FEDERAL COURT OF AUSTRALIA

IPC Global Pty Ltd v Pavetest Pty Ltd [2016] FCA 500

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted to the applicant to file and serve a further amended originating application in the form of Annexure ‘A’ to the short minutes of orders attached to its written submissions dated 22 April 2016.

2.    Leave be granted to the applicant to file and serve a further amended statement of claim in the form of Annexure ‘B’ to the short minutes of orders attached to its written submissions dated 22 April 2016.

3.    By 4.00 pm on 18 May 2016, the first respondent make discovery of the following documents pursuant to rule 20.14 of the Federal Court Rules 2011:

All historic and current versions of the source code for the software embodied in the firmware of the CDAS (as defined in paragraphs 11 and 12 of the affidavit of Jane Margaret Frances Owen sworn 24 February 2016).

4.    Inspection of such documents pursuant to paragraph 3 be subject to the Confidentiality Undertakings comprising Annexure ‘D’ to the orders made on 25 November 2015, and those documents be treated as “Pavetest Source Code” as defined in the Confidentiality Undertakings comprising Annexure ‘D’ to the orders made on 25 November 2015.

5.    The applicant pay the respondents’ costs of the applicant’s interlocutory application dated 24 February 2016 (including the amended interlocutory application dated 11 April 2016) and any costs thrown away by reason on the amendments referred to in paragraphs 1 and 2 above.

6.    The proceeding be listed for directions on a date to be fixed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    By an amended interlocutory application dated 11 April 2016, the applicant (IPC Global) seeks leave to amend the amended originating application and the amended statement of claim and orders for discovery of two classes of documents.

2    For the reasons that follow, I will grant IPC Global leave to amend those documents in the form that has been provided with its submissions and make an order for discovery as sought in part by IPC Global. I will also list the matter for directions as soon as practicable to address some ancillary and consequential matters that have been raised in the submissions.

Overview of the proceeding

3    IPC Global develops, manufactures and supplies advanced materials testing equipment for asphalt, rock and other construction materials. That equipment is supplied with operating firmware and analytical and reporting software (the UTS Software). IPC Global contends that it owns the copyright in that firmware and software.

4    The following summary is taken from IPC Global’s submissions and is said (by IPC Global) to be uncontroversial, or at least sufficiently uncontroversial for the present application. Up to 2011, IPC Global’s products were distributed in many territories by Controls S.r.l. (Controls), an Italian company. From 2011-2012, those products were distributed by another Italian company, Matest S.r.l. (Matest). In mid-2012, Matest terminated that arrangement. At the same time, two long-standing senior employees, Mr Con Sinadinos and Mr Alan John Feeley (the second and third respondents to this proceeding) resigned from IPC Global’s predecessor business (Old IPC). In or about August 2012, Mr Sinadinos, Mr Feeley and Matest were involved in forming Pavetest Pty Limited, the first respondent (Pavetest). In early to mid-2014, Pavetest launched a range of testing products that compete with IPC Global’s products. In March 2014, IPC Global (then known as Antipodes Equipment Pty Ltd) became 100% related to Controls, and acquired the assets of Old IPC, including copyright works owned by it.

5    This proceeding is brought by IPC Global against Pavetest, Mr Sinadinos, Mr Feeley and Aleuta Technology Pty Ltd (Aleuta). By its amended originating application, IPC Global seeks:

(a)    a declaration that Pavetest has infringed the copyright subsisting in the UTS Software;

(b)    a declaration that Mr Sinadinos and Mr Feeley authorised the infringement;

(c)    further or alternatively, a declaration that Mr Sinadinos and Mr Feeley infringed the copyright subsisting in the UTS Software.

6    Injunctions are also sought. Further, to the extent any copyright subsisting in the UTS Software is owned by Mr Feeley or Aleuta, IPC Global seeks an order that the copyright be assigned by them to IPC Global. IPC Global also seeks damages or an account of profits.

7    IPC Global also seeks relief against Mr Sinadinos and Mr Feeley for breach of confidence. Further, on the basis of breach of contract and/or inducement of breach of contract, IPC Global seeks relief against Mr Feeley and Aleuta.

8    IPC Global’s current pleading is its amended statement of claim. It pleads facts relating to the applicant in paragraphs 1-14 and in relation to the respondents in paragraphs 15-18A. The copyright claims are contained in paragraphs 19-44. The claims relating to confidential information are set out in paragraphs 45-52 and the claims based on breach of contract are contained in paragraphs 53-64.

9    The matter is currently set down for trial on issues of liability on 11 July 2016, on an estimate of 5-7 days.

Background to this application

10    On 24 February 2016, IPC Global filed an interlocutory application seeking non-standard discovery pursuant to rule 20.15 of the Federal Court Rules 2011, of documents falling in three categories. The application came on for hearing on 8 March 2016. The first category of discovery was not opposed (and an order for discovery of this category was made), but the second and third categories were opposed. As formulated in the interlocutory application, categories 2 and 3 were as follows:

2.    All historic and current versions of the source code for the software embodied in the firmware of the CDAS (as defined in paragraphs 11 and 12 of the affidavit of Jane Margaret Frances Owen sworn 24 February 2016).

3.    The software tools necessary to compile the source code discovered pursuant to paragraph 2.

11    The application for discovery of documents in these categories is to be understood in the context of matters deposed to by Ms Owen in her affidavit of 24 February 2016. Paragraphs 9-12 of the affidavit read as follows:

Discovery sought of TestLab firmware

9.    I refer to the affidavit of Mr Bhathiya Fernando, Research and Development Manager of the Applicant, affirmed 7 October 2015, in which Mr Fernando explains the operation and components of a materials testing product and in particular the fact that the Applicant’s UTS materials testing product comprises both the software that is installed on the user’s computer, and a controller (in the Applicant’s case called the IMACS) which communicates with the software via the firmware resident [on] the controller.

10.    In paragraphs 14-16 of that affidavit, Mr Fernando states as follows:

14.    IPC Global’s products operate using a combination of firmware and software. The firmware resides on the IMACS, and the software resides on a personal computer (PC).

Firmware

15.    The firmware is computer code that is programmed into the read-only memory of the IMACS (the other equipment supplied by IPC Global, such as the UTM-30 depicted above, does not contain firmware).

16.    The user does not interact directly with the firmware. The firmware drives the electronics of the IMACS to provide loading control and sensor data acquisition.

Software

17.    IPC Global’s software is known as "UTS", which is an acronym for "Universal Testing Software" (UTS).

18.    The UTS typically communicates with an IMACS by way of USB or ethernet.

11.    In respect of the First Respondent’s materials testing products, I note that Annexure KTM-6 to the affidavit of Kieran McGrane affirmed 7 October 2015 and filed in these proceedings is the Pavetest Brochure – 2014. This brochure describes the First Respondent’s dynamic testing systems. At page 67 of the brochure appears a description of the CDAS – Control and Data Acquisition System (CDAS), and the 16 channel version of the CDAS is depicted at the right hand side of the page. Annexed to this affidavit and marked JMFO 1 is a further copy of page 67 of that brochure.

12.    I am informed by Mr Fernando and I believed (sic) that the CDAS is the equivalent apparatus to the IMACS. This is apparent from the base of the page 67 of the annexure JMFO 1, where it is stated:

TestLab software is included with CDAS – Control and Data Acquisition System. It is supplied on CD that also includes the relevant Method files (based on the configurations supplied) and calibration files for all transducers supplied.

12    In opposition to the interlocutory application as originally formulated, the respondents submitted that the proceeding concerns allegations of copyright infringement, breach of confidence and breach of contract, arising generally from the use by Pavetest of parts of IPC Global’s UTS software source code in creating the source code for Pavetest’s TestLab software. The respondents submitted that the current pleadings do not allege that any UTS software code was used in creating any CDAS firmware code. Accordingly, the respondents submitted, the documents sought in categories 2 and 3 were not relevant to the case as pleaded.

13    After some discussion at the hearing on 8 March 2016, IPC Global’s interlocutory application was adjourned. This was, at least in part, to enable IPC Global to consider whether it wished to seek leave to amend its pleading so as to include allegations relating to firmware.

IPC Global’s amended interlocutory application

14    On 11 April 2016, IPC Global filed an amended interlocutory application. IPC Global now seeks leave, pursuant to rules 8.21(1) and 16.53 of the Federal Court Rules 2011, to amend the amended originating application and the amended statement of claim. It also seeks standard discovery of documents falling in categories 2 and 3 as set out above.

15    The amendments sought to be made to the amended statement of claim allege that the respondents have infringed the copyright in IPC Global’s IMACS firmware. Consequential amendments are also sought to the amended originating application.

16    A further amendment is also sought. That is to delete the words “a version” in paragraphs 35 and 35A of the amended statement of claim. The effect of this amendment is that IPC Global’s allegation of infringement of copyright extends, not just to the respondents’ activities in allegedly reproducing and communicating the August 2014 version of the Pavetest TestLab software (as in the current pleading), but also to the February 2016 Pavetest TestLab software. This aspect of the proposed amendments is not opposed by the respondents.

17    The respondents oppose leave to amend being granted to make the amendments outlined in paragraph [15] above. In the event that leave to amend is granted, the respondents do not oppose a discovery order being made in relation to the documents in category 2, but they do oppose an order for discovery of documents in category 3.

18    The applicant and respondents have each filed written submissions in relation to the amended interlocutory application, which is to be determined on the papers.

Applicable principles

19    The principles applicable to an application for leave to amend a pleading are well established: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [5], [25]-[30] per French CJ, at [71]-[83], [89]-[103], [111]-[114] per Gummow, Hayne, Crennan, Kiefel and Bell JJ; Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 at [38]-[45], [51] per Keane CJ, Gilmour and Logan JJ; Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 at [120]-[146] per Gleeson J (affirmed on appeal: Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2).

Evidence in support

20    IPC Global relies on an affidavit of Jane Owen sworn 24 February 2016 and an affidavit of Bhathiya Fernando sworn 7 March 2016.

The proposed amendments

21    Putting to one side the amendment described in paragraph [16] above, which is not opposed, the amendments seek to add an allegation that IPC Global’s copyright in the IMACS firmware has been infringed by Pavetest. IPC Global submits that this is an important amendment and it would be an unsatisfactory state of affairs if all the allegations of copyright infringement by the respondents were not determined in the course of one proceeding. IPC Global submits that the infringement arises out of one course of conduct by the respondents – the development of Pavetest’s materials testing equipment (and the software and firmware underpinning it) in circumstances where Mr Sinadinos and Mr Feeley were former employees and/or contractors of IPC Global.

22    IPC Global also submits that the questions of copyright infringement of the Pavetest TestLab software and the source code for the CDAS firmware are inextricably intertwined. It submits that the nature of the amendment is such that both questions are appropriately ventilated in these proceedings. IPC Global submits that it has acted as expeditiously as possible to seek the proposed amendments. It is not necessary to set out the detail of those submissions.

23    The respondents submit that leave to amend (in relation to the amendments concerning the CDAS firmware) should be refused for the following reasons:

(a)    IPC Global’s new case about the respondents’ firmware source code is based substantially on opinion evidence that is, in the circumstances, inherently unreliable;

(b)    the circumstances leading to that new case, including the role of the independent expert whose work underpins it, have been inadequately explained, and remain obscure; the Court should infer that the evidence the independent expert could have led would not have supported its new case; and

(c)    in the course of building its new case, confidential information of the respondents was exposed directly to IPC Global; the respondents submit that it should not have been exposed to IPC Global in the manner in which it was.

24    The respondents expand on these matters in paragraphs 12-44 of their written submissions.

25    Having considered these submissions, in my view IPC Global should be given leave to amend the amended originating application and the amended statement of claim as sought. The proposed new claim in relation to the firmware is clearly expressed and, on the basis of the material before the Court, arguable. The subject matter is closely related to that of the existing claims, making it efficient and sensible for the new claim to be tried together with the existing claims as part of the one proceeding. In relation to the first matter raised by the respondents (namely, their contention that the proposed new case is essentially speculative), I consider that the affidavit evidence provides a sufficient foundation to bring the claim and that the matters raised by the respondents largely go to the merits of the new case, which is a matter for trial, rather than the question whether leave to amend should be granted.

26    In relation to the second matter raised by the respondents (namely, an alleged lack of transparency about the circumstances in which the proposed new case has come to be pursued), I consider IPC Global to have provided a sufficient explanation of the circumstances in which the new case has come to be pursued. I also consider a sufficient explanation has been provided regarding the timing of the application for leave to amend.

27    In relation to the third matter raised by the respondents (namely, the circumstances of Mr Fernando’s access to Pavetest’s confidential material), the respondents raise concerns about the disclosure of a document, referred to as a ‘Comparison Document’, to Mr Fernando of IPC Global. The Comparison Document was prepared by IPC Global’s independent expert and contains information which is confidential to Pavetest. IPC Global submits that the disclosure of the document to Mr Fernando was permissible under the confidentiality regime. The respondents accept that IPC Global’s interpretation of the current confidentiality regime may be open, but say that it would have been appropriate for IPC Global to have read the confidentiality undertaking narrowly, not liberally, in order to mitigate the risk that the inspection protocol would not achieve its purpose of effectively protecting Pavetest’s confidential material – which it had been obliged to discover in legal action brought by its competitor. The respondents submit, in the alternative, that it would have been appropriate for IPC Global to have given prior notice to the respondents of its decision to disclose the Comparison Document to Mr Fernando. In this way, the respondents could have applied to vary the undertaking to prevent the disclosure, or mitigate its impact. I consider these to be matters which should be explored further at a directions hearing, but I do not consider them to be sufficient reason not to permit the proposed amendments to be made.

28    For these reasons, I will grant IPC Global leave to amend the amended originating application and the amended statement of claim in the form of Annexures ‘A’ and ‘B’ respectively to the short minutes of orders attached to its submissions dated 22 April 2016.

Discovery

29    As indicated above, the respondents do not oppose an order for standard discovery of documents in category 2, in the event that leave to amend is granted. I will therefore make an order for discovery of this category as sought by IPC Global.

30    By category 3, IPC Global seeks discovery of the software tools necessary to compile the source code discovered pursuant to category 2. IPC Global submits that the order is ancillary to the other orders. It relies on the statement by Ms Owen in her affidavit that she is informed by IPC Global’s Research and Development Manager that “for a full forensic examination of the source code for the firmware of CDAS to be conducted, it should be provided to [IPC Global’s] expert with the tools necessary to compile the source code into executable code. This is because in enabling the source code to be compiled, the expert can ensure that it can ‘run’ and by doing so validate the source code provided is in fact operable source code”. IPC Global submits that such an order will also facilitate the efficient conduct of the proceeding, allowing IPC Global’s expert to perform his role effectively.

31    The respondents oppose an order for discovery of category 3 for the following reasons. They submit that any tools necessary for the compilation of the code should be presumed to be highly commercially sensitive and confidential, as by definition they would allow source code to be deployed as a working product. Such tools are not directly relevant to any question of copyright infringement or breach of confidence, let alone is their production needed to resolve these issues.

32    I consider that further argument is needed in relation to category 3. Therefore, I will not make an order for discovery of this category at this stage, but will adjourn the further consideration of this issue to a directions hearing.

Other matters

33    IPC Global seeks certain other orders in the short minutes of orders attached to its submissions. One of these is an order that inspection of documents pursuant to any discovery ordered be subject to the current confidentiality regime. This is agreed to by the respondents. I will therefore make this order.

34    IPC Global also seeks a variation of the confidentiality regime. I consider that the issues concerning the confidentiality regime should be discussed at a directions hearing and therefore will not make this order at this stage.

35    IPC Global also seeks directions varying the timetable for the filing of evidence for trial. I consider that it would be best for these matters to be discussed at a directions hearing and therefore will not make orders varying the timetable at this stage.

36    In relation to costs, IPC Global accepts (in its short minutes of orders) that there should be an order that it pay the respondents’ costs of the interlocutory application dated 24 February 2016 up to and including 8 March 2016. It contends that the costs of its amended interlocutory application should be costs in the cause. The respondents seek an order that IPC Global pay their costs of the interlocutory application (including the amended interlocutory application). In my view, IPC Global should pay the respondents’ costs, not only of the interlocutory application up to 8 March 2016, but also of the amended interlocutory application. The amended interlocutory application was primarily concerned with the application for leave to amend and this is the usual costs order for such an application. In addition, IPC Global should pay any costs thrown away by reason of the amendments.

Associate:

Dated:    11 May 2016

SCHEDULE OF PARTIES