FEDERAL COURT OF AUSTRALIA Microsoft Corporation v Blanch [2002] FCA 895 COPYRIGHT – copyright in computer software and programs – infringement – counterfeit copy obtained by sale below market rate – software loaded onto computer system sold to applicants' investigator – supply of "burnt disk" with copy of applicants' software on TRADE MARKS – marks in respect of software – infringement - infringing products obtained by sale – infringing product supplied on "burnt disk" – infringing product displayed on computer monitor FAIR TRADING – misleading conduct – whether sale of counterfeit disk which infringed copyright and trade marks of applicant constituted misleading conduct – the meaning of ss 10, 11 under Fair Trading Act 1999 (Vic) – whether acts of respondents liable to "mislead the public" INJUNCTIONS – whether an injunction should be granted in broad terms because of applicants' apprehension of further infringements of their copyright materials and trade marks by the respondents Copyright Act 1968 (Cth) ss 31(1)(a), 36(1) Trade Marks Act 1995 (Cth) ss 120(1) Fair Trading Act 1999 (Vic) ss 10,11 Federal Court Rules O 11 r 13(1), O 10 r 7, O 20 r 1, O 18 r 4 Microsoft Corp v Business Boost Pty Ltd [2000] FCA 1651 followed Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852 followed Microsoft Corporation v Plato Technology Limited [1999] FSR 834 considered Australasian Performing Right Association Limited v Pashalidis [2000] FCA 1815 cited MICROSOFT CORPORATION AND MICROSOFT PTY LTD v ROBERT GEOFFREY BLANCH AND WENDY THERESA WILSON N1299 OF 2001 BRANSON J 18 JULY 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1299 OF 2001 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD SECOND APPLICANT AND: ROBERT GEOFFREY BLANCH FIRST RESPONDENT WENDY THERESA WILSON SECOND RESPONDENT JUDGE: BRANSON J DATE OF ORDER: 18 JULY 2002 WHERE MADE: SYDNEY THE COURT ORDERS THATthe applicants bring in short minutes of orders which reflect these reasons for judgment. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1299 OF 2001 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD SECOND APPLICANT AND: ROBERT GEOFFREY BLANCH FIRST RESPONDENT WENDY THERESA WILSON SECOND RESPONDENT JUDGE: BRANSON J DATE: 18 JULY 2002 PLACE: SYDNEY REASONS FOR JUDGMENT THE PARTIES 1 The first applicant ("Microsoft Corporation") is a corporation incorporated under the laws of the State of Washington in the United States of America. It carries on the business of manufacturing, marketing, distributing and supplying computer programs ("Microsoft Programs") 2 The second applicant ("Microsoft Pty Ltd") is an Australian company, which is a subsidiary of Microsoft Corporation. Microsoft Pty Ltd provides marketing and technical support in Australia on behalf of the Microsoft Corporation in respect of the Microsoft Programs. It is an authorised user of Microsoft Trade Marks. 3 The respondents trade under the business name "Robert Blanch Computer Services". The business has been registered in Victoria since 18 August 1995. history of the proceeding 4 The application and statement of claim were filed on 11 September 2001. These documents were served personally on each of the respondents on 2 October 2001. On 9 October 2001 a defence dated 8 October 2001 was filed which bears signatures which are apparently the signatures of the respondents. The respondents did not earlier, nor have they at any time, filed an appearance (see O 9 r 2 of the Federal Court Rules). 5 The defence, except for some minor exceptions, consists mainly of denials of the allegation set out in the applicants' statement of claim and contains brief particulars of the grounds of denials. It does not put in issue the copyright claimed by Microsoft Corporation in the Microsoft Programs. Attached to the defence is a copy invoice which shows the first respondent as the purchaser of various computer related products including Microsoft Windows 95 software. 6 The defence does not address the allegations contained in pars 1‑7 of the statement of claim which are of a formal nature. A fair inference appears to be that these allegations were not regarded as contentious. Although it seems unlikely that the respondents were aware of the effect of O 11 r 13(1) of the Federal Court Rules, its application in the circumstances of this case seems unlikely to result in any unfairness to the respondents. In the circumstances I have considered it appropriate to receive the defence notwithstanding the failure of the respondents to file an appearance. 7 A first direction hearing was held in this matter on 10 October 2001. The respondents did not appear (and indeed have not appeared before the Court on any occasion that this matter has been listed). The applicants by their counsel placed before the Court "Short Minutes of Order" apparently bearing the signatures of the respondents. The Short Minutes of Order provided for the proceeding to continue on pleadings, set a timetable for the preparation of the matter for hearing and asked the Court to "note" certain undertaking described as having been given to the Court by the respondents. As the respondents did not appear, no undertakings could in fact be given by the respondents to the Court. In the circumstances it seemed to me that the purported "undertakings" were of no effect. However, directions were made for the proceeding to continue on pleadings and a timetable set in accordance with the Short Minutes of Order. 8 The next directions hearing was held on 14 February 2002. Again the respondents did not appear. The applicants were granted leave to file and serve a notice of motion seeking judgment against the respondents. On 21 April 2001 each of the respondents was served with a notice of motion dated 18 April 2002 by which the applicants sought final relief pursuant to O 10 r 7, O 20 r 1 and O 18 r 4 of the Federal Court Rules, and five supporting affidavits. 9 On 26 April 2002 the applicants moved the Court for final relief against the respondents pursuant to the notice of motion dated 18 April 2002. As the respondents had failed to comply with the order of the Court, apparently made with their consent, with respect to the filing of evidence (O 10 r 7), and as it seemed plain that they did not intend to defend the proceedings, I considered it appropriate to allow the applicants to move for judgment. 10 During the course of the hearing on 26 April 2002 the applicants by their counsel sought leave to supplement their evidence. Leave was granted for them to do so by the filing and service of further affidavits. All parties were given leave to apply to have the motion relisted provided that such leave was exercised within ten days of the service of the further affidavits. The applicants were required to advise the respondents by letter of the directions made on 26 April 2002. 11 An affidavit of service was filed on 27 May 2002 by which service on each of the respondents of certain additional affidavits and a letter dated 6 May 2002 was proved. By the letter dated 6 May 2002 the solicitor for the applicant advised the respondents of the adjournment of the hearing of the motion for summary judgment, the leave granted to the applicant to file and serve further affidavits and of the respondents' entitlement, within ten days of the service of the further affidavits, to apply to the Court to be heard on the motion. No application to be heard was made by the applicants within that time limit or at all. INFRINGEMENT OF MICROSOFT TRADE MARKS 12 The applicants by their statement of claim have pleaded that: "The Respondents have from time to time in the course of carrying on business and without the licence of the First Applicant used in relation to computer programs the Microsoft Trade Marks or marks which are substantially identical with or deceptively similar to the Microsoft Trade Marks. PARTICULARS Sale by Respondents of recordable compact disks on which copies of Windows 98 and Office 2000 have been made without the licence of the First Applicant (which compact disk is referred to herein as the "Burnt Disk") on 7 February 2001. Sale by Respondents of a compact disk containing Windows 95 bearing the Microsoft Trade Marks and not being made with the licence of the First Applicant (the "Counterfeit Disk") on 6 May 2001." The applicants have further pleaded that the Burnt Disk and the Counterfeit Disk are products within class 9 of the Trade Marks Register in respect of which the Microsoft Trade Marks are registered. 13 Section 120(1) of the Trade Marks Act 1995 (Cth) ("the Trade Marks Act") provides: "A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered." 14 The applicants relied, amongst other affidavits, on the affidavit of John Clifton Ramsden ("Mr Ramsden"), a private inquiry agent apparently employed by Trade Mark Investigation Services ("TMIS"). TMIS is retained by Microsoft Pty Ltd to investigate reports of infringement of the first applicant's copyright in Australia. 15 On 2 February 2001 Mr Ramsden visited shop premises at 58‑62 Woods Street, Laverton, Victoria. He spoke with a man who identified himself as Robert Blanch ("Mr Blanch"). After some conversation Mr Ramsden ordered a computer of nominated specifications which he requested be loaded with Windows 98, Office 97 and Publisher. On 7 February 2001 Mr Ramsden returned to 58‑62 Woods Street. He saw Mr Blanch start the computer which he identified as the one which he had prepared for Mr Ramsden. Mr Ramsden saw that Windows 98 and Office 97 had been installed on the computer. He paid $550 for the computer and received a receipt stamped "Robert Blanch Computer Services" and a business card for "Robert Blanch Computer Services ABN 51 692 965 282". Mr Blanch gave him a compact disk saying: "This is what I loaded Windows 98 onto. You'll need it too when you connect to the Internet." 16 By their defence the respondents acknowledge the sale of the computer on 7 February 2001 but they assert that "no software was listed on the sale". The receipt provided to Mr Ramsden refers to a "CD ROM" but does not otherwise refer to Windows 98 and Office 97. However, for present purposes, the issue is whether the respondents used as a trade mark a sign that is substantially identical to a registered trade mark of Microsoft Corporation. I accept that by selling to Mr Ramsden a computer which had loaded onto its hard drive Windows 98 and Office 97 the respondents used as a trade mark the signs that would be displayed on the computer monitor when those respective programs were activated. I am satisfied that those signs were substantially identical with registered trade marks of Microsoft Corporation. 17 Mr Ramsden has given no evidence of having purchased from the respondents a recordable compact disk on which a copy of Office 2000 had been made. 18 On 6 May 2001, Huong Tuyet Nguyen ("Mr Nguyen"), another employee of TMIS, visited Shepparton Computer Expo Market in Geelong, Victoria. He visited a stall which bore a sign "Robert Blanch Computer Services". Mr Nguyen purchased a Microsoft Windows 95 compact disk for $20.00. The disk bears signs used as trade marks which are substantially identical with registered trade marks of Microsoft Corporation. Mr Nguyen was given, at his request, a business card which bears the name "Robert Blanch Computer Services". The card is not identical to that given to Mr Ramsden. It appears to be an older version of the respondents' business card as it gives an address revealed by the business name search referred to below as having been the previous business address of the business "Robert Blanch Computer Services". 19 A business name search of Robert Blanch Computer Services made on 12 February 2002 reveals that it has been registered as a business name in Victoria since 18 August 1995 and that its current registered address and business address is 58‑62 Woods Street, Laverton, Victoria 3028. The current proprietors, the first and the second respondents, are shown by the business name search to have been the proprietors of the business since 18 August 1995. 20 Rebecca Cope ("Ms Cope"), a Legal Associate for the Microsoft Pty Ltd, is responsible for administering the enforcement of the intellectual property rights of Microsoft Corporation in Australia and detecting unlicensed Microsoft products including counterfeits. Ms Cope's affidavit evidence includes an expression of her opinion, which I accept, that the reproduction of Windows 98 and Office 97 on the hard drive of the computer system purchased by Mr Ramsden on 7 February 2001 was unauthorised. 21 Ms Cope expressed the opinion, which I accept, that the reproduction of Windows 98 on the compact disk provided to Mr Ramsden on 7 February 2001 was not authorised by the first applicant. However, her evidence provides no support for an alleged sale by the respondents of a recordable compact disk onto which a copy of Office 2000 had been made. Ms Cope further expressed the opinion, which I accept, that the Microsoft Windows 95 compact disk purchased by Mr Nguyen on 6 May 2001 was counterfeit. Additionally she deposed to the fact that the minimum estimated retail price in Australia for a genuine version of the disk was $175.00 per unit. 22 I am satisfied that the compact disks provided to Mr Ramsden and Mr Nguyen respectively were products within class 9 of the Trade Marks Register in respect of which the Microsoft Trade Marks are registered. 23 For the above reasons I am satisfied that the respondents have infringed the Microsoft Trade Marks. infringement of copyright 24 The applicants, by their statement of claim, have pleaded that Microsoft Corporation carries on the business of manufacturing, marketing, distributing and supplying Microsoft Programs. The applicants have further pleaded that: "18. The Respondents without the licence of the First Applicant have in the course of carrying out business from time to time: (a) reproduced in a material form or authorised the reproduction in a material form of the whole or a substantial part of one or more of the Microsoft Programs; and (b) reproduced in a material form or authorised the reproduction in a material form of the whole or a substantial part of one or more of the Microsoft Programs on the hard disk of various computer systems supplied by the Respondents in the course of their business. PARTICULARS Authorisation of the reproduction of Microsoft Programs copied onto the Burnt Disk. Reproduction by the Respondents of Microsoft Programs on the Burnt Disk on or about 7 February 2001. Reproduction by the Respondents of Microsoft Programs on the computer system which was sold on or about 7 February 2001. Authorisation of reproduction of the Microsoft Programs known as Windows 98 and Office 97 on the random access memory of the computer system sold on 7 February 2001. Authorisation of the reproduction of the Microsoft Programs on the Counterfeit Disk sold on 6 May 2001. 19. Further, the Respondents without the licence of the First Applicant have in the course of carrying out business from time to time: (a) sold, or by way of trade, offered or exposed for sale; and (b) distributed or supplied for the purpose of trade copies of one or more of the Microsoft Programs where: (i) the making of these copies constituted an infringement of the First Applicants copyright in the Microsoft Programs or; (ii) in the case of copies imported into Australia, the making of those copies in Australia by the importer would have constituted an infringement of the First Applicant's copyright and the Respondents knew or ought reasonably to have known the matters referred to in (i) and (ii) above. PARTICULARS Sale of the Burnt Disk on 2 February 2001 containing a copy of Windows 98 and Office 97 had been made without the licence of the First Applicant. Sale of computer system on 7 February 2001 onto which copies of Microsoft Programs viz Windows 98 and Office 97 had been made without the licence of the First Applicant. Sale of the Counterfeit Disk on 6 May 2001 containing a copy of Windows 95 which had been made without the licence of the First Applicant." 25 I am satisfied that by loading the program Windows 98 onto the computer sold to Mr Ramsden on 7 February 2001 the respondents reproduced that program in a material form within the meaning of s 31(1)(a) of the Copyright Act 1968 (Cth) ("the Copyright Act"). In this regard I accept the appropriateness of the conclusion of Tamberlin J in Microsoft Corp v Business Boost Pty Ltd [2000] FCA 1651; 49 IPR 573. However, as to the claims that the respondents infringed Microsoft Corporation's copyright in the program "Office 97", I note that the applicants have not pleaded that Microsoft Corporation is the owner of the copyright in any program so identified. 26 I am further satisfied that the respondents were not the owner of the copyright in Windows 98 (Microsoft Corporation is in the circumstances of this case presumed to be the owner – s 126 of the Copyright Act) and that they did not have the licence of the owner to reproduce that program in a material form (s 36(1) of the Copyright Act). 27 I am satisfied that by loading Windows 98 onto the compact disk supplied to Mr Ramsden the respondents reproduced a Microsoft Program in a material form. By supplying the compact disk to Mr Ramsden they authorised the reproduction of that Microsoft Program in a material form (s 36(1) of the Copyright Act). 28 By their defence the respondents acknowledge the sale of a computer to Mr Ramsden on 7 February 2001 but they allege that "no software was listed on the sale". The critical issue, in my view, is not the details contained on the receipt provided to Mr Ramsden but rather what was in truth the subject matter of the sale and purchase of 7 February 2001. The subject matter of the sale was, in my view, the computer with the programs loaded onto its hard drive and the compact disk handed to Mr Ramsden. 29 I am satisfied that by selling the counterfeit Windows 95 compact disk to Mr Nguyen on 6 May 2001 the respondents authorised the reproduction of that Microsoft Program on the counterfeit compact disk. By reason of the contrast between the price paid by Mr Nguyen for the compact disk and the normal retail price of the genuine comparable product I am satisfied that the respondents knew or ought to have known that the making of the compact disk constituted an infringement of the copyright in the program Windows 95 (s 38 of the Copyright Act). 30 The applicants contended that the sale to Mr Ramsden on 7 February 2001 of the computer with Windows 98 and Office 97 loaded onto its hard drive constituted a further infringement of copyright by reason of s 38 of the Copyright Act. To so find I would have to conclude that the making of the computer sold to Mr Ramsden constituted an infringement of copyright. That is, that the loading of Windows 98 (Office 97 may be put to one side) onto the hard drive of the computer was part of the making of the computer sold to Mr Ramsden. Whilst I am inclined to think that it was, I was not assisted by any argument put in opposition to the applicants' argument. As the outcome of this proceeding will not be materially affected by any decision made by me in this regard I take the view that determination of this issue should await another case. 31 For the above reasons, I am satisfied that the respondents have infringed the copyright in the Microsoft Programs "Microsoft Windows 95" and "Microsoft Windows 98". fair trading act 1999 (VIC) 32 The applicants by their statement of claim have pleaded: "By reason of the matters pleaded above the Respondents, in selling and offering to sell Infringing Copies of the Counterfeit Disk and the Burnt Disk and any other products to which the Microsoft Trade Marks have been applied without the licence of the First Applicant, have expressly or impliedly represented to purchasers of those products contrary to fact, that: (a) such items were made by or with the licence of the First Applicant; (b) the Respondents were lawfully entitled to sell such items; and (c) the purchaser of such items is entitled to use such items. By reason of the matters pleased [sic] in paragraph 28, the Respondents have engaged in conduct in contravention of sections 10 and 11 of the Fair Trading Act (Vic)." 33 Sections 10 and 11 of the Fair Trading Act 1999 (Vic) relevantly provide: "10. A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. … 11. A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services. …" 34 No submissions were addressed to the Court on the question of whether any conduct of the respondents was "liable to mislead the public" within the meaning of ss 10 and 11 of the Fair Trading Act 1999 (Vic). I am satisfied, however, that the evidence of Mr Nguyen establishes that the counterfeit compact disk purchased by him on 6 May 2001 had been displayed for public sale. 35 In Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852 at [50] said: "I find that by offering for sale counterfeit products, Goodview Electronics and Golden Square were representing that the products were products made with the licence of Microsoft and that Goodview Electronics and Golden Square were lawfully entitled to supply such products. These representations would be likely to induce purchasers of the products to believe that the products would be unlikely to contain viruses and would be covered by guarantees given by Microsoft. The representation would also hide from purchasers the risk that a court could order the delivery up of the products to the copyright owner (Polygram Records Pty Ltd v Monash Records (Australia) Pty Ltd (1985) 10 FCR 332 at 333-334). Such representations were, in the circumstances, misleading and deceptive within the meaning of s 52 of the Trade Practices Act." On the same basis I find that the conduct of the respondents, by displaying for sale a counterfeit compact disk, engaged in conduct that was liable to mislead the public as to the nature of, the manufacturing process, the characteristics and the suitability for the purpose, of the compact disk. 36 I am not otherwise satisfied that the applicants have established that the respondents engaged in conduct in contravention of ss 10 and 11 of the Fair Trading Act 1999 (Vic). relief 37 The applicants do not press their claim for damages. They seek an order for costs and the making of the following injunctions: "1. An order that the Respondents, whether by themselves, their servants, agents or otherwise howsoever, be restrained from infringing registered trade marks numbers 371528(9), 377674(16), 576996(9) and 576997(16) ("the Microsoft Trade Marks"). … 2. An order that the Respondents and each of them, whether by themselves, their servants, agents or otherwise, howsoever, be restrained from infringing the First Applicant's copyright in the computer programs described on the Schedule hereto ("Microsoft Programs") by reproducing or authorising the reproduction of Microsoft Programs or a substantial part thereof without the licence of the First Applicant. … 3. An order that the Respondents and each of them, whereby their servants, agents or otherwise, be permanently restrained from representing in trade or commerce to persons to whom the relevant Respondent supplied or offers to supply any Infringing Programs and/or Infringing Products: (i) that the relevant Respondent is lawfully entitled to supply any such product; or (j) in the case of Infringing Programs and Infringing Products, that any such product has been made with the licence of the First Applicant." 38 No evidence has been adduced in the proceeding that the respondents have infringed Microsoft Trade Marks in class 16. Class 16 includes printed instructional and teaching material related to computer and computer software and computer hardware and software manuals. A very wide range of computer programs is described in the schedule referred to in par 2 of the above claims for injunctive relief. The evidence placed before the Court does not suggest that the respondents have infringed the copyright of Microsoft Corporation in more than a small number of the listed programs. 39 In justification of their claim for injunctions broadly formulated, the applicants placed reliance on the decision of Steinfeld QC in Microsoft Corporation v Plato Technology Limited [1999] FSR 834. The learned Deputy Judge noted at 839 that the purpose of an injunction is to protect a person from some future infringement of his rights which he reasonably apprehends. In that case the defendant was accepted to have infringed the copyright of Microsoft Corporation in Windows 95 unwittingly and it was willing to give an undertaking not to deal in any Windows 95 products which it knows or ought upon reasonable inquiry to know to be counterfeit. Steinfeld QC at 845 observed: "Save that in my judgment any injunction or undertaking ought to extend to all Microsoft software products (the evidence does not suggest any reason for singling out Windows 95 as more prone to being counterfeited than any other Microsoft software products) it seems to me that such would constitute the most by way of injunctive relief to which the plaintiff is in this case entitled." 40 I accept that the applicants may reasonably apprehend that a respondent willing to infringe trade marks in class 9 may similarly be willing to infringe trade marks in class 16. It is with far greater hesitation that I conclude that the applicants may reasonably apprehend that the respondents may infringe copyright in the wide range of computer programs in respect of which they have sought an injunction. However, in the end I have been persuaded that a real practical difficulty attends any attempt to reduce the list. 41 I do not accept that in this case the respondents infringed the copyright of Microsoft unwittingly. They do not by their defence assert that they, or either of them, acted unwittingly with respect to the software loaded onto the hard drive of the computer sold to Mr Ramsden. Although by their defence the respondents assert that they did not know that the Windows 95 disk sold to Mr Nguyen was counterfeit, it seems to me that no person active in the computer industry could not be alerted to the likelihood of counterfeiting when the price at which they are able, as it would seem profitably, to sell a Microsoft product is markedly below the normal retail price. Nonetheless, it seems a fair inference from the evidence before the Court that the respondents are operating a modest business of no particular sophistication. In this regard they are in an entirely different category from the respondents in Microsoft Corporation v Goodview Electronics Pty Ltd. I am not persuaded that they should carry the risk of breaching an order of the Court should they in the future deal in apparently genuine products of the applicants in circumstances in which they were not, and ought not reasonably to have been, on notice that the products were not genuine. Subject to this consideration I consider it appropriate for injunctions to be made as sought by the applicants. 42 There will be an order that the respondents pay the applicants' costs up to and including 26 April 2002 but not thereafter. Such costs are not to be reduced under O 62 r 36A(1) of the Federal Court Rules (see Australasian Performing Right Association Limited v Pashalidis [2000] FCA 1815). 43 The applicants are to bring in short minutes of orders which reflect these reasons for judgment. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. A/Associate: Dated: 18 July 2002 Counsel for the Applicant: Mr R Cobden Solicitor for the Applicant: Mr G Hansen, Harris & Company Date of Hearing: 26 April 2002 Date of Judgment: 18 July 2002