FEDERAL COURT OF AUSTRALIA EdSonic Pty Ltd v Cassidy (No 2) [2011] FCA 577 Citation: EdSonic Pty Ltd v Cassidy (No 2) [2011] FCA 577 Parties: EDSONIC PTY LTD (ACN 094 797 010) v BARBARA CASSIDY; BARBARA CASSIDYv EDSONIC PTY LTD (ACN 094 797 010), EDSONIC AUSTRALIA PTY LTD (ACN 101 545 206) and ROBIN LICK File number: NSD 517 of 2009 Judges: MOORE J Date of judgment: 31 May 2011 Catchwords: COPYRIGHT – assessment of damages – principles applicable Legislation: Copyright Act 1968 (Cth) s115 Cases cited: General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] RPC 197 Larrikin Music Publishing Pty Ltd (ACN 003 839 432) v EMI Songs Australia Pty Ltd (ACN 000 063 267) (No 2) (2010) 270 ALR 481 TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 239 ALR 117 Date of hearing: 2 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 15 Counsel for the Applicant The Applicant did not appear Counsel for the Respondent: S P Brennan (Pro Bono) IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 517 of 2009 BETWEEN: EDSONIC PTY LTD (ACN 094 797 010) Applicant BARBARA CASSIDY Cross-Claimant AND: BARBARA CASSIDY Respondent EDSONIC PTY LTD (ACN 094 797 010) First Cross-Respondent EDSONIC AUSTRALIA PTY LTD (ACN 101 545 206) Second Cross-Respondent ROBIN LICK Third Cross-Respondent JUDGE: MOORE J DATE OF ORDER: 31 MAY 2011 WHERE MADE: SYDNEY THE COURT DECLARES THAT: 1. The cross-claimant, Barbara Molly Cassidy is the owner of an amount of $16,193.68 plus any interest being undisputed allocations received by Copyright Agency Limited on behalf of the first and second cross-respondents as referred to in the letter from Copyright Agency Limited to Cassidy dated 17 February 2011. 2. The cross-claimant, Barbara Molly Cassidy is the owner of an amount of $21,194.74 plus any interest, being allocations in suspense received by Copyright Agency Limited on behalf of the first and second cross-respondents, as referred to in the letter from Copyright Agency Limited to Cassidy dated 17 February 2011. THE COURT ORDERS THAT: 3. The cross-respondents to pay the amount of $165,000.00 to the cross-claimant on or before 24 July 2011 plus interest in accordance with Order 35 Rule 8 of the Federal Court Rules. 4. The cross-respondents pay the cross-claimants the costs of the proceedings on and from 12 November 2010. 5. Leave be given to continue these proceedings against the third cross-respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 517 of 2009 BETWEEN: EDSONIC PTY LTD (ACN 094 797 010) Applicant BARBARA CASSIDY Cross-Claimant AND: BARBARA CASSIDY Respondent EDSONIC PTY LTD (ACN 094 797 010) First Cross-Respondent EDSONIC AUSTRALIA PTY LTD (ACN 101 545 206) Second Cross-Respondent ROBIN LICK Third Cross-Respondent JUDGE: MOORE J DATE: 31 MAY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This judgment deals with what orders should be made consequential on the orders made on 12 November 2010. It should be noted, at the outset, that Ms Cassidy, the cross-claimant, has been confronted by two events that have made it difficult to martial material to establish the evidentiary foundation for orders in her favour. The first is that the third cross-respondent, Mr Lick, is now a bankrupt, a result of a debtor's petition he presented shortly after Ms Cassidy obtained judgment in her favour against the various cross-respondents. If it is necessary, I grant Ms Cassidy leave to continue the proceedings against Mr Lick. The second is that Mr Lick has, as the sole director of the corporate cross-respondents at relevant times, refused to comply or give effect to directions requiring the corporate cross-respondents to produce documents enabling, at least as a first step, Ms Cassidy to make the election contemplated in order 14 of the orders made on 12 November 2010. That refusal has been compounded by the nonappearance of the corporate cross-respondents in the proceedings. 2 Ultimately Ms Cassidy has elected to pursue damages and ancillary orders which would result in the release to her of a proportion of the funds held by Copyright Agency Limited (CAL) and to do so on evidence presently available. That evidence included evidence she gave about an analysis she had undertaken, in conjunction with her former solicitors, of material marketed and sold by the first or second cross-respondent which revealed the extent to which that material contained material she had written and in respect of which she has orders in her favour declaring her to be the owner of the copyright in it. The evidence also included documents produced by the respondents during the discovery process before the trial in June 2010. 3 Ms Cassidy gave evidence to the following effect, which I accept. Firstly having regard to her scrutiny of the corporate respondents' website from time to time since 2002, the only material marketed, and I infer sold, by those respondents was the material analysed by her in the way mentioned in the preceding paragraph. Secondly the analysis revealed that approximately 44.5%, in aggregate, of the material was constituted by content she had written and in respect of which the orders were made on 12 November 2010 declaring her to be the owner of the copyright. 4 I am prepared to infer, in the absence of evidence to the contrary from the cross-respondents that the works for which CAL has been collecting payments on behalf of the corporate cross-respondents was material referred to in the preceding paragraph. I am also prepared to infer that the sums retained by CAL are, as to 44.5%, referable to the reproduction of content, the copyright of which is owned by Ms Cassidy. I am satisfied orders should be made as between Ms Cassidy and the cross-respondents declaring her interest in those sums. CAL is not a party to these proceedings. It will be a matter for it to determine what steps it takes to disperse or distribute those sums. 5 In relation to damages, counsel for Ms Cassidy points to the profit and loss statements provided during discovery of the first cross-respondent and later the second cross-respondent. They reveal: 6 Counsel for Ms Cassidy submitted that the damages should be assessed only by reference to the income from CD and other sales without regard to operating expenses and other costs of sale. I find this difficult to accept. 7 As Finkelstein J explained in TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 239 ALR 117 at [206], there are two common methods of assessing damages in copyright cases. The first is the licence fee (or royalty) method where what is recovered is the sum equal to the fee that would fairly be charged for use of the copyright work. The second is the lost profit method. His Honour at [207] explained that when assessing damages where the plaintiff and defendant are in actual or potential competition: Then lost profit is usually the best measure of damage. The plaintiff must show that he has lost sales to the defendant as a result of the infringement and quantify the loss suffered. This requires the court to explore the counterfactual hypothesis of the contracts the plaintiff would have obtained absent the infringement and the costs associated with them. Necessarily the process will involve a degree of speculation, but that is no bar to recovery. The claim is not for loss of revenue but for loss of profits. The profits to be calculated are the lost net profits. By net profits I mean revenue less all costs including variable and indirect costs, but not including income tax. Care must be taken to ensure that costs savings are brought to account. If a plaintiff sells less of his products he will have less costs and that should be treated as a gain to be offset against the lost revenue which forms the basis of the computation of lost profits. The plaintiff is also entitled to recover indirect losses (such as damage to goodwill) as long as the cause is the infringement, the loss is foreseeable and is not unduly speculative. It will often be impossible to be precise in the calculation of lost profit. If needs be, the calculation can be rough and ready, with the benefit of any doubt favouring the plaintiff. (Emphasis added) 8 Damages under the Copyright Act 1968 (Cth) are claimable under s 115(2) in an action for infringement of copyright. This section provides that a court may grant relief by way of injunction, and, if the court considers it appropriate, either damages or an account of profit. Additional damages may also be granted under s 115(4). 9 Damages are compensatory in nature: General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] RPC 197. The claimant is entitled to such damages as would, as far as possible, restore the injured party to the position they would have been in had the actionable wrong not taken place: Baltic Shipping Co v Dillon (The Ship Mikhail Lermontov) (1993) 176 CLR 344 at 362. The damages are not to punish the respondent but to compensate for the loss suffered as a result of the infringement: Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1. The court must do its best to quantify the loss even if this requires "a degree of speculation and guesswork". As long as a broad estimate can be made, "uncertainty in the quantification of damage…does not prevent an assessment": Sony Computer Entertainment Australia Pty Ltd v Stirling [2001] FCA 1852 at [7]; Aristocrat Technologies Australia Pty (ACN 001 660 715) v D.A.P. Services (Kempsey) Pty Limited (in liquidation) (ACN 055 803 542) (2007) 157 FCR 564 at [99]. The Court is not relieved of the responsibility of estimating damages even if the task is difficult or requires speculation: Elwood Clothing Pty Ltd (ACN 079 393 696) v Cotton On Clothing Pty Ltd (ACN 052 130 462) (2009) 81 IPR 378 at [24]. 10 As Finkelstein J has said in TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3)at [205]: In a copyright case, however, the question should simply be one of causation. What has the plaintiff shown to be the loss caused by the infringement and what is the amount of that loss? His Honour considered at [246] that the facts of the case highlighted the reason for the rule that the lost profit that is recoverable is the net profit. The "best case" scenario of an applicable net profit margin of 6% ($25,500), the "worst case" scenario of 12% ($655,000) and the more "realistic" 9% net profit ($164,000) were assessed. The amount awarded was $200,000 based on the various calculations performed by expert witnesses and a process described by Finkelstein J at [251] as "not in the least a scientific one. To be frank, the task is much like an exercise of judicial discretion." 11 In Larrikin Music Publishing Pty Ltd (ACN 003 839 432) v EMI Songs Australia Pty Ltd (ACN 000 063 267) (No 2) (2010) 270 ALR 481, Jacobson J at [29] – [34] set out the relevant principles applicable to an award of damages for copyright infringement (where the copyright work had been incorporated in the work of another) as stated by Pumfrey J in Ludlow Music Inc v Williams (No 2) [2002] EWHC 638 (Ch) at [38] – [48]: First, the respondents being wrongdoers, damages should be liberally assessed but the object is to compensate the applicant, not to punish the respondents. Second, it is common practice in the music industry for the owner of the copyright in a work to grant a licence to a person who seeks to use part of the original work in a derivative work. In those instances the owner of the copyright will grant a licence in return for a share of the copyright (or a share of the income) in or from the derivative work. Third, when an infringer uses the copyright work without a licence, the measure of the damages it must pay will be the sum which it would have paid by way of royalty if, instead of acting "illegally", it had acted legally. Fourth, where (as in the present case) there is no "normal" rate of royalty or licence fee, evidence may be adduced of practice in the industry including expert evidence of factors which may guide the court in the determination of the applicable rate. Evidence of that type will be general and hypothetical and it will be a matter for the court to determine the weight to be given to it. Fifth, where (as in the present case) some form of royalty or profit share is appropriate, the basis for the assessment is a transaction between a willing licensor and a willing licensee. The assessment has to be made upon all the relevant evidence which may include evidence of rates agreed in other similar or "comparable transactions". Sixth, the process is one of judicial estimation. Mathematical precision is not attainable. It would appear that it the court is to err, it should do so on the side of generosity to an applicant. His Honour concluded, after considering all the relevant factors in that case, that the percentage of interest payable in Larrikin Music Publishing Pty Ltd (ACN 003 839 432) v EMI Songs Australia Pty Ltd (ACN 000 063 267) (No 2) should be at the lowest end of the spectrum and distinguished at [218] the qualitative and quantitative comparison to be undertaken in an assessment of damages from the issue of infringement. 12 The following is said in the often cited statement of Fletcher Moulton LJ in Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157, 165: I am inclined to think that it would be right for the Court to consider what would have been the price which – although no price was actually quoted – could have reasonably been charged for that permission, and estimate the damage in that way. Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. But I am not going to say a word which will tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reason of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully. (Emphasis added) Conclusion 13 It has not been possible to estimate the damages with mathematical precision. The evidence included the profit and loss statements for the first cross-respondent from 2002 to 2005 and for the second cross-respondent from 2004 to 2009. These statements indicate that the average of operating profit before tax was approximately $46,500.00. In aggregate, the profit was $372,000.00. In addition Ms Cassidy estimated from an analysis of the corporate respondents' website since 2002 that approximately 44.5% of the material was made up of content she had written. As noted earlier, Ms Cassidy's capacity to provide more detailed evidence was limited by the refusal of Mr Lick to comply with orders for production of documents. I will asses the damages liberally and in accordance with the principles of judicial estimation in order to compensate Ms Cassidy for the loss caused by the cross-respondent's infringing conduct. 14 Considering the average profit made by the corporate cross-respondents, the percentage of the content written by Ms Cassidy and the number of years over which the profit was enjoyed by the cross-respondents, I assess compensatory damages of the amount of $165,500.00 in favour of Ms Cassidy. She is entitled to interest on that sum. In relation to the moneys allocated by CAL as a result of the reproduction or communication of Ms Cassidy's material, I find that Ms Cassidy is entitled to 44.5% of those amounts which, I assume, are to be released by CAL to Ms Cassidy. Ms Cassidy is entitled to her costs. 15 I do not think it is appropriate to order additional damages under s 115(4). Additional damages are awarded in cases where there is a need for deterrence or where the conduct was "vindictive, reprehensible or malicious" and deserves punishment: TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) at [211]. It was not until I gave judgment on 17 September 2010 that it would have been apparent to the cross-respondents that it was Ms Cassidy and not them who owned the copyright in the contentious material. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 31 May 2011