FEDERAL COURT OF AUSTRALIA University of Sydney v ObjectiVision Pty Limited [2017] FCA 554 File number: NSD 385 of 2014 Judge: BURLEY J Date of judgment: 22 May 2017 Catchwords: PRACTICE AND PROCEDURE – application for leave to file further amended statement of cross-claim – leave granted COSTS – security for costs – order for costs of application and costs thrown away by reason of the amendments Legislation: Copyright Act 1968 (Cth) ss 36, 38 Federal Court Rules 2011 (Cth) r 16.43 Cases cited: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 Gloucester Shire Council v Fitch Ratings, Inc (No 2) [2017] FCA 248 Lee v Westpac Banking Corporation [2015] FCA 467 Milpurrurru v Indofurn Pty Ltd [1994] FCA 975; (1994) 30 IPR Patrick v Capital Finance Pty Ltd [2003] FCA 206 Polygram Records Inc v Raben Footwear Pty Limited [1996] FCA 797; (1996) 35 IPR 426 Raben Footwear Pty Ltd v Polygram Records Inc & Anor [1997] FCA 370; (1997) 75 FCR 88 The University of Sydney v ObjectiVision Pty Limited [2016] FCA 1199 Date of hearing: 11 May 2017 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated statutes Category: Catchwords Number of paragraphs: 36 Counsel for the Applicant/First Cross-Respondent: Mr P W Flynn with Mr D B Larish Solicitor for the Applicant/First Cross-Respondent: King & Wood Mallesons Counsel for the Respondent/Cross-Claimant: Mr R Cobden SC Solicitor for the Respondent/Cross-Claimant: Allens Counsel for the Second Cross-Respondent: Mr C Dimitriadis SC with Ms G Rubagotti Solicitor for the Second Cross-Respondent: Norton Rose Fulbright Australia ORDERS NSD 385 of 2014 BETWEEN: THE UNIVERSITY OF SYDNEY ABN 15 211 513 464 Applicant AND: OBJECTIVISION PTY LIMITED ACN 090 253 697 Respondent AND BETWEEN: OBJECTIVISION PTY LTD ACN 090 253 697 Cross-Claimant AND: THE UNIVERSITY OF SYDNEY ABN 15 211 513 464 First Cross-Respondent VISIONSEARCH PTY LTD ACN 150 067 271 Second Cross-Respondent JUDGE: BURLEY J DATE OF ORDER: 22 MAY 2017 THE COURT ORDERS THAT: 1. The parties confer, and provide, within seven (7) days, a form of draft orders addressing all matters currently relevant to the management of the proceedings, including the matters listed at [36] of the reasons for judgment delivered on 22 May 2017. 2. The matter be listed for a case management hearing at 9.30 am on 13 July 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BURLEY J: 1 By interlocutory application dated 17 March 2017, the cross-claimant, ObjectiVision Pty Limited (ObjectiVision), now seeks orders that it have leave to file a Further Amended Statement of Cross-Claim (FASC) and that it pay the costs of the first cross-respondent (University) and the second cross-respondent (Visionsearch) thrown away by reason of the amendments. It offers to provide security for costs to the University in the amount of $30,000, which amount is additional to security for costs previously provided to the University. 2 ObjectiVision has made a number of attempts to amend its cross-claim in these proceedings. I gave a decision on 10 October 2016 in The University of Sydney v ObjectiVision Pty Limited [2016] FCA 1199 (2016 decision) which, inter alia, refused some amendments and gave limited leave to file further clarifying amendments. Following that decision, on 24 October 2016 a first version of a FASC was served. The cross respondent objected and on 22 November 2016 a second version was proposed. This was again the subject of objection and on 1 December 2016 the University informed ObjectiVision that it would not agree to any further extension of time for considerations regarding the FASC. On 3 March 2017 ObjectiVision served its third version of the FASC. There is no dispute that the form of each of the amended versions of the FASC exceeded the leave given in the 2016 decision and that accordingly the leave of the Court would be necessary before they could be filed. 3 After service by ObjectiVision of the third form of the FASC, the parties engaged in a fruitful and sensible dialogue which resulted in the bulk of the amendments then proposed being either dropped, amended or agreed. However, a "Maginot Line" was drawn by the respondents in relation to 3 aspects of the pleading. First, the pleading of a cause of action under s 38 of the Copyright Act 1968 (Cth) (Act) contained in [70] and [71], secondly a pleading that Visionsearch knew that the making of copies of TERRA infringed copyright in OPERA contained in [81A] and [81B], and thirdly a pleading of a case against the University contained in [83A] – [83J] (collectively, the disputed amendments). 4 Shortly prior to the hearing ObjectiVision supplied additional particulars designed to address some of the concerns raised by the respondents, and during the course of argument counsel for ObjectiVision, Mr Cobden SC, proposed additional changes to the draft pleading of the disputed amendments, which had the effect of narrowing and clarifying further aspects of the amended case. After the hearing of the interlocutory application, ObjectiVision served a further form of the FASC that reflected these changes. It is this form that I now address. 5 The proceedings are well advanced and have been set down for a hearing over four weeks commencing in March 2018. The parties are in the midst of a timetable for the preparation of evidence and it is desirable that the issues raised on the interlocutory application be dealt with expeditiously. Accordingly, by agreement of the parties, these reasons are delivered in a short form so that the proceedings can go forward without delay. 6 The University submits that the disputed amendments ought not to be allowed at the outset as a matter of discretion, bearing in mind the history of previous amendments sought, the contents of the 2016 decision and the delay. It submits that if the amendments are allowed, they will cause the University to suffer prejudice. The University completed and served its evidence in answer on the cross-claim in December 2016. It did so on the basis of ObjectiVision's case as then pleaded. It submits that it made forensic decisions in the completion of its evidence that might not have been made had the disputed amendments been made. These factors, coupled with the difficulties caused by raising new issues late in the proceedings, when witnesses' recollections are likely to have diminished and when there are undoubted inefficiencies caused by having to prepare yet a further round of evidence from the same witnesses, indicates that the disputed amendments should be refused. In this regard the University cites the principles set out in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (Aon); Patrick v Capital Finance Pty Ltd [2003] FCA 206 at [10] (Tamberlin J) and Gloucester Shire Council v Fitch Ratings, Inc (No 2) [2017] FCA 248 at [86] (Wigney J). 7 Visionsearch adopts the same position as the University in response to the amendments. It additionally contends that the amendments introduced by [81A] and [81B] of the FASC raised new allegations. Unlike the University, Visionsearch has not filed its evidence in answer on the cross-claim. 8 It is necessary to commence consideration of the disputed amendments by identifying the copyright infringement case brought by ObjectiVision in the form pleaded prior to the disputed amendments (that is, in the form of Exhibit 2, without the marked up passages). 9 In summary, ObjectiVision pleads that it is the owner of copyright in the source code for software known as OPERA v2.3 (OPERA) which includes a number of proprietary algorithms. The source code files in respect of which copyright is claimed are identified by name in Annexure A to the FASC. 10 ObjectiVision alleges that the University at various times from July 2007 until at least April 2011 reproduced OPERA in a material form first by reproducing it intoAccuMap1 devices held by it, and secondly by creating and reproducing OPERA source code as TERRA source code, the latter of which it identifies as the code located on a DVD produced by the University pursuant to orders of Perry J of October 2014 (TERRA). The TERRA source code is alleged to include a substantial part of OPERA. 11 It is further alleged that in or around April 2011, the University provided a copy of TERRA to Visionsearch in circumstances where TERRA reproduced in material form a substantial part of OPERA, and the University knew or ought to have known that there was no license agreement between ObjectiVision and Visionsearch with respect to copyright in OPERA. In so providing TERRA to Visionsearch, the University authorised Visionsearch to reproduce TERRA, including by reproduction in a device identified as "Visionsearch1". 12 ObjectiVision alleges that these acts of the University were done without the license of ObjectiVision and that accordingly, pursuant to s 36(1) of the Act the University has infringed ObjectiVision's copyright in OPERA; (a) by reason of the reproduction and adaptation of the OPERA source code; (b) by reason of the University authorising Visionsearch to reproduce adapt the OPERA source code; and (c) by reason of authorising Visionsearch to sell and/or hire or offer for sale and/or hire the Visionsearch1 device. 13 ObjectiVision's case against Visionsearch is that in or about April 2011, Visionsearch received from the University the TERRA software (including the TERRA source code), that the TERRA software reproduced in a material form a substantial part of OPERA, and that Visionsearch, in further developing TERRA, reproduced the TERRA source code and thereby reproduced a substantial part of OPERA in a material form. Further, it alleges that Visionsearch developed Visionsearch1 which also reproduced the TERRA software. 14 ObjectiVision's pleading also alleges against Visionsearch that pursuant to s 36(1) of the Act, Visionsearch infringed copyright in OPERA by reason of the reproduction, in a material form, or adaptation, of the OPERA source code or any part thereof by Visionsearch and its employees, and the reproduction of the Opera source code in the Visionsearch1 device. It also alleges that pursuant to s 38(1) ObjectiVision's copyright was infringed by the sale and/or hire, or offer for sale and/or hire of Visionsearch1 devices containing the OPERA source code. 15 I now turn to the disputed amendments. 16 Proposed [70] and [71] are as follows: 70. Further or alternatively, from just prior to April 2011until the present, the University of Sydney (through its Save Sight Institute) ought reasonably to have known that the making of copies of TERRA infringed ObjectiVision's copyright in OPERA v2.3. Particulars of University of Sydney's constructive knowledge (i) The University of Sydney is a sophisticated body which has dealt in computer rights for decades. (ii) The University of Sydney was aware that it had entered into the following agreements with ObjectiVision: (A) Shareholders Agreement as described in paragraph 7 above; (B) Licensing Agreement as described in paragraph 12 above; (C) Supplemental Licence Agreement as described in paragraph 13A; (D) Variation Agreement as described in paragraph 14 above; (E) Heads of Agreement as described in paragraph 30 above; (F) Consultancy Agreement as described in paragraph 32 above; and (G) Training Services Agreement as described in paragraph 34 above. (iii) The University of Sydney was aware that Visionsearch was a separate entity deliberately incorporated for the purpose of further developing TERRA software and manufacturing and supplying mfVEP devices incorporating TERRA software. (iv) The University of Sydney was aware that any licences it held to do acts with respect to OPERA v2.3 (including OPERA v2.3 where materially and substantially incorporated into TERRA) were not extendable or transferable to Visionsearch. (v) The individuals who ought reasonably to have known the matters alleged in this paragraph 70 are those specified in the letter from Allens to King & Wood Mallesons and Norton Rose Fulbright of 10 May 2017. 71. From in or around April 2011, the University of Sydney: (a) sold or offered for sale electronic articles reproducing OPERA v2.3; or (b) distributed such articles for a purpose that affects prejudicially the rights of ObjectiVision as owner of the copyright in OPERA. Particulars (i) Provision of TERRA software to Visionsearch in or around April 2011. (ii) Further particulars may be provided following discovery. 17 ObjectiVision explains the amendments as being necessary to introduce into the case already pleaded against the University a missing knowledge element which is required by s 38(1) of the Act. ObjectiVision submits that the missing element is that at the time of the act of sale or letting for hire the accused party must know, or ought reasonably to know, that the making of the article traded (which includes an electronic article) would have infringed copyright. Until now, this element of the case was missing. It submits that the missing integer could only have been omitted in error, and that the practitioners involved in drafting the previous version of the pleading are no longer involved in the matter. The pleading does not allege actual knowledge, but does allege constructive knowledge on the part of the University. 18 The University initially contended that the case as pleaded did not provide particulars of knowledge within Federal Court Rules 2011 (Cth) (FCR) r 16.43(1) because details of the officers of the University said to have the requisite knowledge were not given (citing Lee v Westpac Banking Corporation [2015] FCA 467 at [25]). That concern has been resolved in particular (v) to [70] of the pleading. However, during the course of the hearing counsel for the University, Mr Flynn, leading Mr Larish, raised a further objection, contending that the particulars were insufficient to support the case alleged and that leave should in any event be refused because the case as amended was doomed to fail. 19 The thrust of this objection is that the particulars provided, if proved, would not be capable of establishing that the University ought to have known that TERRA reproduced a substantial part of OPERA. The reason, the University submits, is that the question of infringement in the context of computer software is a technical question which is the subject of independent expert evidence and ultimately a matter for the Court. Accordingly, the knowledge of the individuals identified could never rise to the level required to enable an inference to be drawn pursuant to s 38(1) of the Act. In this context, it is pleaded that "at various times from July 2007 until at least April 2011" the University reproduced OPERA by creating and reproducing OPERA source code as TERRA source code. This opens up a line of inquiry, not previously notified, as to whether the author of TERRA ought to have known that what he was producing during that continuum of time, and ultimately until "at least April 2011", would satisfy the test of reproducing a substantial part of OPERA. 20 Despite the care with which the University's submissions were put, I am satisfied that, in all the circumstances of this case, including the history that I have outlined above, it is appropriate to allow [70], [71] as proposed to proceed. I am influenced by the following factors. 21 First, the copyright pleading was introduced into the case by amendment on 25 May 2015. That claim included allegations pursuant to s 38 of the Act against Visionsearch. It also included elements of a case under s 38 against the University (see [10] and [11] above). I accept ObjectiVision's explanation for the amendments as being to fill gaps in the pleading with details required pursuant to s 38. In my view those gaps were, upon inspection, fairly apparent. 22 Secondly, the parties agree that the requisite test for knowledge is set out in a decision of von Doussa J in Milpurrurru v Indofurn Pty Ltd [1994] FCA 975; (1994) 30 IPR 209 (Milpurrurru) at 225 where his Honour said: "knowledge" for the purposes of s 37, refers to notice of facts such as would suggest to a reasonable person having the ordinary understanding expected of persons in the particular line of business that a breach of copyright was being committed [citations omitted]. Knowledge of the law is not required. It is sufficient that there be actual or constructive knowledge that intellectual property rights would be infringed, without knowing the precise nature of those rights … This formulation was endorsed by Foster J in Polygram Records Inc v Raben Footwear Pty Limited [1996] FCA 797; (1996) 35 IPR 426 at 441 and in the decision on appeal at Raben Footwear Pty Ltd v Polygram Records Inc & Anor [1997] FCA 370; (1997) 75 FCR 88. 23 It is true that obstacles lie in the way for ObjectiVision to make out its case under s 38, including the difficulty in establishing that the University ought to have known (if it be the case) that an act of reproduction of OPERA was taking place or that the production of TERRA amounted to an infringement of copyright. However, the question of constructive knowledge in this context is a matter of fact. The application of Milpurrurru has not, I understand, been the subject of consideration in earlier cases. In these circumstances, whether or not the particulars provided, if proved, would as a matter of fact be sufficient to establish the case within s 38 is something that is appropriate to go to trial. 24 Thirdly, the delay about which the University complains is between May 2015, when the copyright allegations were first made and March 2017 when the amended pleading was notified. The evidence put forward by the University does not persuasively indicate that the University is materially prejudiced in its ability to answer the claim by reason of that delay. Nor am I satisfied that the broadly expressed "forensic prejudice" that the University submits that it will suffer rises above the theoretical. 25 Fourthly, the University cogently argues that additional time, effort and inconvenience has been caused as a result of the timing of the amendments and it will necessarily have to revisit the evidence of witnesses whose proofs of evidence have been already served in order to address the allegations. These matters warrant a costs order against ObjectiVision, but I am not persuaded that they are such that leave should be refused. 26 Finally, the trial of the proceedings is not until March 2018. I am satisfied that there is adequate time for the proceedings to be properly prepared by then, even with the amended pleading. Indeed, no party suggested otherwise. 27 I now turn to proposed [81A] and [81B]. These plead, further or in the alternative, that from at least April 2011 to the present, Visionsearch ought reasonably to have known that the making of copies of TERRA, including in the Visionsearch1 device, infringed ObjectiVision's copyright in OPERA. Particulars of Visionsearch's constructive knowledge are then provided, including by reference to the names of individuals who ought reasonably to have known the matters alleged. 28 ObjectiVision draws attention to the fact that, unlike the pleadings against the University, its amended pleading specifically identified its reliance on s 38 of the Act. 29 Visionsearch, by its counsel Mr Dimitriades SC who is leading Ms Rubagotti, contends that the amendments should be refused. Initially it relied on the absence of proper particulars of knowledge, by reference to the names of individuals to whom such knowledge is to be imputed (r 16.43 of the FCR), although that problem has now been cured. It also contended that the amendments were too late and that in so far as the particulars provided identify individuals from the University, the same considerations that affected the requirement that they provide a further round of evidence applied equally to Visionsearch. It also contended that the particulars were inadequate to support the claim under s 38. 30 ObjectiVision's case for leave to amend to include [81A] and [81B] is stronger than in the case of [70] and [71]. Visionsearch has not filed any evidence in response to the cross-claim. Further, the claim as currently pleaded includes specific reference to reliance upon s 38(1), and so Visionsearch was directly on notice of ObjectiVision's reliance on that provision. For these reasons, in addition to those set out in [27] – [29] above, I will allow this amendment. 31 I turn now to [83A] – [83J]. These paragraphs provide expanded details of an already pleaded case of authorisation by the University of Visionsearch's activities (see [12] above) Many of the details supplied are not the subject of objection. However, the University contends that the cornerstone of what it characterises as a new authorisation case is the allegation that the University had "considerable influence over the establishment and activities of Visionsearch". It submits that the pleaded case would require it to conduct investigations relating to a relationship between the Save Sight Institute and Visionsearch over a period of 10 years. Otherwise, it makes similar submissions to those summarised above, although it does not contend that the pleading reflected in these paragraphs would be doomed to fail in any event. 32 ObjectiVision explains the amendments as bringing the pleading into conformity with the requirements of s 36 of the Act. It submits that the requirements of s 36(1A) of the Act must have been in the minds of those acting for the University and Visionsearch, and that the amendments simply make clear the factual matters upon which ObjectiVision will rely. 33 In my view, this amendment should also be permitted, for substantially the same reasons as set out in [21], and [24] – [26] above. In short, the University has been on notice of the s 36 case since 2015, there is adequate time before trial for the University to address the allegations and I am not satisfied that the prejudice that the University asserts is sufficient to warrant a refusal of leave. 34 I now turn to the question of security for costs. In my view it is appropriate that ObjectiVision should provide additional security for the respondents' additional costs as a result of the amendments made to the FASC and also the evidence filed in relation to the question of quantum. Whilst it is not appropriate that there be undue formality about applications for additional security, in the circumstances of the present application I consider that the question of the amount of any further security should be deferred until after ObjectiVision has filed its evidence going to quantum. At that point, the parties should correspond on the subject with a view to agreeing the issue. In the meantime, I note that ObjectiVision has offered to provide security in the amount of $30,000. The orders made should reflect that ObjectiVision provide that additional amount of security for these additional costs, noting that an additional amount may be required. 35 Finally, the tortured path from the 2016 decision until the present demonstrates a trail of attempted amendments on the part of ObjectiVision. Those amendments continued to be made during the hearing of the present interlocutory application and beyond. Whilst many aspects of that application were ultimately resolved by the parties, ObjectiVision has, on any view of it, needed the indulgence of the Court to obtain leave for its amendments. It is appropriate that ObjectiVision pay the costs of the interlocutory application as well as the costs thrown away by reason of the amendments to its cross-claim as set out in the FASC. 36 The orders that I propose to make are set out below. There may be other orders, appropriate for the management of the proceedings, that should be added. Accordingly, I direct that the parties confer and provide a form of draft orders addressing all matters currently relevant to the management of the proceedings (including those listed below) within seven days. In the event that there are no matters requiring resolution beforehand, the proceedings will be listed for a case management conference on 13 July 2017, shortly after ObjectiVision has filed its evidence going to quantum: 1. Leave be granted for ObjectiVision to file a Fourth Further Amended Statement of Cross-Claim (4FASC) in the form served and emailed to my Associate on 12 May 2017. 2. The University and Visionsearch file and serve their defences to the 4FASC on or before 2 June 2017. 3. ObjectiVision is to pay the cross-respondents' costs thrown away by reason of the amendments to the cross-claim. 4. ObjectiVision is to pay the cross-respondents' costs of the interlocutory application dated 17 March 2017. 5. By 8 June 2017, ObjectiVision file and serve particulars of quantum with respect to its copyright infringement and breach of confidence claims, such particulars to contain, for each such cause of action, details of: (a) the basis on which an ObjectiVision claims that any damages ought to be calculated; and (b) the principal facts on which ObjectiVision relies in respect of any damages claim, including in relation to the alleged causal link between the cause of action and any damages claim made in respect of it. 6. By 6 July 2017, ObjectiVision file and serve its expert evidence going to matters of quantum. 7. By 29 September 2017, the University and Visionsearch file and serve any evidence in answer going to matters of quantum. 8. ObjectiVision's interlocutory application dated 17 March 2017 be otherwise dismissed. 9. These proceedings be listed for a case management conference on 13 July 2017. 10. The parties are to endeavour to agree an additional amount of security for costs to be paid by ObjectiVision in respect of additional costs incurred arising from the amendments to the cross-claim and the evidence going to matters of quantum following the service by ObjectiVision of its evidence going to quantum as set out in 6 above. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Burley. Associate: Dated: 22 May 2017