FEDERAL COURT OF AUSTRALIA

Hells Angels Motorcycle Corporation (Australia) Pty Ltd v Redbubble Ltd [2016] FCA 530

ORDERS

THE COURT ORDERS THAT:

1.    Within 30 days, the applicant give security in the amount set out in Order 3 for the payment of costs that may be awarded against it, in the form of a bank guarantee or alternatively by paying the amount of the security into the trust account of the solicitor for the applicant, Mr Peter Thomas Bolam, and in the event that Mr Peter Thomas Bolam does not operate a trust account, the amount of the security is to be paid into an investment account opened with an Australian bank as agreed between the solicitors for the applicant and the solicitors for the first respondent, in the names of those solicitors jointly, such security to be held until further order of the Court.

2.    Should the parties agree, within 30 days, an alternative method for holding secure the security for costs the subject of Orders 1 and 3, the proposed alternative method shall be submitted to the Court for its approval.

3.    The amount of the security be $50,000.

4.    Subject to Order 7, the proceeding be stayed until such time as the applicant complies with Order 1.

5.    The costs of and incidental to the application are reserved for later determination and the parties are directed to put on short submissions within two weeks of no more than five pages as to the disposition of the costs.

6.    Liberty is granted to the first respondent to make an application for further security in relation to the trial of the action as the Court may determine appropriate, if at all.

7.    Liberty is granted to the applicant to apply to vary these orders in the event that any one of the works in suit is further uploaded to the “Redbubble Website” in circumstances where questions arise about the entitlement of the uploader to upload that work and the first respondent has been unwilling to remove the work from the site after exchanges between the solicitors for the parties as to that matter.

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

REASONS FOR JUDGMENT

GREENWOOD J:

1    These proceedings are concerned with an application by the first respondent, Redbubble Limited (“Redbubble”), for orders that the applicant, Hells Angels Motorcycle Corporation (Australia) Pty Ltd (“HAMC (Aust)”), provide security for the payment of costs that may be awarded against it, in an amount of $270,000 by way of bank guarantee or otherwise; the whole of the principal proceeding be stayed until such time as HAMC (Aust) provides security as ordered; and, in the event that HAMC (Aust) fails to comply with the order, the proceedings be dismissed.

2    Before examining the material and contentions in support of the application, it is necessary to say something about the nature of the proceedings and the activities of the parties at the outset largely because HAMC (Aust) places very great emphasis upon what it perceives to be irresistibly meritorious causes of action asserted against Redbubble. The strength of those causes of action are said to weigh sufficiently heavily in the balance that the application for security should be refused especially when coupled with the evidence put on for HAMC (Aust) by Mr Nelms, the sole director and shareholder of HAMC (Aust), to the effect that an order for security for costs cannot be met and will bring an end to the proceedings and, in consequence, the determination of the claims.

3    Mr Peter Bolam is the solicitor for HAMC (Aust). In resisting the application, HAMC (Aust) relies upon four affidavits of Mr Bolam sworn 18 March 2016, 15 April 2016, 18 April 2016 and 21 April 2016. As to the fourth affidavit, I give leave to HAMC (Aust) to rely upon that affidavit and leave to Redbubble to rely upon the responsive affidavit of Ms Corina Davis affirmed 20 April 2016.

4    The background matters are these.

5    In the 1960s a group of motorcycle enthusiasts identifying themselves as “Hells Angels” began meeting in Australia in Sydney and Melbourne. These groups had informal contact with the Hells Angels Motorcycle Club in the United States of America, and especially in California. In August 1975, a majority of the members of those Hells Angels groups in Australia wanted to become associated with the United States based founding body and, as a result, an association called the “Hells Angels Motorcycle Club” in Australia began to be overseen by members of the Californian “chapter” of the Hells Angels Motorcycle Club in the United States.

6    The Sydney chapter and the Melbourne chapter were granted “charters” in 1975. The reference to a charter conveys an indication that the chapter operates with the “approval” and under the “auspices” of the United States founding organisation which Mr Bolam describes as a “corporation”. Since 1975, 14 chapters have been granted charters throughout Australia.

7    On 1 July 1987, “Hells Angels Sydney”, which had existed as a club since 23 August 1975, entered into a non-exclusive licence agreement with Hells Angels Motorcycle Corporation of the United States (“HAMC (US)”). The agreement recites that it was entered into “for the sole purpose of licensing use of certain trademarks listed in Exhibit A” to the agreement. The licence agreement sets out terms and conditions governing the exercise of the licence rights. Exhibit A to the licence agreement recites five registered trade marks and five foreign registered trade marks.

8    That licence agreement was overtaken by an exclusive licence agreement dated 14 May 2010 between the HAMC (US) and HAMC (Aust), rather than any Australian club or chapter.

9    Clause 10 recites that the exclusive licence agreement replaces and supersedes all prior licences including the non-exclusive licence of 1 July 1987. The exclusive licence agreement recites that the HAMC (US) is the owner of the relevant trade marks, service marks and “collective membership marks” which are all described as the “Marks”. The Marks are then also described as “Core Marks” (Exhibit A) and “Affiliate Marks” (Exhibit B).

10    Under the licence agreement, HAMC (Aust) “maintains and administers the Marks for use by the charters of the Hells Angels Motorcycle Club within Australia”: Recital B.

11    The licence agreement recites that the HAMC (US) is the owner of any and all copyrights subsisting in the Marks: Recital C.

12    Exhibit A comprises five Marks and Exhibit B recites two Marks. The licence agreement sets out terms and conditions of use.

13    By cls 1 and 2 of the exclusive licence agreement, HAMC (US) grants to HAMC (Aust) an exclusive non-transferrable licence for the use of the Marks and all rights to copyrights in the Marks.

14    As to enforcement, cl 6 provides that HAMC (US) and HAMC (Aust) shall co-operate, as necessary, to enforce their respective rights in the Marks and to defend the Marks against conflicting claims asserted by third parties.

15    As to infringement, cl 6 provides that HAMC (Aust) shall immediately notify HAMC (US) in writing giving particulars of any infringement of the Marks. HAMC (Aust) is entitled to institute all infringement proceedings under the Trade Marks Act 1995 (Cth) and/or the Copyright Act 1968 (Cth). Clause 6 provides that HAMC (US) may, at its own election, join as a party in any infringement proceeding and HAMC (US) “shall be the real party in interest in [any] trademark or copyright suit involving the Marks”.

16    Clause 7 provides that HAMC (Aust) agrees that each individual member of the charters of the Hells Angels Motorcycle Club in Australia will execute an agreement in a form approved by HAMC (US) and maintained by HAMC (Aust) acknowledging the rights of the parties under the licence agreement and agreeing that “ownership in certain property bearing the Marks is transmuted to [HAMC (US)] by virtue of such affixation”.

17    The activities of HAMC (Aust) involve collecting membership fees from the various chapters established by charter; paying expenses including printing and related costs of items bearing the trademarks of HAMC (US) such as jackets, t-shirts and posters; and, taking steps to protect the intellectual property rights of HAMC (Aust): Bolam affidavit, 18 March 2016, para 13.

18    HAMC (Aust) was incorporated on 8 December 2006. Mr Mark Nelms has been a director of the company since incorporation and he is currently the sole director. He became the “official trade mark officer”, for Australia, for the Hells Angels Motorcycle Club in January 2005. I will return to aspects of his affidavit later in these reasons.

19    The source of the rights upon which HAMC (Aust) relies in the principal proceeding, in making its contentions that Redbubble has engaged in conduct in contravention of its rights, are these.

20    As to the copyright claims, HAMC (Aust) says that on 2 September 1954, the San Francisco charter of HAMC (US) commissioned an original artistic work, to be used on a document called the HAMC “Membership Card”, described as the “Death Head” design. The author of the design, a resident of San Francisco at the time of making the design, was known only as “Sundown”. The terms of the commission provided that copyright in the artistic work would vest in HAMC (US). The Membership Card containing the “Death Head” artistic work was registered as an unpublished visual work (“2-D artwork”) in the United States Copyright Office (“USCO”) with Registration No. VAu 1-214-935. The registration records that the work was created in 1954 by a United States citizen. It identifies HAMC (US) as the “Copyright Claimant” of the registered visual work. The Certificate of Registration is marked Annexure PTB-3 to Mr Bolam’s affidavit, 18 March 2016.

21    Subsequently, Mr John Makoto Fukushima, an individual known as “Fuki”, entered into an assignment of copyright agreement dated 16 September 2015 in respect of a work described as a “derivative work”. The derivative work is known as the “Fuki Death Head”. It is a side view. It derives from and is a refinement, in a number of respects, of the “Death Head” design from 1954. It has distinctive colouration (red, grey and yellow) and precision and definition in some features and around the edging of the wings. In the assignment document, Mr Fukushima warrants that he is the “sole owner of all rights, title and interest in and to, and holds the complete and undivided copyright interest and other Intellectual Property Rights” in the derivative work. The assignment recognises that the derivative work is “based upon and derived from” the “Death Head” design contained in the copyright registration mentioned earlier. Mr Fukushima assigns his interest to HAMC (US).

22    On 2 February 2016, Mr Fukushima made a declaration in accordance with the laws of the State of California explaining the background to his authorship of the derivative work. He says that he created the work in California. He is a citizen of the United States resident in California. He is a member of the Hells Angels Motorcycle Club (the “Club”). In 1983, the Club was a legal entity described as Hells Angels of the United States Inc and on 25 July 1983 it changed its name to Hells Angels Motorcycle Club Inc. It changed its name again to Hells Angels Motorcycle Corporation. In 1983, Mr Fukushima created the “Fuki Death Head (side view)”. It was an update of the pre-existing “Death Head” design the subject of the USCO registration. Mr Fukushima says that from the moment of creation of the derivative work, HAMC (US) had “sole and exclusive” right to exercise “all Intellectual Property Rights” in and to the work throughout the world in perpetuity without reservation or restriction to the exclusion, even, of Mr Fukushima. He says that he has not otherwise licensed or granted any rights in or to the work to anybody else. He defines in cl 9 of his declaration the very broad scope of the rights he calls the “Intellectual Property Rights”. He says that because he was a member of the Club and had created the work for HAMC (US), he did not “memorialize this understanding”. In 2015, he executed a full and complete written assignment of the right, title and interest subsisting in the work “in order to perfect [HAMC (US)’s] beneficial ownership” in the work.

23    HAMC (Aust) relies upon another work described as the “Death-head (¾ view)”. HAMC (Aust) says that this work was authored by Mr Scott Eaton. He was an Australian citizen when the work was made. It was first published in Australia in 1994. On 26 October 2012, he assigned ownership of the copyright in the work to HAMC (Aust). The work is said to be an original work in which copyright subsists and HAMC (Aust) is said to be the owner of the work.

24    Mr Bolam says that HAMC (Aust) delayed commencing the present proceedings until October 2015 in order to identify the authorship of the Membership Card and secure its registration with the USCO (on and from 17 July 2015) and to document the events surrounding the authorship by Mr Fukushima of the “Fuki Death Head” work.

25    As to the trade marks, HAMC (Aust) relies upon its standing as exclusive licensee of particular registered trade marks and unregistered common law marks. As to the registered trade marks, HAMC (Aust) relies upon Attachment A to the pleading which sets out a schedule providing all of the relevant particulars in relation to five registered Australian trade marks: 526530, 723219, 723463, 1257992 and 1257993. The “Fuki Death Head” is Australian Registered Trade Mark 723463.

26    As to the origin of the 1954 work, Redbubble admits that the image is registered as HAMC (Aust) contends. It admits that the registration identifies the matters asserted in the registration and that the author is described as being anonymous. It says that the registration speaks for itself but does not operate to establish that copyright subsists in the work or that, to the extent it subsists, the copyright is owned by HAMC (US). Redbubble puts HAMC (Aust) to proof of the integers to be made good to establish copyright in the work. No affirmative case is made by Redbubble, by pleading any material facts, upon which it would rely in answer to the factual matters mentioned above. As to all of the factual matters asserted concerning the authorship and subsistence of copyright in the “Fuki Death Head”, Redbubble says that it does not know the material facts and cannot admit any of the factual assertions.

27    As to the “Death-head (¾ view)”, Redbubble says that it does not know and cannot admit any of the material facts pleaded above that matter.

28    As to the exclusive licence arrangements, Redbubble says that it does not know and cannot admit any of the material facts pleaded about those matters.

29    That position may change after discovery. It may be that Redbubble will then be in a position to identify a basis upon which it says that HAMC (Aust) simply does not enjoy the rights it asserts. For present purposes, no basis is identified upon which it asserts a contrary position. It puts, however, all things in issue and says that HAMC (Aust) must make good its claims. Redbubble wants to test the claims.

30    As things presently stand, however, HAMC (Aust) has gone beyond simply asserting material facts and, as to the source of the rights at least, its contentions are reasonably well developed. Nevertheless, the ultimate merits of the claims will be tested at a trial of the action.

31    In the exercise of the broadly-based and unfettered discretion whether to make an order for security for costs, the strength of the cause of action is a material consideration. I do not accept that where there are well developed assertions by an applicant (as to the source of the rights for the moment) which are met with a pleading which simply puts a party to proof and, as to most matters, says that the party contesting the claims has no knowledge of the material facts and cannot admit (or deny) the relevant material factual assertions, immediately renders the position on the relevance of the strength of the causes of action, neutral.

32    The source of the rights in issue here is more strongly supported than a mere matter of contended neutrality.

33    In exercising the discretion, it is well accepted that the Court is entitled to take into account the strength of the applicant’s claims and the bona fides of those claims. In Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514, French J observed that it is consistent with authority and the exercise of a broadly-based discretion that the bona fides and the merits of the claim be taken into account where there is “material from which some assessment can be made”. That proposition led to his Honour’s observation at 514 that “[w]here there is a claim prima facie regular and disclosing a cause of action, I see no reason why the court would, in the absence of evidence, proceed on the basis that the claim was other than bone fide with a reasonable prospect of success”. Those propositions arose out of his Honour’s consideration and rejection of the notion developed in earlier authority that the exercise of the discretion ought to proceed on the assumption that the defendant in the principal proceeding would be successful. Of course, the forward-looking question is, would the applicant entity be unable to meet an order for costs if such an order were made and if that is so on the evidence, what particular factors in the case inform the exercise of the discretionary judgment to be made under s 56 of the Federal Court of Australia Act 1976 (Cth)? The observations of French J were adopted by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197. A line of authority suggests that the prospects of success ought to be regarded as a neutral factor in the exercise of the discretion. Some of those authorities are Litmus Australia Pty Ltd (in liq.) v Canty [2007] NSWSC 670 at [28]; Jazabas Pty Ltd v Haddad (2007) ACSR 276; [2007] NSWCA 291 at [84] and Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [37] and [38]. See also Equity Access Ltd v Westpac Banking Corp [1989] ATPR 40-972 at 50,636; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 624; and Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 322, Jacobson, Besanko and Perram JJ at [15].

34    It may very well be, however, that a case might come along in which the causes of action are demonstrated as having very serious prospects of success indeed and in such a case, it would be wrong in principle, to simply treat the prospects of success as a neutral factor. Doing so would be inconsistent with the scope of the broadly-based unfettered statutory discretion. The discretion must be sufficiently flexible so as to take into account cases where the pleading, taken together with “material from which some assessment can be made”, demonstrates a strong likelihood of success on the part of the applicant/claimant in the principal proceedings. That might be especially so in cases where the best the respondent can do is say we simply don’t know the facts and therefore cannot admit the facts asserted by the applicant and thus no affirmative case is asserted against what appears to be a robust claim.

35    The contended neutrality, of course, goes to the cause of action not just the source of the rights in suit, which raises the further matter of whether the conduct of Redbubble is, on the face of the pleading, properly described as infringing conduct. Redbubble, through its solicitors, says that the conduct is non-infringing conduct and says that the most relevant and compelling explanation for that view can be found in, first, the business model adopted by Redbubble and, second (having regard to that business model), the application of the observations of the High Court in Roadshow Films Pty Ltd v iiNet Ltd [No 2] (2012) 248 CLR 42.

36    A serious degree of reservation attends both of those propositions.

37    Redbubble describes its business model in the following way.

38    Redbubble and a Delaware corporation called Redbubble Inc together operate a business known as the Redbubble business. The Redbubble business involves the following methodology.

39    A third party (called an artist, although the third party may not necessarily be an artist in relation to a relevant work and might simply be a third party unauthorised user of another person’s artistic work or trade mark) may become a “registered member” of and on the “Redbubble Website” by visiting that website and setting up a “password-protected account”. Once a third party becomes a registered member of the Redbubble Website, he or she may upload, to the Redbubble Website, an “artwork” uploaded to the “portfolio section” of his or her account. Such a person must then specify, from a defined list including clothing, wall art and home décor, the “physical product or products” to which the artwork “may be applied”. Such a person must also “set the margin” for “each product” that he or she “would earn” on a “sale” of the “product over the Redbubble Website”.

40    Such a person who uploads an artwork, in the way described, to the Redbubble Website does so without any “supervision” by Redbubble or Redbubble Inc and neither Redbubble nor Redbubble Inc “views” an artwork before it is uploaded to the Redbubble Website by a third party.

41    Once the third party completes the steps described above, the “relevant artwork” is “displayed” on the Redbubble Website. Members of the public may browse or search the Redbubble Website for any artwork uploaded to the Redbubble Website. A member of the public, without becoming a registered member of the Redbubble Website, may “place an order” for “a product bearing the artwork” on the Redbubble Website and pay for it by using Paypal or credit card payment facilities “on the Redbubble Website”.

42    Once a member of the public places an order and pays for a product, software on the Redbubble Website which is executed on servers in the United States, automatically causes an order to be sent to a “third party fulfiller” located in or outside Australia which “manufactures the product” ordered by the customer. Once the third party fulfiller completes manufacture of the product, a third party postal, courier or shipping service delivers the product from the third party fulfiller directly to the address nominated by the customer without passing through the hands of Redbubble or Redbubble Inc.

43    Each third party and customer who uses the Redbubble Website by completing the steps described above, is required to comply with the Redbubble “User Agreement” available at a sub-page on the Redbubble Website. The third party is also subject to several published policies available to the public on the Redbubble Website.

44    As to the matters at [39] and [43] of these reasons, see para 2(e) of Redbubble’s amended defence and the particular documents put in evidence by Redbubble.

45    Annexure PTB-16 to Mr Bolam’s affidavit of 18 March 2016 sets out a series of screen shots for each step of the process in becoming a registered member of the Redbubble Website so as to upload artwork to that site for treatment in accordance with the business model and transact through the Redbubble Website. The screen shots which appear towards the completion of the registration process contain a reference to the “User Agreement” in these terms: “When a product is sold through the website the sale is between you and the customer – Redbubble acts as your agent in this process. In order to act as your agent, we need your permission”. The third party then agrees to the Redbubble User Agreement. The final screen shot tells the third party: “Congratulations, you are now set up to be paid by Redbubble”: see pp 175-177 of PTB-16.

46    The Redbubble User Agreement (Annexure CND-1 to the affidavit of Ms Davis dated 4 April 2016) recites that Redbubble “is about celebrating creativity”. Plainly enough, Redbubble encourages artists to upload their works to the website. From time to time, no doubt (as the evidence establishes), third parties upload works in circumstances where they are not the authors of those works and have no right to exercise any act of reproduction or commercialisation in relation to a particular artwork.

47    In the User Agreement, Redbubble is astute to this problem and recites that “it is essential all Redbubble users respect the intellectual property rights of others, including copyright and trademarks”. It recites that “[y]ou must only upload content you have created yourself and have permission to use and authorise others to use”. The agreement also recites that “[r]especting other people’s intellectual property is an essential principle of Redbubble’s community”. In the agreement, Redbubble describes its services this way:

Redbubble provides a range of services (the “Redbubble service”) which, amongst other things, enable you to publish, sell, discuss and purchase art; interact with other members; and receive the benefits of Redbubble Inc.’s facilitation of product fulfilment, including payment processing, customer services, third party product manufacturing, and shipping.

… Any content that you upload into the portfolio section of your account is described as your “art”. Your art may be viewed by all users of the website once you elect to publish it. You may order a physical product based on your own art or you may offer your art for sale. If you or a customer decide to place an order, then Redbubble will forward your instructions to third parties who will manufacture and ship the physical product in the form specified by you or the customer (“the product”).

[emphasis added]

48    As to putting content on the site, the agreement says this:

Putting content on the Redbubble site

You keep the copyright in any content you submit or upload to the website. In order to receive the Redbubble services you grant Redbubble a non-exclusive royalty free licence to use and archive the content in accordance with or as reasonably contemplated by this agreement.

When you submit or upload content on the website you represent and warrant that:

•    you own all copyright in the content, or if you are not the owner, that you have permission to use the content, and that you have all of the rights required to display, reproduce and sell the content;

•    the content you upload will not infringe the intellectual property rights or other rights of any person or entity, including copyright, moral rights, trade mark, [or] patent …

…

Redbubble reserves the right to review and if in its sole discretion deemed necessary, remove any content from the website and/or cancel your account, because that content breaches your agreement with us and / or any applicable laws, or otherwise.

[emphasis added]

49    As to the sale mechanism, the agreement says this:

Any member may offer their art for sale on the website by appointing Redbubble to facilitate the transaction on the terms set out in the Services Agreement in Appendix A. By agreeing to the terms of this user agreement you expressly agree to the terms of the Services Agreement in Appendix A, which will apply from the date on which you offer your first art for sale and your continued use of the website will constitute ongoing agreement to the terms therein as updated from time to time.

[emphasis added]

50    As to purchasing, the agreement provides that users can purchase products on the website using a credit card or the Paypal system. As to the intellectual property rights and licence, the agreement provides that by submitting listings to Redbubble, the third party artist grants Redbubble a “non-exclusive, worldwide, royalty-free, sublicenseable and transferable licence to use, reproduce, distribute … and display the content of such listings in connection with Redbubble’s … services and business, including without limitation for promoting and redistributing part or all of the Redbubble site … in any media formats …”.

51    As to the Services Agreement at Appendix A, the document says this:

You wish to use Redbubble’s services to facilitate marketing and sale of your art and to arrange for manufacture and delivery of a physical product (“your product”) once an order has been made through [the Redbubble Website]. Redbubble will provide these services on the terms set out in this Services Agreement.

…

1.        Services

1.1    Redbubble, acting as an independent contractor under your instructions will market to and obtain orders from customers for the purchase of your products over the website and on instruction from you, Redbubble Inc. will arrange for third parties to fulfil those orders by facilitating payment for and manufacture of your products (“Services”). Redbubble will then arrange for the delivery of your products as per the customer’s instructions.

[emphasis added]

52    Clause 2 provides that those who use Redbubble’s services to facilitate marketing and sale grant Redbubble a non-exclusive royalty-free licence to use the intellectual property to enable Redbubble to carry out the services. By cl 2.2, the user instructs Redbubble to facilitate payment, manufacture and shipping in respect of the orders for the third party’s products via the website. The financial provisions work in this way:

3.    Sale of your products

3.1    The retail price charged to customers who purchase your product is made up of the manufacturing fee charged by the third party manufacturer, Redbubble’s fee for hosting the marketplace and facilitating the transaction (the manufacturing fee and Redbubble’s fee are referred to collectively, and inclusive of tax, as the “base amount”), your creator margin (“your margin”), and any relevant tax (…). Shipping charges will also be added. When making each individual work available for sale you are able to select any percentage markup you wish, greater than or equal to 0, above the base amount but below the automated upper limit set by Redbubble (subject to change from time to time). The percentage markup selected by you on the website for each of your products is used to calculate the dollar value of your margin for each sale.

3.2    You may change the percentage markup on top of the base amount at any time by changing your selection on the website. We may change the base amount at any time without specific notice to you and this will affect the dollar value of your margin, which is calculated as a percentage of the base amount (e.g. if we increase our base amount, your margin will also increase). The retail price will not change on an individual sale after a customer has submitted an order to the website.

[emphasis added]

53    It can be seen from this business model that Redbubble has a significant degree of engagement in the sequence of transactions which involve reproduction and communication of the work. It earns a fee. It facilitates the transaction. It causes the work to be reproduced and emblazoned upon a relevant product. It describes itself as the agent of the “artist” in some places and as an “independent contractor” in others. It deals in the intellectual property of others for reward and in order to do so it takes a licence from the so-called artist and owner of the rights in the relevant artwork. It has the capacity to control the removal from its own website of works which it encourages others to upload to its website for its own reward. Its business model is to deal in and commercialise intellectual property works by reference to classes of products which consumers can obtain bearing the works by dealing with Redbubble. Of course, it emphasises the responsibility for maintaining the integrity of the rights with the artist/third party uploader and extolls the importance of that matter in its relationship with the third party uploader.

54    As to the analogical relevance of the Redbubble business model to the model the subject of the decision in Roadshow Films Pty Ltd v iiNet Ltd [No 2] (supra), there are very significant obvious differences between the circumstances in which iiNet Ltd conducted its business model as compared with the Redbubble model. iiNet simply provided “internet access” to those persons wishing to use the internet. As it turned out, some of iiNet’s customers used that internet access provided by iiNet to undertake peer-to-peer file sharing of a large number of commercial films using the BitTorrent system. However, although iiNet provided internet access, it had no role to play in the BitTorrent system and nor did it host infringing files in the form of electronic copies of commercial films the rights in which vested in the plaintiffs in those proceedings who were the owners or exclusive licensees of the copyright in the cinematographic films: see JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20 at [353] to [361].

55    That case is not this case. Redbubble operates the very site from which it deploys its business model.

56    In the course of the proceedings, HAMC (Aust) has made a number of trap purchases. These purchases arose out of HAMC (Aust) observing products being offered for sale on the Redbubble Website in or about November and December 2014 by reference to words and/or images the use of which would involve exercising rights residing in HAMC (Aust) either by reference to the Copyright Act 1968 (Cth), assuming those rights are made good or as the licensee of trade marks registered under the Trade Marks Act 1995 (Cth). The first set of infringements comprised three t-shirt designs and a poster and a second set of infringements involved three further designs to be applied to specific products from the Redbubble Website. In Mr Bolam’s further affidavit of 15 April 2016, other examples are identified. The “Fuki Death Head” with its distinctive colours is one of the works. They are exact reproductions. On the present evidence, no third party uploader derives any right, title or interest in the relevant trade marks or artworks in suit and no such third party uploader can grant any licence to Redbubble to do anything in connection with the relevant trade marks and copyright works. Plainly enough, no licence has been granted by HAMC (Aust), HAMC (US), Mr Fukushima or Mr Eaton to Redbubble to reproduce or communicate the works or exercise any of the trade mark rights or authorise the exercise of any of the intellectual property rights. Redbubble’s answer is: We don’t accept that you have any rights and, second, in any event, we do not engage in any conduct that constitutes infringement of those rights even if they do subsist.

57    In the course of exchanges between the parties, Redbubble and HAMC (Aust) have explored a protocol by which particular search terms would be identified so that Redbubble might regularly (each week) search the Redbubble Website to identify any words or artworks in which HAMC (Aust) asserts any rights with a view to then deciding whether those works ought to be removed from the Redbubble Website. Redbubble says that it has a policy process and an administrative process in place to isolate and deal with works uploaded to its website in which there are well-founded doubts about the right of the third party uploader to deal in and with the relevant titles and works.

58    Redbubble says that HAMC (Aust) has not been entirely co-operative in settling upon the right search terms and search fields and, as to some matters, difficulty has arisen due to changes in the grammar of particular search terms. No undertaking is offered by Redbubble, pending the determination of the proceedings, to remove from the Redbubble Website any names, trade marks and artworks in respect of which HAMC (Aust) asserts rights. Each step Redbubble has taken either by arrangements with HAMC (Aust) or alternatively entirely on its own initiative which may or may not have resulted in the removal of particular uploaded names, trade marks or artworks, was undertaken entirely without admission or concession as to any rights subsisting in HAMC (Aust) or any infringement on the part of Redbubble.

59    I am satisfied that a consideration of the bona fides and merits of the claims made by HAMC (Aust), against the background of the present pleading by Redbubble, takes the matter well beyond mere neutrality.

60    There are, however, other matters to consider.

61    It is common ground between the parties that HAMC (Aust) is an entity that might properly be described as a special purpose vehicle. It discharges the role described by Mr Bolam at [17] of these reasons. In simple terms, it conducts the commercialisation aspects of exercising the intellectual property rights it enjoys either by ownership or as a function of the exclusive licence it has from HAMC (US). HAMC (Aust) accepts, as a matter of principle, that there is a proper basis for believing that it will be unable to pay Redbubble’s costs should an order for costs be made in favour of Redbubble upon the trial of the action. HAMC (Aust) has a share capital of $100. Mr Nelms is its sole director, secretary and shareholder. Mr Nelms accepts that HAMC (Aust) does not have any assets of any “substantial value, save for the copyright in the drawings known as the ¾ death head which were assigned to it”. I accept that that asset is intrinsically unlikely to be of any commercial value to Redbubble due to four considerations. First, the particular work is more particularly adapted to be of value to members of the charters. Second, there are statutory arrangements which constrain the commercial utility of the use of some of the images and titles. Third, how would the bundle of rights comprising the copyright be realised and converted into money? Fourth, what is the value of the copyright in any event?

62    Mr Nelms describes at para 6 of his affidavit the role of HAMC (Aust) in this way:

The Applicant was incorporated to:

(a)    Collect membership fees paid by members of the Australian Chapters of the Hells Angels Motorcycle Club presently standing at 14 chapters nationwide.

(b)    Order and pay for stock which bore the Hells Angels trade marks for members of the Australian Chapters of the Hells Angels Motorcycle Club.

(c)    Pay trade mark renewal fees and related fees for the registered trade marks of Hells Angels.

(d)    Take enforcement action for infringements of the ¾ death head and as [HAMC (US)]’s authorised user of its trade marks (both registered and unregistered) and exclusive licensee of its copyrights in Australia.

63    HAMC (Aust) has taken a number of proceedings to address infringements of its rights. Redbubble says that HAMC (Aust) is in the business of enforcing its intellectual property rights and any person dealing with it in response must confront an entity that has no assets and simply will not be able to pay any order for costs should a successful respondent obtain such an order.

64    Mr Nelms says at para 7 of his affidavit that if an order for security for costs is made, HAMC (Aust) does not have the means to satisfy an order and it will not be able to proceed with the “prosecution of the enforcement of its rights in relation to the trade marks and copyrights referred to in the [further amended statement of claim] under the authority of the exclusive licence agreement it holds”. He says that from time to time he has personally assisted HAMC (Aust) with loans for legal fees repaid if and when a settlement yielded a monetary payment enabling reimbursement. These amounts were of the order of $2,000 to $3,000 and on one occasion, Mr Nelms made a loan to HAMC (Aust) of $17,000 for particular legal expenses. Mr Nelms is currently not employed and not in a position to financially assist HAMC (Aust). He has appealed to the members for support. Mr Nelms says that as a director of HAMC (Aust), if security is ordered in any amount in excess of $20,000, he would be reluctant to instruct HAMC (Aust)’s legal advisers to take steps to enforce HAMC (Aust)’s rights.

65    Mr Nelms says that he has contacted representatives of HAMC (US) to determine whether it will provide security for costs. It refuses to do so. In addition, he has written to the National Secretary of the Hells Angels Motorcycle Club and asked that they vote on contributing to a fund to provide some security for costs. He sets out the content of his request at para 13 of his affidavit. At para 14, he says that he is unable to say what amount, if any, might be raised pursuant to the request as it will depend upon a vote taken by Club members and the decision members make. He says that they may be supportive and HAMC (Aust) may find that an amount between $15,000 and $25,000 is raised. Alternatively, they may choose not to support HAMC (Aust). Mr Nelms sets out at paras 16 and 17 of his affidavit matters in relation to use and importance of the ¾ Death Head design.

66    The principles informing the proper approach to weighing in the balance the consideration that making an order for costs might foreclose or frustrate HAMC (Aust)’s right to litigate its claims are those set out in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (supra) at pp 512 and 513. The evidence in this case makes clear that HAMC (Aust) is truly a special purpose vehicle which operates to advance the interests of the members of the Hells Angels Motorcycle Club. It also serves the interests of HAMC (US). In circumstances where a group of individuals (who in this case are the members of approximately 14 separate chapters in Australia) stand behind the special purpose vehicle (and so too, in a commercial sense, does HAMC (US) as a party of real interest), it is a proper exercise of the discretion to require security to be provided because “stakeholders” with a commercial and true beneficial interest in the outcome of the exercise of the rights, ought to bear the burden of ensuring that if their special purpose vehicle is unsuccessful in the assertion of particular rights, the party put to legal costs in defending the claims is, in part at least, secured for those costs.

67    I have taken into account all of the affidavit material put on by the parties and the written and oral submissions. I am not satisfied that security for costs in the order of magnitude contended for by Ms Stiel ought to be ordered. The members of Hells Angels Motorcycle Club, in Australia, ought to bear some of the burden or at least be at risk of bearing some of the burden of the costs Redbubble might be entitled to recover should it be successful in the proceeding. I weigh in the balance the views I have formed about Redbubble’s overt transactional engagement through its own website in enabling and facilitating reproduction and communication of the relevant artworks and use of the trade marks in connection with trade products, as earlier described, by reason of its business model. To the extent that a compelling answer is sought to be found for Redbubble’s conduct (assuming the rights relied upon subsist) in the iiNet decision, I can find no such answer in that case having regard to Redbubble’s business model. I regard the causes of action as having “strength” for the purposes of the exercise of the discretion, going beyond mere neutrality. I take the view that the amount of security ought to be discounted having regard to those considerations. Nevertheless, an order ought to be made because the applicant is truly a special purpose vehicle and those persons standing behind it for whom the bell ultimately tolls (which includes the members of the 14 charters of HAMC (US)) ought to be exposed to some proportion of the burden that might arise in the form of a costs order that might be made against HAMC (Aust) as remote as that possibility may seem in the eyes of HAMC (Aust).

68    I will order security of $50,000. I will stay the proceedings pending the payment of security. The costs of and incidental to the application will be reserved for later determination. The parties will be directed to put on written submissions of no more than five pages addressing the question of the costs. The determination of the costs will be made on the papers.

69    Plainly enough, the amount of security of $50,000 does not provide Redbubble with security for the amount of party and party costs contemplated by Ms Stiel in her affidavit material which seeks to quantify likely party and party recoverable costs to trial. The amount sought is $270,000. The amount of security to be ordered is not designed to provide security for the costs of all of those steps identified by Ms Stiel. The amount of the order is designed to provide some degree of entirely forward-looking security to give Redbubble a measure of protection, discounted having regard to the apparent strength of HAMC (Aust)’s contended causes of action in the context of Redbubble’s transactional business model. I note again that no unconditional undertaking has been proffered by Redbubble, pending the trial of the proceedings, to remove any third party uploaded work or trade mark (in suit in these proceedings) in which HAMC (Aust) asserts rights and in respect of which no licence has been provided to a third party uploader.

70    It may well be that a further application for security is warranted and in the context of such an application having regard to whatever has emerged in the course of the proceedings on discovery or otherwise that the discretion should be exercised to make a further order for further security in respect of the trial of the action. The orders contemplate that leave will be given to Redbubble to make such an application which will be determined on the merits of the material then put before the Court.

Associate:

Dated:    16 May 2016