FEDERAL COURT OF AUSTRALIA Microsoft Corporation v Glostar Pty Ltd [2003] FCA 210 COPYRIGHT – infringement action – copyright in computer software, operating systems and programs – copying of computer programs and operating systems onto computers for sale thereby making the package sold more attractive to consumers – software loaded onto computer system sold to applicants´ investigators – where respondents' breach was made in knowledge of the applicants' rights – where there is a threat of continuing infringement – assessment of damages. TRADE MARKS – infringement action – trade marks in computer software, operating systems and programs – copying of computer programs and operating systems onto computers for sale thereby making the package sold more attractive to consumers – software loaded onto computer system sold to applicants´ investigators where respondents' breach was made in knowledge of the applicants' rights – where there is a threat of continuing infringement – restraining the respondents from continuing the infringing conduct. Federal Courts of Australia Act 1976 (Cth) – s 51A Copyright Act 1968 (Cth) – s 36, s 38, s 115(2), s 115(4) Trade Marks Act 1995 (Cth) – s 121 Trade Practices Act 1974 (Cth) Federal Court Rules, O 18 r 2 MICROSOFT CORPORATION AND MICROSOFT PTY LTD (ABN 29 002 589 460) AND MICROSOFT LICENSING, INC v GLOSTAR PTY LTD (ABN 15 079 851 728) trading as Downtown Technology Centre AND JOHN ATHANASIOU N 983 OF 2002 HILL J 7 FEBRUARY 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 983 OF 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD (ABN 29 002 589 460) SECOND APPLICANT MICROSOFT LICENSING, INC THIRD APPLICANT AND: GLOSTAR PTY LTD (ABN 15 079 851 728) trading as Downtown Technology Centre FIRST RESPONDENT JOHN ATHANASIOU SECOND RESPONDENT JUDGE: HILL J DATE OF ORDER: 7 FEBRUARY 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The steps taken as at 7 February 2003 to bring the hearing of the Applicants' notice of motion dated 17 December 2002 and the proceedings to the attention of the Respondents are deemed to be service of the motion and of the supporting affidavits in accordance with the Federal Court Rules. 2. The Applicants' notice of motion dated 17 December 2002 be heard in the absence of the Respondents. 3. The Respondents and each of them, whether by their employees, agents or otherwise, be permanently restrained from: (a) reproducing or authorising the reproduction of the whole or a substantial part of any of the Microsoft Programs without the licence of the First Applicant; (b) selling, offering for sale, supplying, offering to supply or distributing any Infringing Microsoft Program; (c) authorising, directing or procuring any other company or person to engage in any of the conduct sought to be restrained by sub-paragraphs (a) and (b) above. 1. The Respondents deliver up to the solicitors for the Applicants on oath within 7 days, each Infringing Microsoft Program and any equipment used to make any such infringing copy, in the possession, power, custody or control of the Respondents or any of them. 2. The Respondents and each of them, whether by the employees, agents or otherwise, be permanently restrained from infringing the Microsoft Trade Marks by: (a) manufacturing, procuring the manufacture of, importing, purchasing, selling, offering to sell, supplying, offering to supply or distributing any Infringing Microsoft Product; and (b) authorising, directing or procuring any other company or person to engage in any of the conduct sought to be restrained by sub-paragraph (a) above. 1. The Respondents deliver up to the solicitors of the Applicants on oath all Infringing Microsoft Products and any equipment used or intended to be used for making Infringing Microsoft Products, in the possession, custody or control of the Respondent. 2. Judgment be entered under s 115(2) of the Copyright Act 1968 (Cth) against the Respondents for the Applicants in the sum of $4,375.00. 3. Judgement be entered under s 115(4) of the Copyright Act 1968 (Cth) against the Respondents for the Applicants in the sum of $291,625.00. 4. The Respondents are jointly and severally liable to the Applicants for the damages awarded under s 115(2) and s 115(4) of the Copyright Act 1968 (Cth) in orders 7 and 8 respectively. 5. The Respondents pay the Applicants' costs of the proceedings. 6. Service of these orders on the Second Respondent may be effected by the Applicants by forwarding a sealed copy of the orders to 30 Tiller Street, Burwood East, Victoria. 7. The application otherwise be dismissed. In these orders: "Infringing Microsoft Products" means any Microsoft Class 9 Products and Microsoft Class 16 Products to which the mark "MICROSOFT" or a mark substantially identical with, or deceptively similar to, the marks "MICROSOFT" has been applied without the consent of the First Applicant; "Infringing Microsoft Program" means a copy of the whole of a substantial part of the any of the Microsoft Programs which has not been made by or with licence of the First Applicant or which has been imported in Australia without the licence of the First Applicant; "Microsoft Programs" means all versions of computer programs using the trade mark "MICROSOFT" whether created or released subsequent to the date of this order, being operating systems or application programs for use on personal computers and including associated manuals and documentations, therefore it being noted the definition shall include, but without limiting its generality the programs Windows 95, Windows 98 and Microsoft Office; "Microsoft Class 9 Products" means computer programs, magnetic disks, and tapes containing computer programs, computer software, computer hardware, memory boards for use with computers, programmed chips, cartridges embodying computer programs and computer software and firmware embodied in computers or designed to be used therewith; "Microsoft Class 16 Products" means printed instructional and teaching material related to computers and computer software, books, paper and printed matter for use with computer equipment, computer hardware and software manuals, newsletters featuring information about computer hardware and software, paper, paper tape and cards for the recordal of computer programs; "Microsoft Trade Marks" means any or all of the First Applicant's registered trade marks comprising the mark "MICROSOFT" and numbered 371528(9) and 377674(16) or comprising the mark "WINDOWS" and numbered 576996(9) and 576997(16). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 983 OF 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD (ABN 29 002 589 460) SECOND APPLICANT MICROSOFT LICENSING, INC THIRD APPLICANT AND: GLOSTAR PTY LTD (ABN 15 079 851 728) trading as Downtown Technology Centre FIRST RESPONDENT JOHN ATHANASIOU SECOND RESPONDENT JUDGE: HILL J DATE: 7 FEBRUARY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Before the Court is an application brought by the applicants Microsoft Corporation, Microsoft Proprietary Limited and Microsoft Licensing Incorporated together referred to as 'Microsoft' against the first respondent, Glostar Proprietary Limited trading as Downtown Technology Centre and Mr John Athanasiou, the second respondent, seeking injunctive relief and damages arising from what is alleged to be breaches of copyright held by Microsoft and trade mark infringement. 2 A claim for damages for breach of the Trade Practices Act 1974 (Cth) is not pressed as that claim effectively requires proof of the same matters as those that are involved in the breach of copyright and trade mark infringement claims and produces no different relief upon the facts of the present case. The present proceedings commenced on 20 September 2002, personal service was affected on Mr Athanasiou on 27 September 2002 and the first respondent was served at its registered office on 3 October 2002. 3 There had been previous proceedings which were discontinued and at some stage, at least, in the year 2000 there was an undertaking given not to breach certain copyright. From the evidence before me it would seem that steps had been taken by the respondents to make service, at the least, difficult, particularly on the individual respondent and, accordingly, I had made orders effectively of substituted service. When the matter was called this morning there was no appearance on behalf of the respondents, likewise a notice to produce which was called upon addressed to them was not answered. In addition to evidence of service of various orders, the applicants rely upon affidavit evidence, particularly, of Ms Cope and service of a notice to admit a significant number of facts which elicited no response. 4 It is a consequence of O 18 r 2 of the Federal Court Rules that if there is not served a notice disputing the facts required to be admitted, the facts are taken to be admitted for the purposes of the proceedings. 5 The applicants have conveniently filed an outline of submissions dealing with various aspects of the proceedings. References in the reasons I am about to give to the 'applicants' outline' are references to that document, which for the purposes of identification I will mark 'A', initial and date. 6 It is obvious from the deemed admissions brought about by service of the notice to admit and failure to respond to it that formal matters such as the incorporation, entitlement to sue and business of the respondents, which are referred to in paragraphs 30 to 33 of the outline, are proved. Likewise, from those admissions and taking account of the various matters referred to in the evidence of Ms Cope, I would find that the first applicant is the owner of the copyright in various Microsoft programs which are identified in the schedule to the notice to admit. 7 For reasons which I shall later explain, I propose, however, to use the expression "Microsoft programs" hereafter as relating to versions of computer programs, manuals, etcetera, such computer programs being operating systems or application systems for use on a PC. That compendious definition includes, but it is not limited to, the operating system programs Windows 95 and Windows 98 as well as the application program Microsoft Office and component parts such as Word, Excel, Access and the like. 8 The applicants have proved that the second respondent reproduced the operating system software Windows 95 on the hard disc of a personal computer, which he sold through his business, PC Innovations. There was also sale of a CD ROM containing a copy of the operating system program Microsoft Windows 98 which it seemed had been reproduced by the second respondent and which infringed the first applicant's trade mark. The applicants have proved that the first respondent, acting through the second respondent, in breach of the first applicant's copyright reproduced copies of the programs referred to in schedule 2, paragraph 37, of the outline of submission, which they sold to the persons named in the table. Conveniently that table sets out the source from which that evidence has been extracted. 9 I find also that the first respondent, acting through the second respondent, reproduced the operating system program, Windows 98 to a recordable CD ROM, which the first respondent sold to a Mr Fleming on or around December 2001. That reproduction was without the licence of the owner of the copyright, the first applicant, and infringed the first applicant's copyright, that infringement being in breach of s 36 of the Copyright Act 1968 (Cth). 10 From the deemed admissions I would find that the respondents knew that the reproductions which are referred to in paragraphs 15 to 34 of the notice to admit and the supply of copies constituted an infringement of the first applicant's copyright and agree with the submissions that in any event knowledge could readily be inferred from the matters which are dealt with in paragraph 41 of the submissions. 11 The applicants have shown that they commenced proceedings against the second respondent, to which I have already referred, in relation to the infringement by the first applicant of its copyright and trade marks. However, the applicants were unable to locate the individual respondent, Mr Athanasiou, for the purpose of personal service in those proceedings and ultimately the proceedings were discontinued. It seems clear enough from the evidence, and indeed almost to be admitted in a conversation which Mr Athanasiou had, that the respondents were aware not only of the earlier proceedings but more particularly that the conduct they had engaged in constituted an infringement of the copyright of the first applicant. 12 I therefore agree with the submissions in 43 of the outline of submissions that secondary infringement of the first applicant's copyright is made out under s 38 of the Copyright Act 1968 (Cth). The present is what one might well describe as a blatant case. 13 Any suggestion that the first respondent, through Mr Athanasiou, was unaware that making copies of the applicants' programs to download on to computers and thereby enable the respondents to sell those computers to customers with software already loaded on them was a breach of copyright is clearly negated on the evidence. 14 It is difficult to conclude other than that the respondents were likewise aware that what they did in selling CD ROMs of programs of the applicants was in breach of the trade marks owned by the first applicant. 15 I have no difficulty in forming the view which is urged upon me that there is an appreciable threat that the respondents, unless restrained by me, will continue to reproduce the whole or substantial parts of Microsoft programs, at least such as are for use in PCs, in breach of the first applicant's copyright. 16 Likewise I think that there is an appreciable threat that the respondents would be likely, unless restrained, to sell or offer to sell, etcetera, Microsoft programs without the license of the first applicant. I do not think there is any substantial evidence of any threat that the respondents would import into Australia without the licence of the first applicant, Microsoft products. Nothing in the evidence suggests this to be the case. I would accordingly make the order 3(a), (c) and (d) in the short minutes of order but not order 3(b). 17 It follows from what I have already said that the applicants have made out the case of trade mark breach in respect of both the Microsoft trade mark and Windows trade mark and for the reasons referred to in paragraphs 47 and 48 of the outline of submissions and the other matters to which I have already referred, I find that the respondents infringed the first applicant's registered trade marks under s 121 of the Trade Marks Act 1995 (Cth). I agree with the submission that there is a threat of continuing infringement and I would accordingly make the orders 5(a) and (b) in the short minutes of order. 18 Consequentially, I would make the orders in 4 and 6 of those short minutes respectively for delivery up of infringing programs, etcetera, as referred to in those orders. The orders 7 and 8 in the short minutes of order are not pressed in the light of the Trade Practices case not being pressed. 19 I come then to the question of damages. The applicants have proved purchases, which in essence are those referred to in the schedule to which I have already referred. I accept the submission that the appropriate method of calculating damage in the present case is under s 115(2) of the Copyright Act 1968 (Cth) by reference to a licence fee on the basis that the infringer in the present case would, given the choice between not using the work and paying the fee, pay the fee. 20 The consequence, where during the period in which the breaches or infringements took place, namely in January 1999 until October 2002, where the licence fee for a single licensed copy of Microsoft Windows was in excess of A$125 and for Microsoft Office was in excess of A$500, would lead to damages on the proven specific infringements of $4375. Accordingly I would order judgment to be entered in respect of the damages under s 115(2) of the Copyright Act 1968 (Cth) in the sum of $4375. I make therefore the order in paragraph 9, but as interest is not pressed deleting the words in the draft short minutes "plus interest under s 51A of the Federal Courts of Australia Act 1976 in the sum of $_____". 21 There then comes the rather more difficult task of assessing damages where there is no direct evidence before me of sales made by the respondents in the relevant period. The submissions refer me to s 115(4) of the Copyright Act 1968 (Cth) and the ability of the Court to grant additional damages where satisfied that it is proper to do so having regard to the flagrancy of the infringement any benefit shown to have accrued to the respondents by reason of the infringement or any other relevant matters. 22 There seems to me little doubt that the respondents in this case have proceeded, and have deliberately proceeded, to breach the first applicant's copyright in flagrant disregard of the first applicant's rights. There is little doubt that it is likely that the number of infringing copies which the respondents have supplied would be substantial. It has been submitted by the applicants that a significant level of undetected sales should be inferred and that it would be an appropriate way to proceed to assume that at least 10 programs of Microsoft Windows per week would have been sold during the period, with at least four programs a week of Microsoft Office being sold in that period. 23 That submission assumes presumably that the respondents should be inferred to have sold something like 10 PCs a week in the relevant period. It is difficult to know what the extent of the respondents' business was in the period that comprises some 91 weeks. No doubt it is probable that sales in the early period of trading were low as the respondents developed some form of goodwill and thereafter increased. 24 It seems to me more likely than not that if one averaged sales over that period, a vendor of PCs probably would be expected to sell on average something in the order of 10 PCs a week. The applicants submit this is a conservative figure. However, without any assistance at all from the respondents, I am prepared to accept the estimate which has been made and accordingly to calculate the damages under s 115(4) of the Copyright Act 1968 (Cth) as $295,750 but subtracting, of course, therefrom so much of the trap sale figures as included computer sales because otherwise that will involve a double counting. 25 I would make the order dealing with the joint and several liability of the respondents in order 11 save for the reference to interest. That leaves as the only remaining question, the question of costs. Counsel for the applicants has submitted that for the reasons set out in the outline of submissions I should make an order for costs on an indemnity basis. It is said that what may be said to be an unusual order is justified in the present case because the respondents proceeded in lawful disregard of the applicants' rights. Reference was made to three cases where indemnity costs orders were made in copyright cases. 26 It is true, as the applicants submit, that the Court has been deprived of the opportunity to ascertain the full extent of the infringements. The notice to produce has been ignored, assuming of course that it was ever received. It is said that I should infer that the respondents have actively sought to evade service of documents and that I could assume that that conduct would continue hereafter. These matters are said to warrant a departure from the usual cost order on a party and party basis. 27 It can be accepted that it may be said that the special circumstances which justify indemnity cost order could be satisfied where conduct of the party against whom costs are ordered is so unreasonable or is so unjust that the ordinary rule of party and party costs should not apply. On the one hand, it can be said the respondents haven't defended the proceedings and they have allowed, by their default, judgment to be obtained with a minimum amount of difficulty on the part of the applicants. 28 It is true that I accept that the breaches were made in the knowledge of the first applicant's copyright and lease rights, and probably also trade mark rights, which is a relevant matter to take into account. I find the question not an easy one. But on the whole I am inclined not to make the order requested. It seems to me that what is really relevant to the question of whether an indemnity cost order is made is not so much the behaviour of a party before the proceedings are instituted, where that behaviour is the subject of the proceedings themselves, but rather more the behaviour of the party in commencing and thereafter prosecuting or defending, as the case may be, the proceedings. There is a difficulty in the Court treating the manner of computation of costs as being, in essence, a penalty for breach of copyright. 29 Accordingly, I would order that the respondents pay the applicants' costs on a party and party basis in accordance with the ordinary procedure. 30 I am requested to and do make order 13 of the short minutes of order, in respect only of the second respondent, that service of orders on him be effected by forwarding a sealed copy of those orders to 30 Tiller Street, Burwood, East Victoria. In those short minutes there are six definitional expressions. I accept five of those definitions, but not the definition of 'Microsoft programs'. As I noted earlier, the short minutes contain a lengthy list of Microsoft programs of different natures. I do not know all of them. Some of them are games; some of them may or may not be able to be loaded on PCs. The present case is, in essence, about a respondent who sells PCs and in breach of copyright and/or trade mark rights loads that software on to the PCs sold, no doubt making the package sold more attractive to consumers and presumably increasing the profit made. It seems to me that while an order for injunctive relief should not be confined merely to Windows 95, Windows 98, or the Microsoft Office program or even newer versions of those programs (as it is appropriate that the order might cover a game program like Flight Simulator, which might be downloaded onto a PC and therefore make the PC package more attractive) the orders made should not include the programs, for example, which are only for use in a product like a games product such as Microsoft Xbox. 31 Since I have no evidence before me as to the nature of each and every program in the list it seems to me that the definition of Microsoft programs which is used in the injunctive relief I have granted should read as follows: 'Microsoft programs' means all versions of computer programs using the trade mark "MICROSOFT", whether created or released subsequent to the date hereof, being operating systems or application programs for use on personal computers and including associated manuals and documentations therefore it being noted that the definition shall include, but without limiting its generality the programs, Windows 95, Windows 98 and Microsoft Office". 32 So in accordance with those reasons I shall then make all of the orders I have foreshadowed, which are orders 1, 2, 3(a) (c) and (d), 4, 5, 6, 9, as I have noted on the short minutes, and with the word $4375 inserted and the interest reference is left out. In order 10 the figure will be $291,625. I will make order 11 except for the last four words dealing with interest. I make order 12 except deleting the words, "on an indemnity basis". Order 13 will be made inserting the word "second" before the words "respondents", but deleting the last 's' in the word "respondents". I accept all those definitions, except for that of "Microsoft programs" a definition of which I have already indicated. Otherwise the application be dismissed. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 18 March 2003 Counsel for the Applicants: R Cobden Solicitor for the Applicants: Mallesons Stephen Jaques Counsel for the First Respondent: No appearance for the First Respondent. Counsel for the Second Respondent: No appearance for the Second Respondent. Date of Hearing: 7 February 2003 Date of Judgment: 7 February 2003