FEDERAL COURT OF AUSTRALIA Microsoft Corporation & Ors v Ben Zhong Fan [2003] FCA 1026 EVIDENCE – legal professional privilege at common law – dominant purpose - real prospect of litigation PRACTICE AND PROCEDURE – whether discovery "necessary" Evidence Act 1995 (Cth), s 119 Federal Court Rules, O15 r15 ACCC v Australian Safeways Stores Pty Ltd (1998) 81 FCR 526 not followed Commissioner of Taxation v Pratt Holdings Pty Ltd (2003) 195 ALR 717 referred to Commonwealth of Australia v Northern Land Council (1991) 30 FCR 1 referred to Esso Australia Resources Limited v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49 applied Grant v Downs (1976) 135 CLR 674 applied Hartogen Energy Limited v the Australian Gas Light Company (1992) 36 FCR 557 applied Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332 applied Sparnon v Apand Pty Limited (1996) 68 FCR 322 referred to Trade Practices Commission v CC (New South Wales) Pty Ltd and Ors (No4) (1995) 131 ALR 581 referred to Trade Practices Commission v Port Adelaide Wool Company Pty Limited (1995) 60 FCR 366 applied Ventouris v Mountain [1991] 1 WLR 607 referred to MICROSOFT CORPORATION, MICROSOFT PTY LIMITED AND MICROSOFT LICENSING INC v BEN ZHONG FAN TRADING AS BIGBEN COMPUTER N201 of 2002 JACOBSON J 10 OCTOBER 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 201 of 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LIMITED (ABN 29 002 589 460) SECOND APPLICANT MICROSOFT LICENSING INC THIRD APPLICANT AND: BEN ZHONG FAN TRADING AS BIGBEN COMPUTER RESPONDENT JUDGE: JACOBSON J DATE OF ORDER: 10 OCTOBER 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The notice of motion filed on 7 August 2003 is dismissed. 2. The Respondent pays the Applicants' costs of the motion. 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 201 of 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LIMITED (ABN 29 002 589 460) SECOND APPLICANT MICROSOFT LICENSING INC THIRD APPLICANT AND: BEN ZHONG FAN TRADING AS BIGBEN COMPUTER RESPONDENT JUDGE: JACOBSON J DATE: 10 OCTOBER 2003 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 In the principal proceedings, the Applicants ("Microsoft") sue the Respondent for copyright infringement and infringement of Microsoft's trademarks. The infringements are alleged to have occurred on or before 22 December 2001, that date being the date on which the Respondent sold a computer to Trade Mark Investigation Services ("TMIS"), a company retained by Microsoft to conduct investigations for its anti-piracy campaign. The computer is alleged to have contained an unlicensed copy of Microsoft's computer program. 2 Microsoft filed a list of documents on 1 August 2002 in which it claims legal professional privilege for a number of documents produced in connection with the anti-piracy campaign. This list was then amended on 23 August 2002. 3 By a notice of motion filed on 7 August 2003, the Respondent claims that documents numbered 5 to 17 of Part 2 Schedule 1 of the list are not privileged. It no longer presses the claim for documents number 5 and 6 and Microsoft does not press its claim for privilege of document 16. 4 The remaining documents were brought into existence during the period from 26 March 2001 to 11 January 2002. They cover a period of approximately nine months before the computer was sold to TMIS. They also include two documents brought into existence after TMIS's purchase. 5 There were previous infringement proceedings brought by Microsoft against the Respondent. They were proceedings N 1173 of 2000 (the "Earlier Proceedings") which were commenced on 3 November 2000 and resolved by consent orders made on 9 March 2001. The documents which are now the subject of the claim for privilege therefore commence with a document dated about 2 ˝ weeks after the consent orders in the Earlier Proceedings. 6 Microsoft contends that even if the documents are not privileged, I should not make an order for production of the documents unless I am satisfied that the order is "necessary" as required by O15 r15. Microsoft contends that the documents are not necessary because they bear no relation to the issues between the parties and will not assist in the fair disposal of the matter. 7 This is because there is no issue in the principal proceedings that the computer was purchased by TMIS on 22 December 2001. The only issue for determination is whether the infringing software was reproduced on the computer prior to its sale. The evidence in support of the claim for privilege 8 Microsoft's evidence is contained in an affidavit of Ms S Kaisser dated 25 July 2003. She is a "paralegal" for Microsoft Pty Limited and has worked in Microsoft's Law and Corporate Affairs Department since 22 September 1997. 9 Although Ms Kaisser describes herself as a paralegal, it appears that her duties are more extensive than those which would usually be undertaken by persons of that job description employed by law firms. 10 Ms Kaisser has been responsible for administering the enforcement of Microsoft's intellectual property rights and the conduct of an anti-piracy campaign in Australia. She reports directly to the Asia Pacific Counsel for Microsoft. 11 Microsoft's anti-piracy campaign comprises investigative and legal action taken by Microsoft on a regular and on-going basis against Australian companies and individuals suspected or found to be infringing Microsoft's copyright and trademarks through the manufacture or supply of counterfeit or unlicensed Microsoft software. 12 Ms Kaisser has been closely involved in the conduct and management of the campaign since September 1997. She says that she has detailed knowledge of Microsoft's practices in relation to infringers, including gathering of evidence, seeking of legal advice and instructing solicitors. 13 Ms Kaisser's affidavit refers in some detail to her knowledge of steps taken in the anti-piracy campaign. 14 Microsoft relies on leads about suspected infringers, including leads obtained from its own general surveillance activities conducted by licensed private investigators such as TMIS. TMIS has been engaged by Microsoft since 1994 to conduct investigations of persons or companies suspected of infringement. 15 As part of the investigation process, the investigator usually attempts to make a purchase of Microsoft software from a suspected infringer, either as a standalone product or as software installed on a computer. 16 Ms Kaisser states that where Microsoft's investigation processes are undertaken Microsoft instructs its investigators to conduct investigations of suspected infringers with a view to instructing its solicitors to commence legal proceedings unless the investigation does not support the commencement of a case or the infringer agrees to resolve the matter. 17 Once Microsoft obtains the investigator's report and confirms that it is consistent with infringement, Microsoft forwards the report to its solicitors with instructions to commence proceedings or send a letter of demand. 18 Ms Kaisser states that in her experience many infringers against whom Microsoft takes legal action continue to infringe after the original action is resolved. She says that for this reason Microsoft often instructs its investigators to conduct a follow up investigation. The same procedures with respect to instructing solicitors are then followed. In most cases, reports are sent to Microsoft's solicitors to examine the evidence and advise on the commencement of further action. 19 Despite the detailed explanation of Microsoft's procedures, Ms Kaisser's affidavit contains no evidence of the steps taken in relation to the investigation conducted by TMIS against the Respondent. 20 Ms Kaisser says that the documents in respect of which privilege is claimed contain highly confidential and sensitive information about Microsoft's anti-piracy campaign, including the identity of persons who are, or were previously, under investigation. 21 As to the specific documents for which privilege is claimed, Ms Kaisser divides them into four categories. 22 The first category is described as confidential communications between employees of Microsoft and TMIS about the conduct and outcome of investigations in relation to the Respondent and the Respondent's business activities. 23 The second category is described as confidential investigation reports prepared by TMIS and forwarded to Microsoft and/or Microsoft's solicitors in relation to the Respondent and the Respondent's activities regarding the supply of Microsoft software. 24 The third category is described as confidential investigation reports prepared by TMIS and forwarded to Microsoft and/or Microsoft's solicitors in relation to the service of Court documents on the Respondent in the Earlier Proceedings. 25 The fourth category is described as confidential status reports prepared by TMIS in relation to current, pending and completed investigations including investigations relating to the Respondent and the Respondent's business activities. 26 As to the first and second categories, Ms Kaisser states that each of the documents was "for the purpose of Microsoft obtaining legal advice in relation to the commencement of legal proceedings against the Respondent". She does not say whether the purpose was the sole purpose or the dominant purpose. 27 Ms Kaisser does not use the language of dominant purpose in describing the claim for privilege for the third and fourth categories. Each of the documents falling into those categories is said to be for the "primary" purpose. 28 The third category is said to have been "for the primary purpose of Microsoft being provided with legal services in relation to existing or prior proceedings against the Respondents." 29 The fourth category is said to have been "for the primary purpose of Microsoft obtaining legal advice in relation to the commencement of legal proceedings against the individuals and companies named in those reports." 30 In the concluding paragraph of her affidavit Ms Kaisser states that Microsoft first instructed its solicitors in relation to the Respondent's conduct in August 1999. Shortly after that date, the solicitors sent a letter of demand to the Respondent. Whether the claim for privilege has been made out 31 Mr Bartos, who appeared for the Respondent, contends that the claim which Microsoft puts forward is for litigation privilege under s 119 of the Evidence Act 1995 (Cth). 32 Ms Bowne, who appeared for Microsoft, agrees that the claim is for litigation privilege. But in her submission the claim is governed by the common law because privilege is invoked in relation to discovery of documents. 33 In my opinion, the claim is to be determined under the common law. It would be contrary to the decision of the High Court in Esso Australia Resources Limited v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49 ("Esso") at 59 to apply the provisions of the Evidence Act to a claim for privilege over discovered documents. 34 Thus, the test for whether privilege attaches is as stated by Barwick CJ in Grant v Downs (1976) 135 CLR 674 at 677 as follows:- "… a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection." 35 See also Commissioner of Taxation v Pratt Holdings Pty Ltd (2003) 195 ALR 717 at [39] (per Kenny J). 36 Two questions arise in the present application. The first is whether the documents were prepared or brought into existence for the dominant purpose of use in or in relation to the litigation. 37 The second question is whether litigation was in reasonable prospect when the documents were produced or brought into existence. 38 The purpose for which a document is brought into existence and its intended use is a question of fact; see Grant v Downs at 692 (per Jacobs J); see also Hartogen Energy Limited v the Australian Gas Light Company (1992) 36 FCR 557 ("Hartogen") at 568 (per Gummow J). 39 As Gummow J said in Hartogen at 568, the purpose will ordinarily be that of the maker of the document but this will not always be so. The purpose will extend to that of the person under whose direction, whether particular or general, the document was produced or brought into existence; see Grant v Downs at 677 (per Barwick CJ); see also Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332 ("Mitsubishi") at [14] per Batt JA. 40 The question of whether legal proceedings are in reasonable prospect is also a question of fact. It requires a consideration of the existing state of facts and the subject matter which gives rise to the context in which the document comes into existence or the communication is made; see ACCC v Australian Safeways Stores Pty Ltd (1998) 81 FCR 526 ("Safeways") at 559 (per Goldberg J). 41 There is a difference of views between Goldberg J and the Victorian Court of Appeal in Mitsubishi as to when proceedings can be said to be anticipated. Goldberg J expressed the view that there must be a reasonable probability or likelihood that proceedings will be commenced – they must be more probable than not (at 559). 42 In Mitsubishi, Batt JA was of the view that there must be a real prospect of litigation, as distinct from a mere possibility, but it does not have to be more likely than not (at [19]). 43 The fact that solicitors are instructed at an early stage is some indication that litigation was in contemplation; see Mitsubishi at [22]. 44 In answering the questions as to whether the documents satisfy the dominant purpose test and the reasonable prospect of litigation requirement it is instructive to consider the documents chronologically. 45 The starting point is that Microsoft first instructed its solicitors about the Respondent's conduct on 1 August 1999 and a letter of demand was sent on 23 August 1999. 46 The Earlier Proceedings were commenced on 3 November 2000 and resolved by consent orders made on 9 March 2001. 47 The first document for which privilege is claimed is Document 7. It is dated 26 March 2001. It is described in Microsoft's list of documents as a file note of a telephone conversation between K Taylor of TMIS and R Cope, a legal associate employed by the Second Applicant in the Second Applicant's Law and Corporate Affairs Department. 48 Document 7 is said by Ms Kaisser to be a confidential communication regarding the conduct and outcome of investigations in relation to the Respondent and his business activities for the purpose of Microsoft obtaining legal advice in relation to the commencement of legal proceedings against the Respondent. 49 Document 8 is described in the list as a report prepared by TMIS dated 27 March 2001 and forwarded to Microsoft's solicitors. 50 Ms Kaisser says it is a confidential investigation report regarding the service of court documents on the Respondent in the Earlier Proceedings. She says it was prepared for the primary purpose of obtaining legal services in relation to prior or existing legal proceedings against the Respondent. 51 Document 9 is described as a report prepared by TMIS dated 23 May 2001 and forwarded to Microsoft's solicitors. 52 Ms Kaisser says it is a confidential investigation report regarding the Respondent's activities with regard to the supply of Microsoft software. She says it was prepared for the purpose of obtaining legal advice in relation to the commencement of legal proceedings against the Respondent. 53 Document 10 is described as email correspondence dated 30 June 2001 from an employee of the First Applicant's Law and Corporate Affairs Department to R Cope. 54 Ms Kaisser says that the document is a confidential communication regarding the conduct and outcome of investigations in relation to the Respondent and his business activities. She says it was prepared for the purpose of obtaining legal advice in relation to the commencement of legal proceedings. 55 Document 11 is described as a memo from R Cope to K Taylor dated 2 July 2001. 56 Ms Kaisser says it is a confidential communication regarding the conduct and outcome of investigations in relation to the Respondent and his business activities. She says it was prepared for the purpose of obtaining legal advice in relation to the commencement of legal proceedings. 57 Document 12 is described as an email from K Taylor to R Cope dated 19 July 2001 annexing a status report of the same date. 58 Ms Kaisser says it is a confidential status report in relation to current, pending and completed investigations, including investigations in relation to the Respondent and his business activities. She says it was prepared for the primary purpose of obtaining legal advice in relation to the commencement of legal proceedings against the person named in the report. 59 Document 14 is described as an email from R Cope to TMIS dated 18 December 2001. 60 Ms Kaisser says the document is a confidential communication regarding the conduct and outcome of investigations in relation to the Respondent and his business activities. She says it was prepared for the purpose of obtaining legal advice in relation to the commencement of legal proceedings against the Respondent. 61 Four days after the date of the email of 18 December 2001, that is, on 22 December 2001, TMIS purchased the computer from the Respondent which is alleged to contain the infringing software. 62 Document 15 consists of two reports. The first is dated 28 December 2001 and is described as a report prepared by TMIS. The second report is described as a report prepared by TMIS dated 23 August 2001. The list of documents states that the report, without stating which of them, is addressed to R Cope. 63 Ms Kaisser says the documents are confidential investigation reports regarding the Respondent's activities with regard to the supply of Microsoft software. She says they were prepared for the purpose of obtaining legal advice in relation to the commencement of proceedings against the Respondent. 64 The first of the two documents comprising Document 15 was dated six days after the purchase of the computer by TMIS on 22 December 2001. 65 Document 17 is described as an email from K Taylor to R Cope dated 11 January 2002 annexing a status report of the same date. 66 Ms Kaisser says that the document is a confidential status report prepared in relation to current, pending and completed investigations including investigations in relation to the Respondent and his business activities. She says that it was prepared for the primary purpose of Microsoft obtaining legal advice in relation to the commencement of legal proceedings against the individuals and companies named in the report. 67 Approximately two months later on 13 March 2002, Microsoft commenced these proceedings. 68 It seems to me that the inescapable inference which must be drawn from the chronology is that after the Earlier Proceedings Microsoft was monitoring the business activities of the Respondent to determine whether the Respondent was in compliance with the consent orders made in the Earlier Proceedings. Microsoft did so through its investigators, TMIS, who reported to and obtained instructions from R Cope. These activities were undertaken with a view to commencing fresh proceedings or filing a contempt motion. 69 I would also infer that Microsoft's monitoring activities continued for a period of nearly nine months, ie from March 2001 to December 2001, before Microsoft was satisfied that there was a sufficiently strong basis for making what amounted to a "trap purchase" on 22 December 2001. 70 Microsoft's solicitors were apparently not satisfied that the report dated 23 May 2001, which was forwarded to the solicitors, provided a sufficient evidentiary basis for commencement of proceedings. 71 It is hard to see what explanation there could be for these events other than that Microsoft was contemplating legal proceedings against the Respondent from at least 26 March 2001. 72 In my view this is sufficient to amount to a real prospect of litigation as distinct from a mere possibility. I cannot say it was more probable than not that as at 26 March 2001 proceedings would be instituted. However, I have given careful consideration to whether that is in truth a requirement for the privilege to attach. In my opinion, it is not. 73 I do not think that Goldberg J was plainly wrong when he formulated the test in those terms but I think the better view is that expressed by Batt JA in Mitsubishi. As a single judge, considering the views of another single judge of the Court, I am most reluctant to depart from what Goldberg J said but I do not see that I am precluded from doing so. 74 It seems to me that Goldberg J was influenced in the view which he expressed about the degree of probability of proceedings by the following remarks which he made in an earlier passage in his judgment at 545 to 546 as follows:- "The process of investigation is logically anterior to, and a precursor to, the point at which it may be said that proceedings are prospective or reasonably anticipated. If evidence is required for proceedings it can be expected that until that evidence gathering process is well advanced, a view will not be able to be formed that proceedings are prospective or reasonably anticipated. That is a reason why it is difficult to ascribe a dominant purpose to the preparation of the anticipated proceedings before the evidence gathering process is well advanced and the evidence has been evaluated." 75 In my opinion to place on a party invoking legal professional privilege the onus of establishing that the evidence gathering process is sufficiently "well advanced" to form a conclusion that proceedings are in reasonable prospect would impose an unworkable barrier. Whist I respect his Honour's views, I do not think this barrier is supported by the authorities. 76 Once it is accepted that these documents were prepared for the purpose of litigation which was in reasonable prospect it is difficult to escape from the conclusion that the purpose for which each of the documents was prepared was for advice or use in or in relation to the litigation. It is also difficult to see why the purpose was not the dominant purpose. 77 It is unsatisfactory that Microsoft has not adduced evidence to prove the inferences which have led me to the views that I have reached. It is also unsatisfactory that Ms Kaisser has not spoken in the language of dominant purpose. 78 I note that in Grant v Downs at 678 Barwick CJ said that the word "primary" did not describe the true basis for the privilege. However, the use of verbal formulae in an affidavit cannot determine the finding of fact which I must make. In my view, the documents were prepared for the dominant purpose within the test stated by Barwick CJ. Order 15 rule 15 79 The rule is in the following terms:- "The Court shall not make an order under this Order for the filing or service of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made." 80 In view of the conclusion I have reached that the documents are privileged, I do not need to consider whether I am satisfied that the documents are "necessary". 81 However, the preliminary view I have reached is that with the possible exception of documents 15 and 17, the documents are not necessary within the meaning of the rule. 82 In Esso at 64, Gleeson CJ, Gaudron and Gummow JJ said that the necessity to which O 15 r 15 refers is the necessity for the fair disposition of the case. See also Trade Practices Commission v CC (New South Wales) Pty Ltd and Ors (No4) (1995) 131 ALR 581 at 590 (per Lindgren J). 83 The difficulty which Microsoft faces on this issue is that it has included the documents in its list. Thus, as a full court of the Federal Court (Black CJ, Gummow and French JJ) said in Commonwealth of Australia v Northern Land Council (1991) 30 FCR 1 at 25, where a party has conceded that the documents satisfy the broadest test of discoverability:- " ... it cannot now be contended that the possibility that they may contain material relating to matters in question between the parties is merely speculative." 84 Microsoft seeks to overcome this difficulty in a number of ways. First, it submits that the discovery process is "not an uncontrollable juggernaut" and that production and inspection are not automatic once it is established that the documents are relevant and not privileged; see Ventouris v Mountain [1991] 1 WLR 607 at 622, per Bingham LJ (with whom Parker LJ and Sir Michael Kerr agreed). 85 Second, Microsoft points to the wide discretion to which Branson J referred in Sparnon v Apand Pty Limited (1996) 68 FCR 322 at 325-326. Her Honour there stated that the Court has a wide discretion under O 15 r 15 to decline to order that discovered documents be produced for inspection. 86 I do not need to decide whether these authorities are sufficient to overcome the concession which flows from the inclusion of the documents in the list. 87 However, if I did have to decide the question, I would have considerable sympathy for the proposition that O 15 r 15 enables me to test whether, notwithstanding the concession, the documents are truly necessary for the fair disposition of the case. 88 Necessity is to be determined at the time when an order is made; Trade Practices Commission v Port Adelaide Wool Company Pty Limited (1995) 60 FCR 366 at 369 (Branson J). 89 The only real issue in the proceedings is when the allegedly infringing software was installed on the hard discs, ie was it installed at the time of sale on 22 December 2001. 90 The respondent submits that the documents may lead to a train of enquiry which may establish that there was a tampering with the hard discs following the purchase of the computers from the respondent. 91 The issue of tampering is not pleaded but the respondent's affidavit evidence appears to raise a theoretical possibility that date and time stamps on the hard discs may have been changed following the purchase of the computers. 92 In my view it is open to the respondent to seek to make that case as part of its denial of the allegation of infringement. 93 However, the only documents which could have any possible probative material bearing on this issue are documents which post date the sale of the computers, ie documents after 22 December 2001. 94 I reject the respondent's submission that documents which pre-date the sale are necessary documents on the issue of damages. Orders 95 The orders I will make are that the motion is dismissed with costs and the Respondent pay the Applicants' costs of the motion. I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 10 October 2003 Counsel for the Applicant: A Bowne Solicitor for the Applicant: Mallesons Stephen Jaques Counsel for the Respondent: J Bartos Solicitor for the Respondent: Bury Solicitors Date of Hearing: 4 September 2003 Date of Judgment: 10 October 2003