FEDERAL COURT OF AUSTRALIA

Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd (No 3) [2011] FCA 793

THE COURT ORDERS THAT:

1.    The parties bring in short minutes of order within 14 days.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

I Introduction

1    It is not uncommon for parties to commercial disputes to reach an understanding between themselves as to the level of access to be permitted to evidence filed in proceedings, such as by restricting access to legal representatives. Questions presently arise as to the degree to which the evidence filed by the applicant, in its case for damages suffered by one of the brands through which it trades (‘OPSM’), should be available to members of the respondent (‘Specsavers’). Both OPSM and Specsavers are significant participants in the optical services market. In February and March 2010, Specsavers ran a nationwide television commercial which compared the prices of its services to those of OPSM. An internet version of the commercial persisted until 1 April. Following a hearing, on 5 May 2010 I determined that the advertisement was misleading and deceptive: Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd [2010] FCA 423. On 23 June 2010 I declined to order corrective advertising on the basis that the passage of time had dissipated the effect of the advertisement: Luxottica Retail Australia v Specsavers Pty Ltd (No 2) [2010] FCA 644. That conclusion, however, left to be determined OPSM’s claim for damages arising from what it contended were the deleterious effects of the advertising campaign on its revenues and brand.

2    Shortly before Christmas 2010, OPSM served its evidence on its damages claim. As it happens, there is presently in place a confidentiality rÉgime which prevents Specsavers’ lawyers from disclosing OPSM’s damages evidence to Specsavers; that is to say, although the evidence has been provided by OPSM’s lawyers to Specsavers’ lawyers this has been done on the basis that access to the evidence will be restricted only to Specsavers’ lawyers and will not be given to Specsavers itself. Specsavers now seeks a variation of that rÉgime to permit it to show the material to its in-house legal counsel, Dr Stretch Kontelj OAM, in order to permit him to give instructions. This is largely opposed by OPSM.

3    There is no question that Specsavers and OPSM are fierce trade rivals. The release to either of strategically valuable information belonging to the other is, therefore, likely to be damaging. Consequently, provided the risk posed by disclosure is adequately explained, it is appropriate to limit the degree of access to which the parties are entitled to each other’s documents to ensure that that risk is averted. In such cases, it is accepted that the ordinary obligation not to use documents obtained under curial compulsion for any purpose extraneous to the litigation (Hearne v Street (2008) 235 CLR 125 at 154-155 [96] per Hayne, Heydon and Crennan JJ) may not be adequate (Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 at 38).

4    Two questions therefore arise: first, would disclosure of OPSM’s damages evidence to Specsavers cause it genuine prejudice; secondly, if it would, should the evidence nevertheless be shown to Dr Kontelj?

II Whether disclosure would be prejudicial

5    OPSM’s damages case has the following elements:

(a)    the loss of sales and net profit from prescription glasses not sold as a result of the running of the Specsavers commercial;

(b)    the future loss of sales and net profit from prescription glasses;

(c)    the cost of rectifying the damage to the OPSM brand; and

(d)    the enterprise value loss.

6    The last requires some explanation. OPSM says that Specsavers’ commercial has inflicted permanent damage on the value of the OPSM business and that this is independently recoverable quite apart from the other three heads of loss.

7    To prove items (a), (b) and (d), OPSM will call Ms Cassandra Michie who is a chartered accountant specialising in forensic accounting. To prove item (c) it will call Mr Reginald Bryson, Mr David Briggs and Ms Julie Dang whose evidence relates, broadly speaking, to issues of brand value.

The evidence of Ms Michie

8    As to (a), (b) and (d), Ms Michie has prepared a report in which she sets out the manner in which she calculates the sums in question. In order to carry out those calculations, she was provided a large amount of sales information for the financial years 2009 and 2010. This information is detailed. It consists, amongst other things, of information such as the weekly net sales information for all products and for individual products both by state and by region. It also contains similar budgeting data and sales price data (by store).

9    Mr Peter McClelland, the Chief Financial Officer for the applicant, gave affidavit evidence for OPSM that the disclosure of this kind of information to Specsavers would give it considerable commercial advantages over OPSM. For example, knowing OPSM’s sales figures would permit Specsavers to gauge which of OPSM’s marketing strategies were being effective and which were not. That information and the knowledge of store or regional performance, in turn, would permit it to make more informed decisions and thereby ‘increase the efficiency of its own competitive actions’. I accept this evidence. In principle, I accept that all of this information and those parts of Ms Michie’s report dealing with this information should be entitled to a higher degree of protection than in an ordinary case. Not every part of Ms Michie’s report is, however, of that character.

10    Specsavers opposes the imposition of a higher level of confidentiality on Ms Michie’s report in respect of a number of paragraphs. It is necessary to deal with each in turn. The parties have been able to resolve their disputes in the case of a number of paragraphs and where I have been able to understand the intricacies of those agreements, I do not deal with those paragraphs.

Paragraph 24(c)

11    Specsavers objects to the suppression of the percentage figure in paragraph 24(c) of Ms Michie’s report. This figure represents the proportion of OPSM’s customer sales (accounted for in a manner known as CWU) constituted by sales made on corporate accounts. Mr McClelland says, and I accept, that this would be a useful datum for Specsavers to know. It is entitled to additional protection.

Paragraphs 66-67

12    These paragraphs set out OPSM’s actual net sales for the two financial years in question together with the number of stores which were rebranded from one of the applicant’s brands to another. The sales figures are plainly sensitive. Specsavers submits that the number of stores rebranded in the relevant year is public information. I do not accept this. It is true that a person with nothing else to do but monitor OPSM stores would have been able to determine that figure but there is no evidence that any such person exists. There is no particular difficulty in publicly perceptible information becoming commercially sensitive by reason of the manner of its collection. Whether in any particular case confidentiality is appropriate will depend in part upon whether any, or at least any publicly available, records have been kept. The degree of difficulty involved in the information’s collection will also have its part to play. There is a difference, for example, between a collection of the results of all first grade rugby league games for the last five years and a study of traffic flows across the Harbour Bridge. In this case, the rebranding of OPSM stores is to be viewed as being closer in kind to the latter than it is to the former. Paragraph 66 and the table following paragraph 67 are entitled to additional protection.

Paragraphs 71-74

13    These paragraphs are concerned with market share data. Specsavers submitted that the information was not confidential for the reasons given in paragraphs 14 and 15 of its written submissions. Those paragraphs, however, did not relate to the issue of confidentiality but only to the issue of whether there should be access by Dr Kontelj. The information is of a kind which would plainly benefit Specsavers to know. It is entitled to additional protection.

Paragraphs 78-80

14    These paragraphs set out the level of sales for private purchasers and corporate purchasers. Specsavers submitted that Mr McClelland’s evidence that the release of this information would be harmful to OPSM was ‘mere speculation’ but I do not agree. Information of this kind, in a situation of trade rivalry, is entitled to additional protection.

Paragraphs 87 and 89

15    Paragraph 87 records a fact about the way in which OPSM records sales of its products. I do not accept that the release of this information to Specsavers would be damaging to OPSM; indeed, I would be surprised if it did not know of it already. So far as I can see it is a fact of little significance. Augmented confidentiality is not appropriate.

16    So too, paragraph 89 reveals the manner in which OPSM’s budgets are prepared. I do not think that the release of this information would be capable of giving Specsavers a competitive advantage.

17    The parties were in some confusion about their respective positions on these two paragraphs. OPSM’s one page summary failed to refer to them (either by their actual name or their confusing moniker ‘item 8’, a reference to their position in the table which was Exhibit PTM-1 to Mr McClelland’s affidavit). In OPSM’s proposed short minutes of order it was said that paragraphs 81-99 were agreed to be ‘Mobil Confidential’ and this presumably was intended to cover item 8 (or paragraphs 87 and 89 if you prefer). Specsavers’ short minutes of order did not refer to item 8 (or paragraphs 87 or 89) as matters agreed, or indeed at all. Specsavers’ written submissions advanced an argument against these two paragraphs. No oral submission was made to me on these particular paragraphs at the hearing. It is impossible to make any sense of this canine dejunÉ and I disregard whatever it signifies.

Paragraph 100 – last sentence

18    This sentence reveals an historical relationship between certain Medicare figures and OPSM sales. It is clearly information which would be advantageous for Specsavers to know. I do not accept, as Specsavers submitted, that this information is ‘vague’ or ‘general’ or that Mr McClelland’s concerns are ‘fanciful’. The sentence is entitled to confidentiality.

Paragraph 101(c) – first sentence

19    This sentence discloses the same percentage figure as discussed in [11] above. In my opinion, the information is entitled to confidentiality.

Paragraph 105(b) – percentage figure

20    This is the theorised churn rate for OPSM customers. It is plainly commercially sensitive information as Mr McClelland explained. I reject Specsavers’ submission that OPSM’s concern is the product of Mr McClelland’s ‘over imaginative speculation’. The material is entitled to confidentiality.

Appendix C

21    At Appendix C to her report, Ms Michie set out a list of the categories of information and documents relied upon by her in formulating her report. Before me, Ms Michie’s report was Exhibit 3. According to OPSM’s written submissions it claimed confidentiality over the documents ‘identified in paragraphs 12 to 28 of Mr McClelland’s table’; further, these materials existed in ‘electronic form in the CD at the back of Exhibit 3’. The CD at the back of Exhibit 3 is entitled ‘Cassandra Michie Report – Appendices’ and contains Appendices D, E, G, H, I, K and J to Ms Michie’s report. The hardcopy version of Exhibit 3 has these omitted from it although a folder containing them was provided to me. I return to these appendices further below.

22    However, items 12 to 21 of Mr McClelland’s table do not deal with those appendices. Instead, they deal exclusively with Appendix C and with the identified items in that Appendix.

23    This rather suggests that paragraph 10(b) of OPSM’s written submission is incorrect for the CD at the back of Ms Michie’s report does not contain the documents provided to her to inform her report. The CD contains tables generated by Ms Michie and included by her as separate appendices to her report. Appendix D is explained at paragraph [61] of the report: Appendix E at [65]; Appendix G at [71]; Appendix H at [90]; Appendix I at [93]; Appendix J at [99] and Appendix K at [107].

24    By contrast, the documents relied upon by Ms Michie are described at Appendix C but they are neither attached to the report nor do they form part of the CD contained at its rear. As it happens, Specsavers issued a notice to produce for the documents described in Appendix C on 11 February 2011. To augment the superabundant confusion of the manner in which the parties have gone about this debate these documents are identified by reference to their item number within Appendix C but are also known as items 12 to 21 of Mr McClelland’s table or as parts of categories 1, 3, 5, 6 and 7 in the parties’ bewildering schedule of matters in dispute.

25    In Specsavers’ written submissions, this group of documents (whatever they might be called) were expressly said not to be conceded to be entitled to augmented protection. In Specsavers’ proposed short minutes of order a different tack was taken: at least items 12, 14, 15, 16, 17, 18, 19, 20 and 21 were now accepted to be so entitled. Just what this means or how the merely human are supposed to penetrate the opaque approach the parties have adopted to this debate is elusive. In the end, the safest course is to resolve the debate by reference to Mr McClelland’s claims. If the parties have agreed something else then they may take whatever course they wish. I do not think it is a useful deployment of judicial resources to seek to untangle the complex arrangements the parties might have reached about the confused issues they have between them. In those circumstances, I will confine myself to the resolution of the confusion constituted by the issues presented for resolution to the Court leaving the parties to resolve whatever their apparent agreement on some of those issues might actually be.

26    Returning to Ms Michie, the bottom line is that the materials upon which she relied are not before me. What is before me, however, is Mr McClelland’s description of those materials. Although it is not ideal, I propose to resolve the issue by reference to that evidence. OPSM made the following claims over the Appendix C materials:

Item 2 of Appendix C

27    This, apparently, is a folder entitled ‘Damages Claim’ provided to Ms Michie by Mallesons Stephen Jaques. I have had some difficulty understanding Mr McClelland's evidence about this. Items 12 and 13 of his table are both headed ‘Folder entitled “Damages Claim” provided by Mallesons’ but they appear, in substance, to be three separate claims in respect of particular items of that folder. Doing the best that one can, the three items are:

(a)    Tab 16: Mr McClelland says that Tab 16 contains actual sales per store for January 2009 to May 2010. I accept that information of that kind should not be provided to Specsavers.

(b)    Tab 17: Mr McClelland says that this contained ‘market share data and customer work up sales reports’ for OPSM. Again, I accept that this information should not be provided to Specsavers.

(c)    Memoranda entitled ‘Luxottica v Specsavers – Issue of Damages’ and ‘Damages under Sections 82 and 87 of the Trade Practices Act 1974 (Cth)’. During the hearing this appeared to be a claim for legal professional privilege. The memoranda were prepared by a Ms Bhatti who is a solicitor with Mallesons and contained legal research performed for the purposes of the litigation. Although this is a rather novel way of claiming privilege – under the guise of a claim for confidentiality by means of an entry in a table exhibited to a lay witness’ affidavit – I am prepared to accept it as succeeding. In any event, Specsavers did not submit to the contrary.

Item 3 of Appendix C

28    According to Mr McClelland, this consists of the net sales figures for financial years 2009 and 2010, by state and region, by week for all products. I accept that such information should not be released to Specsavers.

Item 4 of Appendix C

29    According to Mr McClelland, this consists of the budget net sales for financial years 2009 and 2010. Again, I accept that such information should not be released to Specsavers.

Item 5 of Appendix C

30    According to Mr McClelland, this consists of market share data for various Medicare items for OPSM by state for the period January 2007 to May 2010. I do not doubt that the information for 2008-2010 is entitled to be kept from Specsavers. Although the situation is not as strong with 2007, given the distance of time, it should also remain confidential.

Item 6 of Appendix C

31    According to Mr McClelland, this item consists of CWU budget and actual figures for the financial years 2008-2010. It is entitled to protection.

Item 7 of Appendix C

32    This is a similar item to item 6 but broken up between ordinary and corporate customers. It is entitled to protection.

Item 8 of Appendix C

33    According to Mr McClelland this is OPSM’s gross sales figures with discounts, exam fee revenue and cost of goods sold. It is entitled to protection.

Item 9 of Appendix C

34    According to Mr McClelland, this item consists of results of enquiries by OPSM into stores with a variance of 30% between actual sales for the financial years 2009 and 2010. This information is entitled to protection.

Item 10 of Appendix C

35    According to Mr McClelland, this item consists of the average selling price for the financial years 2009 and 2010, store by store and week by week for all products. This information is entitled to protection

Appendix D

36    Appendix D comprises an Excel spreadsheet. It contains raw data about the actual sales of prescription glasses for the financial years 2009 and 2010 as well as budget figures for the same period. Variances are calculated and that data is graphically depicted. This, on its face, is information which should not be shown to Specsavers. It was submitted by Specsavers, however, to the contrary. There were 2 elements to Specsavers’ point made in relation to this Appendix D and also to each of Appendices E, G, I, J and K: first, because the figures generated by the spreadsheet were part of the process by which Ms Michie had calculated the damages Specsavers was ‘entitled’ to know them as they showed the methodological basis upon which the calculations had been made. I reject this argument which, if accepted, would mean that nothing which was relevant to an issue was ever confidential. Secondly, it was submitted that it could not be suggested that Dr Kontelj would use the information. That, however, is quite unrelated to the issue of whether the information is confidential, as such.

37    Appendix D is entitled be kept confidential.

Appendix E

38    This appendix contains a comparison of actual sales of prescription glasses with lenses between the financial years 2009 and 2010. Its evident intent is to show a diminution in sales in 2010 when the commercial was running. Plainly the data is confidential and should not be shown to Specsavers. Specsavers’ submissions about this were the same as for Appendix D and I reject them for the same reason (hereafter, the ‘Appendix D arguments’).

Appendix G

39    This spreadsheet sets out, across the four financial years 2007-2010, the number of Medicare visits by month. It does so both nationally and by state. The number of Medicare claims is obviously a proxy for market share and I accept it should remain confidential. I reject Specsavers’ Appendix D arguments to the contrary.

Appendix H

40    This appendix contains a list of ‘outlying stores’. Broadly, it shows the variance between 2009 and 2010 and seeks to explore possible reasons for the variance. In relation to Appendix H, Specsavers made a similar argument about Dr Kontelj as the Appendix D arguments and also suggested that the claim for confidentiality did not extend to stores with positive variance. Given the reference to earlier arguments for confidentiality in relation to net sales, however, this is plainly incorrect. This is information which should not be shown to Specsavers. I reject Specsavers’ arguments in relation to it.

Appendix I

41    This contains a table setting out lost sales and net profit over the period 22 February 2010 to 27 June 2010 by state. I accept this sales data should not be disclosed to Specsavers. I reject Specsavers’ Appendix D arguments in relation to it.

Appendix J

42    This is a similar exercise to Appendix I but extended to the whole budget for 2010. I accept OPSM’s claim for the same reasons.

Appendix K

43    This sets out Ms Michie’s calculation of lost future profits. It contains average selling price data together with actual figures relating to the number of spectacles sold. In addition, it discloses the rate at which OPSM’s customers return to it. This is all information which should not be disclosed to Specsavers.

The evidence of Mr Bryson, Mr Briggs and Ms Dang

44    Mr Bryson is the Chief Executive Officer of Brand Council Pty Ltd, a consultancy business specialising in branding issues. He swore an affidavit of 20 December 2010. Paragraphs 15(h), 105 and the documents behind tabs 8 and 9 of Exhibit 2 touch upon the amounts of money spent by OPSM on advertising in the past. As far as tabs 8 and 9 are concerned, the information extends back to 2000. I do not think that information that old could be of use to anyone. I do accept, however, that it would be useful for Specsavers to know how OPSM was approaching its advertising expenses and I accept too that some of the past information could be used for extrapolation purposes. In drawing that conclusion I have not disregarded the evidence of Ms Peach, garnered from Specsavers’ Marketing Director, that the information is already accessible in some ways and that the ability to extrapolate may be somewhat hindered. I do not, however, regard that evidence as especially disinterested. In those circumstances, I will accept that marketing spend information from 2008 onwards is entitled to protection but not otherwise.

45    Paragraph 15(h) does not contain confidential information. The sum mentioned in paragraph 105 is a decade long sum and I see no reason why it is confidential. I do accept, however, for the reasons already given that the figures in tabs 8 and 9 are confidential for the period 2008 onwards.

46    Mr Bryson also gave evidence about the effect that Specsavers’ commercial had upon the OPSM brand. He approached the question from two directions: first; a qualitative assessment of the brand’s reputation; secondly, what he called a quantitative analysis. Mr Bryson did not conduct either of these himself. Instead, two further witnesses are to be called. Ms Dang will give evidence about a series of ‘focus groups’ which she conducted to assess the impact on the OPSM brand of the commercial in question. Group members were asked questions about the brand before being shown the commercial and were then asked questions again afterwards. Mr Bryson was able to watch this occur either from behind a glass screen or via closed circuit TV. Mr Bryson took notes of what the participants said and Ms Dang produced a report.

47    Mr Briggs, on the other hand, conducted an on-line survey in which participants were able to rate their responses with numbers. Again the participants were surveyed both before and after exposure to the commercial.

48    OPSM submitted that this evidence disclosed key aspects of its brand position and reputation and of the effect the commercial had had upon that brand position and reputation. Further, it was known that Specsavers had not conducted research of the kind in question for itself. Permitting Specsavers to have access to this information would allow it to identify the strong and weak points in ‘the OPSM citadel’. It would be able to ‘refine its campaigns further’ and ‘to increase the harm it inflicts on OPSM’. In answer to the proposition that Specsavers could commission precisely the same research and derive the results itself, OPSM submitted that the reports had cost it about $70,000 and Specsavers should not now be permitted advantageously to benefit from its, OPSM’s, expenditure.

49    I do not think that this information requires any further protection than that afforded by the general obligation of ordinary confidentiality. That obligation will prevent Specsavers from using the evidence for the purpose of formulating further advertising campaigns. Unlike the financial information contained within Ms Michie's report this evidence does not involve strategic matters with which senior management might ordinarily be expected to be involved. This evidence, by contrast, suggested that the OPSM brand has a particular reputation and that the commercial had a negative impact upon it, propositions which are hardly revolutionary. In my opinion, the only real risk here is not strategic damage but rather that of Specsavers getting for free the benefits of OPSM’s expenditure of about $70,000 on market research. That concern is, however, adequately addressed by the implied undertaking.

50    There is an additional matter. Ms Dang, who conducted the focus groups, is a member of the Australian Market and Social Research Society. It has a code of conduct which, by cl 4, requires researchers strictly to maintain the anonymity of the people participating in the surveys. The focus groups were video and audio recorded for posterity. Ms Dang does not place into evidence those recordings but she does attach a transcript of them. The transcript identifies the participants only by first name. I do not think, in that circumstance, that the participants’ anonymity has been compromised. I do not see any reason to require anything beyond the ordinary or implied undertaking.

III Whether Dr Kontelj should nevertheless be granted access

51    It remains possible, in respect of those materials to which I have accepted that an augmented confidentiality rÉgime applies, that access could nevertheless be granted to specific Specsavers employees if the risks attending a situation of trade rivalry may somehow be otherwise addressed. The question is whether Dr Kontelj should be placed in that position.

52    I do not think that he should. Dr Kontelj is the Legal Director of Specsavers, the company secretary of Specsavers and of a large number of related entities and attends Specsavers board meetings. He also attends meetings of the executive management team of Specsavers. About 15 managers attend these meetings. Although it is true that Dr Kontelj gave evidence that he does not play a role in developing the marketing, sales or competitive strategy of Specsavers the evidence before me does not show either that Dr Kontelj is not present when those matters are discussed or that any system is in place which might prevent his encountering such information. I note, and accept the bona fides, of Dr Kontelj’s suggestion that he will not be involved in such matters but this, I think, misses the point. As company secretary, Dr Kontelj has fiduciary obligations to Specsavers. Armed with OPSM’s confidential information it is his duty to assist the Specsavers board with that information. That he binds himself not to act on that does not dissipate the conflict of duty generated.

53    More generally, there are serious difficulties in placing the conduct of litigation against a trade rival in the hands of a lawyer who is a company secretary present at meetings occurring at a high level within the company. Trade rival litigation gives rise to difficult issues about confidentiality which are not new. If a party decides to put a board-meeting-attending company secretary in charge of the conduct of litigation against a bitter trade rival it is, I think, that company, and not the trade rival, who must bear the consequences of the ensuing inconvenience in the conduct of litigation.

54    For completeness, I note the submission made that Dr Kontelj does not have a photographic memory. This, however, if seriously put forward, is not to the point. The real problem is that which arises from conflicting duties.

IV The position of the experts

55    I turn then to the position of the expert witnesses. OPSM claims to be entitled to be notified in advance of the identity of Specsavers’ experts. The concern relates to the possibility that any such expert may already have a relationship with Specsavers or may in the future have such a relationship. On this view of things it is necessary to control the identity of such experts to preserve the confidentiality of the material.

56    This is an excessive claim and extravagant. There is no harm in requiring such experts to execute confidentiality agreements or of even requiring their identification to be disclosed after their engagement as expert witnesses, but beyond that I will not go.

Costs

57    There should be no order as to costs.

Orders

58    The parties are to bring in short minutes of order giving effect to these reasons within 14 days.

Associate:

Dated:    18 July 2011