Protecting Software in the Digital Age
Grant Hansen,
Partner, Holman Webb
In the seminal case on damages for software infringement, Autodesk v Cheung (1990) 171 IPR 69 Justice
Wilcox observed that:
one matter which is, in my opinion, relevant, is the
difficulty computer program owners face in trying to protect their copyrights.
Computer software is easy to duplicate, distribute and conceal. Particularly in
a case where a person is supplying computer programs as an adjunct to other
equipment, and is therefore not advertising the supply, infringements may be
difficult to detect. And, when they are detected, proof of the facts may be a
substantial task
Autodesk v Cheung
involved a physical sale of counterfeit software, installed on PCs by a system
builder. The case predates the distribution of software using internet
connections. In the “digital economy” software can be downloaded and activated by
an end-user without dealing with physical product. Much of this activity - such
as sales on platforms such as eBay and downloads from sites which advertise
their purpose - remains visible. Other
transactions using peer to peer technologies are more difficult to detect. Software copyright owners invest considerable
effort in seeking to promote authorised use of their software.
To see what is at stake one has only to consider the fate of
the recorded music industry. From 1999 to 2013 music sales in the US dropped
from US $14.6 billion to US $7 billion (reference RIAA website). While the
development of subscription models such as Spotify
now means that end users are at least prepared to pay something for their music, that outcome has been a pyrrhic victory
for owners of music copyrights who now receive as royalties a proportion of a
much smaller pie than before. Instead of paying twenty or thirty dollars for a
CD the consumer can pay ten dollars a month for virtually every CD ever made. That
is good for consumers but the long term effects on creative output remain to be
seen. Certainly, anecdotal evidence suggests that musicians now make their
money by touring rather than by selling recordings.
“Channel” and
“End-user” Infringement
Software infringement manifests in two principal ways: “channel”
and “end user” infringement. Channel infringement involves the sale of
unlicensed software and or the means of activating and using software
(typically, on the internet, by sale of product keys that permit activation of
downloaded software). Channel infringement can be dealt with using test
purchases to gather evidence of infringement. Liability is therefore usually
not in issue. Running such enforcement programs cost effectively and
identifying the quantum of infringing sales remain a major challenge but
generally speaking software developers have been fairly successful in closing
down illicit channels of distribution.
A more difficult challenge is posed by commercial end user
infringement.
In 1988 major software copyright owners formed the Business
Software Alliance. Members include most major software developers and include Adobe,
Apple, Autodesk, Baseplan, Bentley,
Dassault Systèmes, Microsoft,
PCT, and Siemens. The BSA is an industry initiative that operates throughout
Asia, Europe and North and South America. Software owners in each jurisdiction
have formed country committees which administer a compliance programme in that
jurisdiction. Members pay subscription fees and agree that the proceeds of
enforcement are paid to the BSA to fund further enforcement and education.
The big markets for enforcement work are not surprisingly in
the developing economies of Asia where non-compliance rates frequently exceed 50
per cent.
Australia may lead the world in downloading unlicenced
versions of Game of Thrones but our surveyed
non-compliance with software is average for a developed economy, about 21 per
cent valued at US$743 million in a 2013 (reference BSA Global Software Survey
2014).
The remit of the BSA is to promote authorised use of
software by end-users. It is a feature of software enforcement that where one
product is being infringed normally several others are as well.
Motivated Informants
Obtaining evidence of end user infringement is of course the
major challenge. Infringers rarely spontaneously confess. Unlike channel
infringement there is no public nexus - no point of sale - where evidence can be obtained. The BSA in
Australia therefore usually acts on information received. Informants come
forward for a variety of reasons - to claim a reward; to get even with an
employer they feel has treated them poorly; and because they do not agree with
using unlicensed software for profit.
The use of motivated informants is an unusual feature of an
essentially commercial jurisdiction and of course great care is required in
assessing the reliability of the information provided. Generally speaking
however, by assessing the consistency and specificity of the information and
comparing that with publicly available information it is possible to form an
accurate view of the informant’s reliability.
The BSA always gives the Respondent an opportunity to
produce evidence of that it was in fact licenced (contrary to the information
received). If evidence of licencing is not forthcoming the BSA then seeks to
reach an appropriate negotiated settlement
If that is not possible the affected BSA members have a
choice between commencing proceedings (based on the evidence provided by the
informant) or making an application for preliminary discovery.
Preliminary Discovery
Preliminary discovery is a highly technical jurisdiction
under rule 7.23 of the Federal Court Rules. It requires evidence, at the time of the application, that: the Prospective Applicant:
i) may
have the right to obtain relief in the Court from a Prospective Respondent;
ii) after
making reasonable enquiries, does not have sufficient information to decide
whether to start proceedings ;
iii) reasonably
believes that:
(a) the Prospective Respondent has or is likely to
have, or has had or is likely to have had, in its control, documents directly
relevant to the question whether the Prospective Applicants has a right to
obtain the relief; and
(b) .inspection
of all of the documents sought by the Prospective Applicants ;
would assist in
making the decision to commence substantive proceedings.
This requires evidence from an appropriate decision maker
within the Prospective Applicant. Given that Prospective Applicants are
typically large multi-national corporations with complex internal delegations
of authority, careful consideration is necessary. In Telstra Corporation v. Minister for Communications (no. 3) [2007] FCA
1567 the Prospective Applicant failed because the evidence going to the
Prospective Applicant’s reasonable belief was from a person with insufficient
authority to make the decision to commence proceedings.
Nor is preliminary discovery available when the Prospective
Applicant has formed the view that it does
have a right to obtain relief. See Gibson
v. ANZ Banking Group Ltd (VSC Gobbo J. No 10670/91).
Clearly there is a tension here between having a reasonable
belief that information may be held by a Prospective Respondent which will
assist in making the decision to commence proceedings (which entitles the
Prospective Applicant to preliminary discovery) and actually having a belief that a cause of action exists (in which case
preliminary discovery is not available). The more reasonable the belief that
the Prospective Respondent may have information that assists in the decision to
commence proceedings, the more likely it is that the Prospective Applicant will
be found to actually believe that it has a cause of action.
Commencing
Proceedings
For this reason, if sufficient evidence is held to permit
the particularisation of at least one instance of infringement as required by
rule 34.35 of the Federal Court Rules, the better course is to commence
substantive proceedings and to then obtain an order for discovery pursuant Division 7.3 of the Federal Court Rules. Such
orders are however not made as of right; it is necessary to persuade the Court
that the Respondent has documents within its control that are directly relevant
to a real issue in dispute.
Nevertheless, Courts do routinely make discovery orders in
copyright infringement matters because the quantum of infringement is usually a
real issue in dispute and can most reliably be addressed using the Respondent’s
business records.
Whenever software is installed on a computer, a record of
that installation, including the time and date of the installation is created
and stored on the computer’s permanent storage medium. Those records can be
accessed and reproduced in a written form. If the records show an installation
and the respondent does not have a corresponding licence then liability for
that instance of unlicenced reproduction can be established.
Traditionally in copyright matters, the respondent’s first
line of defence was to put the applicant to proof of their title to the
copyright in question. This does not happen in software cases because of the presumptions
as to ownership under s129A of the Copyright
Act . Providing the owner asserts its ownership on the software using the
copyright symbol © ownership is deemed to be established unless disproved by the
Respondent.
Software created in a country which is a signatory to the Berne Convention for the Protection of
Literary and Artistic Works 1886 or the Universal
Copyright Convention Geneva 1952 receives the full protection of Australian
law by virtue of the operation of the Copyright (International Protection)
Regulation 1969 made pursuant to s 184 of the Copyright Act.
Evidence
More often than one might expect however, the quality of
information provided
by an informant is astonishingly good and includes internal
documents and screenshots of network files disclosing the existence of “crack
files” or internal emails containing admissions of the use of illegal software.
Older readers will remember when ephemeral communications
were by telephone or even, incredibly, face to face. In those times the
litigators’ task was much harder. In the digital age, the email is truly the
litigator’s friend.
The question arises however, can use be made of internal
documents obtained by an employee or consultant, perhaps covertly, which
incriminate the employer?
Section 138 (1) of the Evidence
Act (Cth) 1995 provides that evidence obtained
“improperly or in contravention of an Australian law” is not
to be admitted unless the desirability of doing so outweighs the undesirability
of admitting such evidence Section 138(3) sets out matters the court can take
into account such as the probative value of the evidence and the gravity of the
contravention and the difficulty of obtaining the evidence without “impropriety”.
The first question is whether there is in fact any
impropriety in the way evidence has been obtained from the Respondent. Sections
126A to 126E of the Evidence Act 1995
(NSW) create “protected confidences” but internal office communications are not
within these categories. Sections 117 to 131 of the Commonwealth Evidence Act
deal with privileged communications but again these do not include internal
office communications. Such documents are however business records and
admissible pursuant to s69 of the Evidence
Act.
Even if a contractual provision purports to prohibit the disclosure
of an incriminating document, it would remain potentially admissible by virtue
of s138 (1) of the Evidence Act and
at common law.
In National
Roads & Motorists Assn v Whitlam [2007] NSWCA 81, Campbell JA
(with whom Beazley JA and Handley AJA agreed) observed in relation to “confidential
information” which is not subject to a statutory privilege, the usual approach of the court is that it is
more important that such evidence (if relevant) be used in the administration of justice rather
than that the confidence be protected.
The common law position is clear enough. The authorities established that the public interest in the
disclosure (to the appropriate authority or perhaps the press) of “iniquity”
will always outweigh the public interest in the preservation of private and
confidential information. In Allied Mills Industries v Trade Practices
Commission 34 ALR
105 at 127 Sheppard J quoted with approval Wood VC in Gartside v Outram
(1856) 26 LJ (Ch) 113, (at 114): “The
true doctrine is, that there is no confidence as to the disclosure of iniquity.
You cannot make me the confidant of a crime or a fraud, and be entitled to
close up my lips upon any secret which you have the audacity to disclose to me
relating to any fraudulent intention on your part: such a confidence cannot
exist.”
Allied Mills
concerned breaches of the Trade Practices
Act. There is no doubt that that logic would also apply to breaches of the Copyright Act, many of which breaches are
also potentially punishable by fines and imprisonment. (see ss132AC and
following of the Copyright Act)
Commercial infringement (reproduction), sale of and possessing infringing
copies for a commercial purpose are all criminal offences.
As a practical matter however this issue rarely needs to be
tested. Once the applicant knows a specific document exists its production can
be required by a notice to produce pursuant to rule 20.35 of the Federal Court
Rules, subject only to the recognized categories of privilege. If the document
is not found by the respondent or is “lost” then the extant copy in the
informant’s possession will, subject to s138 of the Evidence Act be admitted into evidence.
Indeed,
the temptation to destroy evidence is significantly reduced by the Court’s
power to strike out a defence in situations where evidence has been destroyed. In
such cases it will be open to the Applicant to make an
application for an order under rule 16.21(f) of the Federal Court Rules) to strike out the defence. See Moody Kiddell & Partners Pty Ltd v
Arkell [2013] FCA 1066 and Palavi v
Queensland Newspapers Pty Ltd [2012] NSWCA 182).
Damages
Generally
speaking, the major legal issue in most software cases is assessment of damages.
Typically that is done by applying what is known as the “licence fee test”. That
is based upon an inference that the Court may draw that a respondent, when presented
with a choice between paying the licence fee and not using the software would
have paid the necessary licence fee; see Autodesk
Australia Pty Limited v Cheung (1990)
171 IPR 69 and Microsoft Corporation & Ors v Ezy Loan Pty Limited &
Anor (2004) 69 IPR 54. Damages are
payable irrespective of whether there has been any belated legalisation.
In Autodesk
Inc & Ors v Ginos Engineers Pty Ltd & Anor [2009] FMCA 14 at [109],
His Honour, FM Lloyd Jones held (in respect of the licence fee test) that in
that case “the proper measure of damages is
the retail price that would have been paid by the respondents had they obtained
the licences they were required to. If the respondents had purchased valid
licences, they would have purchased them at the retail, not the wholesale,
price.”
Compensatory damages are however just
the beginning. Section 115(4) of the Act provides that the Court is empowered to make an award of
additional damages under section 115(4) of the Act where the Court is satisfied
that it is proper having regard to the following:-
(a)
the
flagrancy of the infringement;
(b)
the
need to deter similar infringements of copyright;
(c)
the
conduct of the defendant after the act subsequent to infringement or after an
allegation of copyright infringement;
(d)
whether
the infringement involves the conversion or work or other subject matter from
hardcopy or analog form into digital or other electronic machine readable form;
(e)
any
benefit to have accrued to the defendant by reason of the infringement; and
(f)
all
other relevant matters.
The
deliberate infringement of copyright for gain constitutes deliberate and flagrant
conduct (see Microsoft Corporation v PC
Club Australia Pty Ltd [2005] FCA 1522 at 223 per Conti J).
The
availability of additional damages is a powerful incentive for respondents to
settle software infringement claims at an early stage. Awards of multiples of
the compensatory damages are routine. Post detection conduct is one of the
factors a Court can have regard to in awarding additional damages.
Authorisation
The other great incentive for respondents to settle is the
concept of authorisation under s36 (1) of the Copyright Act. Notwithstanding the High Court’s decision in Roadshow Films Pty Ltd v iiNet Ltd (2012) 95
IPR 29, company directors still have the requisite control to be exposed to
personal liability where their company has engaged in infringing conduct. That
can be the case even when the director had no actual knowledge of the
infringement.
In University of New South Wales v Moorhouse (1975)
133 CLR1 the High Court found that authorisation included “countenance or
acquiesce”. In Microsoft Corporation & Ors v PC Club Australia & Ors
[2005] FCA 1522 at paragraph 277 Conti J applied the Moorehouse to directors of a private company observing:-
"As directors in office of PC Club at all material
times, neither Ms Lee nor Mr Fang can escape liability ...for the same
quantification of s115(2) damages for infringement of copyright. By virtue of
their respective appointments...and their full time...employment...each of them
must be taken to have authorised the infringing conduct of PC Club."
In APRA v Jain (1990) IPR
663, a decision of the full Federal Court, Mr Jain was the CEO of the
proprietor of Old Windsor Tavern but he left the day to day running of the
tavern to an employee. The Court found (at 671): "Mr Jain knew that music would be performed at the tavern, but did not
concern himself with the actual pieces
of music which would be performed."
Mr Jain was found to have authorised infringements even
though "he did not concern himself
with the actual pieces of music which would be performed."
