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Over at the Fortnightly Review, Ass. Pro. David Brennan takes issue with the economists who argued that Larrikin should not have been paid any damages for the Kookaburra infringements.

The economists’ argument seems to have been that Larrikin didn’t lose any sales as a result of Men at Works’ infringements and so suffered no loss.

Damages under s 115(2) of the Copyright Act are compensatory: that is, they are calculated to compensate the copyright owner for the loss suffered as a result of the infringement. One way to measure that may be the profit the copyright owner lost on sales which typically applies where the copyright owner and the infringer are competing in the same market. One problem with this is that the figure for lost sales must be discounted to reflect infringements by the infringer which would never have been sales made by the copyright owner. So for example in Autodesk v Cheung, the infringer gave the pirate copies away for free while the copyright owner’s genuine software programs sold for hundreds of dollars.

Another measure often used is the licence fee approach, particularly applicable where the owner exploits the copyright by licensing. So, Autodesk wanted the licence fees it would have been paid as if Cheung had taken out a distribution agreement like its other distributors. Wilcox J was not prepared to order damages at a reasonable royalty level because, as is typically the case, there was no way Autodesk would have licensed Cheung or, for that matter, that Cheung would have paid for a licence from Autodesk. In that situation, Wilcox J felt that the basis for a reasonable royalty — the price a hypothetical willing (but not overly anxious) licensor and a hypothetical willing (but not overly anxious) licensee would have struck — could not apply.

While some courts at first instance have been willing to use a ‘reasonable royalty’ as a basis, Wilcox J’s concerns have been endorsed by Black CJ and Jacobson J in Aristocrat.

It is interesting to contrast this approach with the way the courts in the UK have dealt with it. Relying on some “old” patent cases (including a House of Lords decision), the Court of Appeal in Blayney (trading as Aardvark Jewellery) v Clogau St David’s Gold Mines was willing to use a “notional royalty” as the measure of the damages. The foundation of this approach was a rejection of the idea that the only loss suffered by the copyright owner was lost profits. Thus, in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, Lord Shaw expressed the principle:

wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle, as I say, of price or hire. If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: “Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.

and applied it in the context of patent infringement:

If with regard to the general trade which was done, or would have been done by the Respondents within their ordinary range of trade, damages be assessed, these ought, of course, to enter the account and to stand. But in addition there remains that class of business which the Respondents would not have done; and in such cases it appears to me that the correct and full measure is only reached by adding that a patentee is also entitled, on the principle of price or hire, to a royalty for the unauthorised sale or use of every one of the infringing machines in a market which the infringer, if left to himself, might not have reached. Otherwise, that property which consists in the monopoly of the patented articles granted to the patentee has been invaded, and indeed abstracted, and the law, when appealed to, would be standing by and allowing the invader or abstractor to go free. In such cases a royalty is an excellent key to unlock the difficulty, and I am in entire accord with the principle laid down by Lord Moulton in Meters Ld. v Metropolitan Gas Meters Ld. (28 R.P.C. 163). Each of the infringements was an actionable wrong, and although it may have been committed in a range of business or of territory which the patentee might not have reached, he is entitled to hire or royalty in respect of each unauthorised use of his property. Otherwise, the remedy might fall unjustly short of the wrong.

The Meters case was referred to by Wilcox J, but it does not seem that Watson, Laidlaw was cited to his Honour.

Now, of course, the 19th century considerations of a horse owner and “borrower” seem “quaint” in the age of Gogle and P2P torrents. But is the principle really so different?

It appears that the third member of the Court in Aristocrat, Rares J, may well have been willing to adopt the Watson, Laidlaw approach, but the evidence failed to provide a basis for any “judicial” estimate.

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The Full Federal Court (Emmett, Besanko and Jessup J) has dismissed Elecspess’ appeal from Gordon J’s ruling that it had infringed LED Technologies’ registered design for combination LED lights used as rear lights for trailers, trucks, buses, caravans and other vehicles. I think this is the first substantive decision by a Full Court on the new regime introduced by the Designs Act 2003.

From a very quick skim, it seems that the approach taken in the Review cases (here and here) by Kenny J and Gordon J below appears to be largely endorsed but the decision runs for 447 paragraphs, with each Judge giving a separate judgment, so rather closer examination will be required. At least in respect of Elecspess and the corporate infringers, Jessup J agreed with Besanko J’s reasons; Emmett J also gave extensive reasons.

The vexed question of the liability for contributory infringement of individual officers or employees also receives extremely extensive consideration. Jessup J agreed with Emmett J’s reasons for finding that a Mr Keller was not individually liable as a joint infringer. Besanko J also found Mr Keller was not liable.  Jessup J agreed with Besanko J that a Mr Armstrong also was not jointly liable, but for different reasons.

Working out the ramifications of the differences between their Honours should prove quite diverting.

The Court also upheld Gordon J’s refusal to award damages, or an inquiry into damages, for infringing conduct between the date of trial and the making of final orders. This should not be a problem where an undertaking or injunction restraining the respondent’s conduct is in place pending trial.  Where no undertaking or injunction is in place, however, it would appear that the Court considers it imperative to establish at trial that the infringer is continuing their infringing conduct, notwithstanding the court action,  to provide a foundation

Keller v LED Technologies Pty Ltd [2010] FCAFC 55 (Emmett, Besanko and Jessup JJ)

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Warren J has granted an interim injunction to Wasabi Frog restraining until trial the operation of an online clothing retailer.

Wasabi Frog has traded since 2006 as an online retailer of young women’s fashion at Boo Hoo and Boohoo.com. It also has CTMs for BOO HOO, BOOHOO.COM and BOO.

missboo.co.uk started up in September 2009 as an online retailer of women’s fashion, targetting the same demographic: 17 to 25 year olds.

His Lordship found a triable issue on likelihood of confusion on the basis of a number of factors. One involved another player in the fashion industry apparently mistaking the applicant for the defendant.

Interestingly, another was the inferences to be drawn by traffic that Wasabi Frog generated after purchasing the Google Ad Words “Miss Boo”. Other aspects considered included the similarities in the respective companies’ websites and the “very very savvy” target markets of both companies.

Damages were clearly not an adequate remedy for Wasabi Frog, all the more so as the defendant was impecunious.

Wasabi Frog Ltd v Miss Boo Ltd [2009] EWHC 2767 (Ch)

Lid dip: Peter A Clarke

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The Full Federal Court (Finn, Sundberg and Edmonds JJ) has clarified how FCR O62 r 36A operates in IP infringement cases.

FCR O62 r36A provides that the costs of a successful applicant which obtains an order for damages less than $100,000 will be reduced by one third, unless the Court otherwise orders.

Nokia had sued Liu for trade mark infringement arising from a customs seizure. The proceedings settled by consent, with injunctions and delivery up. Nokia pursued damages, but obtained only nominal damages as it was unable to obtain discovery of importation in significant quantities. The trial judge refused to allow Nokia any costs of the damages inquiry.

The Full Federal Court has allowed an appeal, awarding Nokia its (taxed) costs up to the consent judgment and completion of discovery about damages; thereafter costs were at the reduced rate.

The Full Court considered that costs of the trial up to and including the consent orders should be at the usual taxed rate, without the 1/3 reduction because it was common in IP cases for trials to be split – a trial on liability and (if successful) an injunction and a subsequent trial about damages (or an account) and  applicants were required to particularise only a single instance of infringement. The Full Court considered the remedy of injunction “indispensable”. It was also appropriate for the proceedings to be brought in one of the “prescribed courts”, customarily the Federal Court and it was not apparent that it would have been sensible for the matter to be referred down to the Federal Magistrates Court (unlike in copyright proceedings where the Federal Magistrates Court has direct jurisdiction).

Nokia was also entitled to costs of the damages inquiry at least until completion of discovery as it was legitimate and, until it had discovery, it could not have known of the futility. Once discovery was completed, it knew the risks it was running and, given the amount recovered, it was inappropriate to exercise the discretion not to limit the costs of that part of the proceeding by 1/3.

Nokia Corporation v Liu [2009] FCAFC 138

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This week’s Victorian Reports publish a 2007 decision in which the Court of Appeal (Dodds-Streeton JA, Ashley and Cavanough JJA agreeing) exhaustively reviewed the relatively limited circumstances in which equitable damages will be awarded in place of an injunction.

Now, the Court of Appeal was dealing with a question of trespass to land but, having regard to the House of Lords’ remarks in Fisher v Brooker, may be worth bearing in mind in intellectual property cases as, generally, an IP owner seeks an injunction when their rights are being infringed.

[135] …. [The relevant authorities] uniformly uphold the established view that an injunction is the prima facie remedy for trespass and that the alternative remedy of damages will be ordered exceptionally, as indicated by the working rule in Shelfer or by such other relevant considerations as may apply in a particular case. The authorities do not dictate or authorise the balancing of potential detriment to the parties on the basis of equivalent entitlement, or indicate that trespass may be negatived by undertakings to minimise its potential effect on future use. The tests embodied in the working rule of Shelfer are cumulative, and assume a significant inequality of entitlement between the parties (as the injury to the plaintiff from the trespass must ordinarily be small and the harm occasioned by an injunction to the defendant must be so disproportionate as to constitute oppression). Oppression in that context imports consideration of, inter alia, specific detriment, including disproportionate harm to the defendant relative to injury to the plaintiff, the deliberate or unintended quality of the trespass and all other relevant circumstances.

[136] The authorities’ consistent recognition that damages in this context may properly be assessed by reference to the advantage or gain to the defendant where the injury to the plaintiff is small facilitates an award of damages where that is otherwise appropriate, but does not disturb the traditional primacy of injunctive relief. (my emphasis)

Her Honour had earlier quoted the good working rule in Shelfer which (in part) was:

In my opinion, it may be stated as a good working rule that —

(1) If the injury to the plaintiff’s legal rights is small,

(2) And is one which is capable of being estimated in money,

(3) And is one which can be adequately compensated by a small money payment,

(4) And the case is one in which it would be oppressive to the defendant to grant an injunction:

then damages in substitution for an injunction may be given.

Doods-Streeton JA did immediately point out how limited this all was:

[46] While the factors potentially relevant to the exercise of the discretion cannot be exhaustively stated, Shelfer, in my opinion, correctly accorded primary importance to identifying a small injury to the plaintiff, and disproportionate hardship constituting oppression, to the defendant.

[47] In determining whether a substitution of damages for in specie relief is just, the interests of the parties are not of broadly equivalent weight. It will not suffice that the hardship entailed to the defendant by an injunction marginally outweighs the relief that the plaintiff will obtain thereby. Rather, the courts have typically required a significantly disproportionate damage to the defendant, reflected in the criterion of oppression in the Shelfer working rule.

This might be another area where US law is different, following eBay v MercExchange.

Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] VSCA 311

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In case your newsfeed hasn’t beeped you, the jury in Minnesota has awarded the record companies US$1,920,000 against Jammie Thomas for her 24 infringing downloads.

That’s right, $80,000 per infringement.

The original award, which the judge quashed “sua sponte“, was “only” $220,000. Presumably, there are going to be some interesting motions “non obstante veredicto“?

Evan Brown has some links. The Age (lid dip Matt Bromley).

Howard predicts (hopes?) this is the end for record companies.

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Howard’s Storage World (HSW) granted Haviv a franchise to operate an Howard’s Storage World retail outlet at Burwood in Sydney. The terms of the franchise included a grant of an exclusive territory for a radius of 5km.

Subsequently, HSW granted someone else an franchise to operate an Howard’s Storage World franchise at a new shopping centre at Rhodes, approximately 4,840m from Haviv’s Burwood store.

The breach of the contractual exclusivity promise was found, but claims for breach of TPA by misleading or deceptive conduct were rejected.

Jagot J explores the basis on which the damages payable to Haviv should be calculated in Haviv Holdings Pty Limited v Howards Storage World Pty Ltd [2009] FCA 242.

Her Honour considered the nature of the grant of exclusivity – it did not extend as Haviv contended, to a right to be offered the franchise for Rhodes. Nor did it preclude the opening of another store with a territory radius of 5km which overlapped with the territory within 5km of the Burwood store.

On the calculation of damages, her Honour considered the following issues:

1. Was Haviv entitled to claim damages on the scenario that, if the third party had not been granted the Rhodes franchise, Haviv would have been – No
2. Did Haviv prove that the breach of the exclusivity promise caused it loss – Yes
3. How to assess that damage on the basis of loss of net profits
4. The extent to which damages should be calculated for the period after Haviv closed the Burwood store in 2007 – damages would be payable until the expiry of the last option for renewal period – 2022
5. The date the loss should be assessed at
6. What discount rate should be adopted and how should it be applied
7. What gross profit percentage should be used
8. How should fixed costs including rent and refurbishment costs be treated?

At [110] her Honour summarised her findings:

 (1) Mr Halligan’s “alternative C” period of assessment should be used (that is, with damages assessed until the end of the option period, being 17 July 2022).

(2) The benchmark group should comprise Hornsby, East Gardens, Macquarie and Bondi Junction stores.

(3) The discount rates applied should be 28% for losses to the date of judgment and 30% for losses thereafter.

(4) The rent increase should reflect the true position where known (that is, $138,490.56 per annum for seven months from 1 September 2007 and an annual rental of $187,000 from 1 April 2008 to the end of the current lease on 31 March 2013 with appropriate adjustments thereafter from that base).

(5) The figure of 50.3% should be used as the gross profit percentage for the 2007 financial year onwards.

(6) The refurbishment costs should be $40,000 in July 2007, $155,000 in July 2012 and $40,000 in July 2017 and subject to mid-period discounting. 

The parties were sent away to have their experts recalculate their reports on the basis of her Honour’s findings.

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The “IP issue” arose amid a number of claims arising from the breakdown of a defacto relationship.

Ms Giller came from Russia in 1990 and shortly after commenced living with Mr Procopets. Together, they had twins, but the relationship was very rocky to say the least.  Neave JA explained the circumstances giving rise to this part of Ms Giller’s claim:

358 … Ms Giller obtained an interim intervention order against Mr Procopets on 12 November 1996. As is often the case where a relationship involves violence,[336] Ms Giller continued to see Mr Procopets after the interim intervention order was granted. Ms Giller’s claim for damages for breach of confidence, breach of privacy and intentionally causing mental harm arose out of the events which followed the granting of this intervention order. The relevant factual findings made by his Honour are summarised below.[337]

359 The couple had intercourse on 19 November 1996 and on a number of other occasions between then and 1 December 1996. Mr Procopets filmed their sexual activities on a hidden video camera. Until 25 November, Ms Giller was unaware of the filming. Thereafter she became aware of the filming and acquiesced in it.

360 Shortly after 1 December 1996, relations between Ms Giller and Mr Procopets deteriorated, to the point where Mr Procopets began threatening to show videos of their sexual activities to Ms Giller’s friends and family.

Mr Procopets also rang Ms Giller’s employer and said that he had a video showing her abusing her position to obtain sexual favours. Mr Procopets also showed the videotape to his subsequent girlfriend for the purposes of degrading Ms Giller.

The trial judge found that:

I am satisfied that the plaintiff has established that the relationship was a confidential one, that she did not authorise him to distribute the video or show it, that his unauthorised distribution was a breach of that confidence and she would be entitled to relief for that breach of confidence.

I also find in respect of the threats to show, the distribution and the showing of the tape in December 1996, that the defendant intended to cause the plaintiff mental harm and that in distributing the video the plaintiff was distressed, annoyed and embarrassed.

His Honour explained why the videotapes were subject to an equitable obligation of confidence:

In my view persons indulging in a sexual activity in the privacy of their own home create a confidential relationship during such activity. In my view it is difficult to think of anything more intimate than consensual sexual activities between two parties in the privacy of their home. It involves a relationship of mutual trust and confidence which is to be shared between the persons but is not to be divulged to others without the consent of both parties.

(Salacious) shades of (Prince) Albert v Strange.

His Honour however refused damages in the equitable jurisdiction because Ms Giller did not seek an injunction and, further, equitable damages (my terminology used impermissibly loosely for the monetary remedy available under Lord Cairn’s Act) were not available for mental harm falling short of psychological or psychiatric injury.

The Victorian Court of Appeal unanimously held that damages (or perhaps equitable compensation for the purists amongst you), including aggravated damages, were available. If damages had been available, the trial judge would have awarded $5,000 + $3,000 by way of aggravated compensatory damages.  Neave JA, with whom Maxwell P agreed, awarded $50,000 included $10,000 by way of aggravated damages.  Ashley JA would have awarded $27,500 (including $7,500 by way of aggravated damages).

One might think that the availability of such damages for defamation and copyright infringement (e.g. Milpurrurru v Indofurn) admittedly, respectively, legal and statutory wrongs should mean the Court’s conclusion should not ultimately be controversial.

Nonetheless, while it is clearly very, very carefully considered – running to over 500 paragraphs (dealing with several other claims as well) – Mr Procopets represented himself.  

In addition, as the Court acknowledged, no Australian court has gone this far before.  

The Court also took into account House of Lords and Court of Appeal decisions, recognising that the most directly relevant also involved the application of the European Convention on Human Rights and appear to have assumed the availability of the remedy in these circumstances.  Also, the decision bears on territory in which the learned authors of Meagher, Gummow and Lehane have expressed vigorous views, although perhaps more about whether it is ‘damages’ under Lord Cairn’s Act or equitable compensation in the inherent jurisdiction that is being invoked.

Neave JA explained that, if it ever were the case that the Victorian enactment of Lord Cairn’s Act required an injunction to be sought, that had been conclusively changed by the wording adopted in s 38 of the Supreme Court Act 1986.

As to damages for mental distress and embarrasment, her Honour considered:

422 In Smith Kline & French v Secretary, Department of Community Services and Health, Gummow J said the conferring of equitable jurisdiction on a court:

… brings with it, in a case such as the present, the inherent jurisdiction to grant relief by way of monetary compensation for breach of an equitable obligation, whether of trust or confidence.[407]

423 Equitable remedies such as injunctions are available to prevent publication of confidential material because of its private nature.[408] It is unnecessary in such applications to show that, if unrestrained, the breach of confidence will cause financial loss or psychiatric injury. By parity of reasoning there should be no barrier to the making of an order for equitable compensation to compensate a claimant for the embarrassment or distress she has suffered as the result of a breach of an equitable duty of confidence which has already occurred. As Morland J said in Cornelius v De Taranto:

…[I]t would be a hollow protection of [the right to protection of confidential information] if in a particular case in breach of confidence without consent details of the confider’s private and family life were disclosed by the confidant to others and the only remedy that the law of England allowed was nominal damages. In this case an injunction or order for delivery up of all copies of the medico-legal report against the defendant will be of little use to the claimant. The damage has been done. … In cases of commercial or business breach of confidence the powers of the court are not barren. Such remedies as injunction, delivery-up, account of profits and damages may be available… similarly in the case of personal confidences exploited for profit or peddled to the media. … In the present case in my judgment recovery of damages for mental distress caused by breach of confidence, when no other substantial remedy is available, would not be inimical to considerations of policy but indeed to refuse such recovery would illustrate that something was wrong with the law.[409]

424 I respectfully agree with that view.[410] An inability to order equitable compensation to a claimant who has suffered distress would mean that a claimant whose confidence was breached before an injunction could be obtained would have no effective remedy.

and, if damages were to be assessed under Lord Cairn’s Act:

428 Damages under Lord Cairns’ Act are sui generis, and can be awarded in some circumstances where common law damages are not recoverable.[416] In my view, such damages should be available where the essence of the plaintiff’s case is that he or she has been embarrassed by the exposure of private information, rather than that the defendant has profited from the wrongful use of that information. In Talbot v General Television Corporation Pty Ltd,[417] Young CJ treated damages under Lord Cairns’ Act as compensating the plaintiff for what he or she had lost.[418] It is consistent with that approach to compensate Ms Giller for the mental distress suffered as a result of the defendant’s actions.

Her Honour considered that awarding damages was also consistent with the injunctions by Gleeson CJ, Hayne and Gummow JJ in ABC v Lenah Meats on the need for breach of confidence to develop appropriately to protect privacy interests.

Ashley JA considered that it was unnecessary to consider Ms Giller’s claim to a generalised tort of invasion of privacy because breach of confidence was available and adequate to address the situation.

Giller v Procopets [2008] VSCA 236.

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How to organise a cartel or what the damages might be (apart from the penalties/fines) when if you get found out: John Asker ‘A Study of the Internal Organisation of a Bidding Cartel’ (pdf).

Warning: lots of economist-ese and formulas.

Lid-dip Prof. Joshua Gans.

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On Friday, Kenny J handed down the 2nd and 3rd substantive design cases under the new Act:

• in Review v Redberry [2008] FCA 1588, her Honour found the design valid but not infringed;
• in Review v New Cover [20089] FCA 1589; valid and infringed including $85,000 damages (of which $50,000 were for additional damages).

The judgments will no doubt be up on Austlii soon but, until then, students can download pdfs from the links below:

review-v-redberry-judgment

review-v-new-cover-judgment

Lid dip, Sue Gatford.

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