of infringement and damages pursuant to ss 115 and 116 of the Act.  Other relief, not presently pertinent, was also sought.   It then filed a statement of claim in which it specifically made allegations of infringement against Showtime based upon ss 102 and 103 of the Act.

7                     Although it will be necessary to return to its terms in more detail shortly, it suffices for present purposes to note that s 120 of the Act requires that where an action is brought by a person who claims to have concurrent rights in copyright with another that unless the court otherwise grants leave, that person must join the other party with the concurrent right to the proceedings.  The evident purpose of the provision is to avoid a multiplicity of proceedings.

8                     When Flashback commenced the proceedings it did not join Absolute.  On 15 August 2008 Showtime and Mr Leslie filed a motion by which they sought a declaration that Flashback was not entitled, other than with the leave of the Court, to continue the proceeding against them unless it joined Absolute.  The motion also sought an injunction restraining Flashback from pursuing the proceeding unless that joinder was achieved.  On 21 August 2008, Absolute wrote a letter to Showtime in the following terms:

I understand that you have applied to the Court to join Absolute in the Proceedings and that you are taking this action for fear that Absolute may also have claims in relation to the Films against you and/or Showtime.

The purpose of this letter is to confirm that Absolute has no such claims.  Absolute releases you, and Showtime, from all claims and liabilities of any nature that this company may have against you and/or Showtime in relation to the manufacture, marketing, selling or distribution of the Films in Australia.  This release applies also to Showtime’s related bodies corporate and their officers, employees and agents.

If necessary, Absolute is prepared to provide this release in the form of a deed or by way of an affidavit to the Court.

9                     Shortly thereafter the solicitor for Flashback wrote to the solicitor for Showtime and indicated that since Absolute was evidently willing not to pursue Showtime there was no utility in Showtime requiring Flashback to join Absolute.  Subsequently, on 9 September 2008, Flashback filed a motion seeking leave to proceed without joining Absolute.  It is that motion and Showtime’s motion of 15 August 2008 which are now before the Court.

Issues

10                  There were three issues of substance:

(a)                The question of utility.  Flashback noted that Absolute had released Showtime from any liability and that Showtime itself did not suggest that it would pursue Absolute if it were joined.  Consequently, it was submitted that there was no point in joining Absolute.  Showtime, on the other hand, submitted that Absolute’s conduct went to the heart of the matter and that in order to establish its defences to Flashback’s claims it would be necessary for Showtime to prove in detail what the position of Absolute was.

(b)               Reluctance to join foreign corporations to proceeding.  Flashback argued that since Absolute appeared to be a foreign corporation, the Court should be especially vigilant to ensure that it was not unnecessarily joined to the proceeding.  More is that the case, so the argument ran, where the joinder apparently lacked utility.

(c)                Prejudice.  Flashback submitted that both it and Absolute would be prejudiced by legal expense and delay if joinder was permitted.

Relevant statutory provisions

11                  Section 120 of the Act provides:

Joinder of owner or exclusive licensee as a party

(1)        Where:

(a)       an action is brought by the owner of the copyright or by the exclusive licensee; and

(b)       the action, in so far as it is brought under section 115, relates, in whole or in part, to an infringement in respect of which the owner and the licensee have concurrent rights of action under that section;

the owner or licensee, as the case may be, is not entitled, except with the leave of the court, to proceed with the action, in so far as it is brought under that section and relates to that infringement, unless the other party is joined as a plaintiff in the action or added as a defendant.

(2)        This section does not affect the granting of an interlocutory injunction on the application of the owner of the copyright or of the exclusive licensee.

12                  Section 121 of the Act provides:

Defences available against exclusive licensee

In an action brought by the exclusive licensee by virtue of this Division, a defence under this Act that would have been available to a defendant in the action if the action had been brought by the owner of the copyright is available to that defendant as against the exclusive licensee.

Consideration

(a)        The utility issue

13                  Flashback argues that Absolute’s release means that it can have no claim against Showtime.  Conversely, Showtime does not suggest that it will make any claim against Absolute if it is joined to the proceeding.  During the hearing it became apparent that this was because the terms of the non-exclusive arrangement between Absolute and Showtime subjected the parties to the exclusive jurisdiction of the New Zealand courts.  If that be so, and the parties appeared to be content to proceed on the basis that it was, there was no basis upon which Showtime would be able to make any claim against Absolute if joined to the proceeding.

14                  Mr Ellicott, who appeared for Flashback, submitted that this showed that the joinder of Absolute to the proceedings would achieve nothing: it could neither sue nor be sued once joined.  Indeed, so he submitted, an inference might readily be drawn that the joinder was sought merely to facilitate the obtaining of discovery from Absolute.  That, so it was said, would be an abuse of process.

15                  In response Showtime submitted that attention needed to be paid to s 121 of the Act.  That provision, which I have already set out, includes amongst the defences available to Showtime any defence under the Act which “would have been available to a defendant in an action if the action had been brought by the owner of a copyright”.   Thus to establish defences to Flashback’s claim, Showtime is entitled to assert the defences that would be available to it in a notional suit brought against it by Absolute.  One such defence would have been that it had the permission of Absolute to import and to sell the DVDs because of the agreement of 13 June 2007.   Another would have been that Absolute did not have title to grant an exclusive licence to Flashback when it had already granted a non-exclusive licence to Showtime.

16                  There is, I think, no avoiding Mr Ellicott’s submission that, if joined, Absolute will neither claim relief from, nor be the subject of a claim for relief by, another party.  However, to accept that is not to accept that the utility of the joinder is thereby solely to be judged.  Section 121 effectively requires the parties and the Court to proceed upon the basis that Absolute is a party to the proceeding in determining Showtime’s defences.  It is no doubt for that reason that s 120 requires an applicant who is an exclusive licensee to join the exclusive licensor unless leave is otherwise granted.  If the Act confers upon Showtime the rights of defence it has against Absolute then, so it seems to me, the Act necessarily contemplates the possible existence of procedural rights such as discovery against such a party.  Indeed, it would be curious if it did not.   If Flashback had obeyed s 120 and joined Absolute, there would be very limited bases for suggesting that Showtime could have been denied such procedural rights against Absolute. 

17                  Once that is accepted the matter is straightforward.  Whilst it may be accepted that ordinarily the joinder of a party for the purpose of obtaining discovery would be an abuse of process that principle has little or no application in the present circumstances.  This is because, in truth, there is no application by any party to join Absolute.  Rather Flashback seeks leave to continue the proceedings without joining Absolute as s 120 would ordinarily require.  It does so in circumstances where, if it had complied with s 120, Showtime would have been entitled, in principle, to seek discovery from Absolute.  It is not a case, therefore, of abusing the processes of the Court by seeking to join a party to proceedings purely for the purpose of discovery.  Rather, it is to be seen as an application for dispensation from joinder having the effect of prejudicing another party’s procedural entitlements.  Utility, so viewed, includes more than the merely remedial.

18                  The Act contemplates that a party joined to proceedings by reason of the obligation in s 120 may take no part in them.  For example, s 125 protects a party in that position from costs orders.  This demonstrates, consistently with the view I take, that utility under s 120 is not to be measured solely in terms of relief.  I would therefore reject Flashback’s submission that it should not be required to join Absolute because to do so would serve no useful purpose.

(b)        Protection of foreign defendants

19                  Flashback submits that the Court should be sensitive to the position of a foreign defendant and should be satisfied that there are strong and proper grounds before subjecting such a party to the expense and inconvenience of being joined to proceedings in this Court.    Here Absolute has made it plain that it does not wish to be involved in the proceedings.  Combined with the proceeding’s apparent lack of utility the Court should therefore not require Absolute’s joinder. 

20                  The submission based on a lack of utility has already been rejected.  This argument should be rejected too, but for another reason.  What is before the Court is not a joinder application but rather an application by Flashback to be allowed to proceed without joining Absolute to the proceedings.  It may be, if Flashback makes an application to join Absolute to the proceedings (as s 120 contemplates), that Absolute will invoke that principle against Flashback.  However, that is the place for that argument.  It has no place in an application by Flashback for leave to depart from the ordinary requirements of s 120.  Accordingly, I would reject the submission.

(c)        Prejudice

21                  Flashback points to the delay and expense likely to be incurred by it in the event of being required to join Absolute.  That there will be some expense and delay may, I think, be accepted.  However, it is a delay and expense which s 120 contemplates that an applicant may have to endure if it wishes to commence a proceeding of the present kind.  Accordingly, I would not accept that that kind of prejudice is sufficient to warrant a grant of leave under s 120.

22                  Showtime also argues that Absolute itself will be prejudiced by having to incur costs to meet the joinder application.  That argument must be rejected for the same reason.  Section 120 in terms contemplates that the exclusive licensor should be joined to the proceedings.  By itself the expense involved in that process cannot be a sufficient reason to warrant a grant of leave under s 120. 

Conclusion

23                  Flashback’s application for leave must be refused.  It follows that its motion of 9 September 2008 should be dismissed.  Showtime’s motion sought a declaration that Flashback was not entitled, except with the leave of the Court, to proceed with NSD 680 of 2008 without joining Absolute as an applicant or respondent.  It also sought an order that Flashback be restrained from proceeding further against it.  It seems to me that these orders cannot be made.  The effect of the declaration is to do no more than reproduce the effect of s 120 of the Act.  There would be no utility in making such a declaration.  There also seems to me to be considerable procedural difficulties associated with seeking declaratory relief by way of a notice of motion.

24                  Similarly an injunction should not be granted because s 120 does not contemplate that a party who fails to comply with it is to be exposed to contempt remedies.  More is this so when the requirements of s 120 may be satisfied by a less intrusive remedy.  The proper order where an applicant fails to carry out the joinder contemplated by s 120 is to stay the proceedings until such time as the joinder occurs.  Accordingly, I will not grant the relief sought in that motion but will grant a stay of the proceedings until such time as Flashback joins Absolute.

25                  If Flashback does apply to join Absolute to the proceedings but is unsuccessful I would entertain another application for leave pursuant to s 120.  Where an exclusive licensor successfully avoids being joined to proceedings this may well provide a proper basis for granting leave to proceed in its absence.  Indeed, there is much to be said for the view that one purpose of s 120(1) may be to release an applicant from the obligation to join a person holding concurrent rights where, for one reason or another, that joinder is not feasible.  Section 120 was inserted into the Copyright Act 1968 (Cth) on the recommendation of the Spicer Committee (at [322]) who adopted the views of the Gregory Committee.  That Committee had (at [276]) said:

In the normal case, however, the copyright owner should be a party to the proceedings, either as Plaintiff or Defendant.  So far, our recommendations accord with those made in the Final Report of the Departmental Committee on Patents, which were implemented by the Patents Act, 1949.  We realise, however, that the position in regard to patents is somewhat different from that which exists in respect of copyright, since the Register affords an address for service upon the owner of the patent, whereas, in the case of copyright cases may arise in which an exclusive licensee may not be aware of the address of the present owner of the right.  We recommend therefore that power should be given to the Court to dispense with service upon the copyright owner, or even the necessity of naming him, where circumstances justify this course.  As a consequence of this, we think it would have to be provided that the copyright owner should retain the right to sue for infringements in his own right, but protection would have to be given to meet the case of an infringer being involved in payment of the costs of two actions where one would have been reasonable or convenient.

26                  The learned authors of Copinger and Skone James on Copyright at [5-206] note the case of Bodley Head Ltd v Flegon [1972] RPC 587 where leave to proceed was given without joining the copyright owner, the dissident author Solzhenitsyn, albeit by consent.  They suggest that leave will ordinarily be appropriate where the copyright owner is dead and there has not yet been a grant of probate or where he cannot be found or is otherwise unavailable.

27                  In addition, at least one judge of this Court has held that the position of an exclusive licensee under s 120 is analogous to that of an equitable assignee of copyright who seeks remedies: Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67, 103 per Northrop J.  There is authority for the proposition that it is not always necessary for an equitable assignee to join his assignor when bringing proceedings:  Matthews v Doctrieve Corporation Pty Ltd (2003) 59 IPR 155, 168 [32] per Finkelstein J.  However, even if this be so, the special circumstances which founded dispensations from the ordinary procedure in those authorities do not exist in this case.

28                  Finally, if the joinder application is not pursued in a timely fashion the stay does not, of course, prevent the respondents from seeking to dismiss the proceeding for want of prosecution.

Associate:

Dated:         17 October 2008