Re Lotus Development Corporation; Loftus Development Pty Ltd; Wordperfect Corp and Wordperfect Pactific v Mayne Nickless Limited and David Unicomb [1991] FCA 89; 20 IPR 257/100 ALR 167 (21 March 1991)

FEDERAL COURT OF AUSTRALIA

Re: LOTUS DEVELOPMENT CORPORATION; LOFTUS DEVELOPMENT PTY LTD; WORDPERFECT
CORP. and WORDPERFECT PACTIFIC
And: MAYNE NICKLESS LIMITED and DAVID UNICOMB
No. G603 of 1990
FED No. 106
Practice and Procedure - Trade Practices
[1991] FCA 89; 20 IPR 257/100 ALR 167

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Foster J.(1)

CATCHWORDS

Practice and Procedure - Federal Court Rules O.6 r.9 - removal of parties - whether or not distributor of computer software, not being the holder of the relevant copyright, might still have a valid cause of action under certain trade practices provisions where that software has been copied in breach of copyright.

Trade Practices - Trade Practices Act 1974 - section 52 - whether or not representations made by employee of a corporation to another employee of that corporation is conduct in "trade or commerce".

Trade Practices Act 1974, s 52.

Copyright Act 1968, s 10.

Federal Court Rules, Order 6 rule 9.

General Steel Industries Inc. v Commissioner for Railways (N.S.W.) [1964] HCA 69; (1964) 112 CLR 125

Pannizutti v Trask (1987) 10 NSWLR 531

Concrete Constructions (N.S.W.) Pty Limited v Nelson [1990] HCA 17; (1990) 92 ALR 193

HEARING

SYDNEY
21:3:1991

Counsel for the Applicant: Ms A.H. Bowne

Instructed By: Mallesons Stephen Jacques

Counsel for the Respondent: Mr D.K. Catterns

Instructed By: Blake Dawson Waldron

ORDER

The respondents' Notice of Motion of 28 November 1990 be dismissed.

Each party bear its own costs of the Motion.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The Court has before it a Notice of Motion brought by the first and second respondents claiming that the second and fourth applicants should cease to be parties to the proceedings. The Notice of Motion is brought under Order 6, Rule 9 of the Federal Court Rules which provides that:-

"9. Where a party-
(a) has been improperly or unnecessarily joined; or
(b) has ceased to be a proper or necessary party,
the Court, on application by any party or of its own motion, may
order that he cease to be a party and make orders for the further
conduct of the proceeding."

2. It is submitted on behalf of the respondents that neither the second or fourth applicants are proper or necessary parties to the proceedings.

3. The proceedings were originally brought for alleged infringement of copyright, there being no other relevant claims made in the Statement of Claim. The Notice of Motion was taken out on the basis that particulars supplied indicated that neither the second nor fourth applicant were holders of the relevant copyright nor were exclusive licensees of the copyright owners. It was, therefore, claimed that those applicants had no viable causes of action against the respondents and should no longer be allowed to remain as parties in the action.

4. It is conceded that the second applicant has no viable claim in copyright against the respondents. It is asserted, however, that the fourth applicant has a sufficiently arguable case that it is an exclusive licensee of the third applicant to warrant it remaining a party in the proceedings.

5. After the Notice of Motion was taken out, the Application and Statement of Claim were amended so that in addition to claims based on copyright the second and fourth applicants also made claims based upon alleged breaches of s 52 of the Trade Practices Act 1974 ("the Act"). It appears that these amendments were made without leave. The respondents do not seek that the amendments now be disallowed but submit that the fact that they were made without leave should be taken into account, as I understand it, on any question of costs.

6. It is accepted that the appropriate test to be applied in determining whether these applicants should be removed from the proceedings is that set out in the judgment of Barwick C.J. in General Steel Industries Inc. v Commissioner for Railways (N.S.W.) [1964] HCA 69; (1964) 112 CLR 125 at 129 where his Honour said, in relation to earlier authorities:-

"...these cases uniformly adhere to the view that the
plaintiff ought not to be denied access to the customary
tribunal which deals with actions of the kind he brings,
unless his lack of a cause of action - if that be the ground
on which the court is invited, as in this case, to exercise
its powers of summary dismissal - is clearly demonstrated.
The test to be applied has been variously expressed; `so
obviously untenable that it cannot possibly succeed';
`manifestly groundless'; `so manifestly faulty that it does
not admit of argument'; `discloses a case which the Court is
satisfied cannot succeed'; `under no possibility can there
be a good cause of action'; `be manifest that to allow them'
(the pleadings) `to stand would involve useless expense'.
At times the test has been put as high as saying that
the case must be so plain and obvious that the court can say
at once that the statement of claim, even if proved, cannot
succeed; or `so manifest on the view of the pleadings,
merely reading through them, that this is a case that does
not admit of reasonable argument'; `so to speak apparent at
a glance'."

7. His Honour further said (at p 130):-

"...I do not think that the exercise of the jurisdiction
should be reserved for those cases where argument is
unnecessary to evoke the futility of the plaintiff's claim.
Argument, perhaps even of an extensive kind, may be
necessary to demonstrate that the case of the plaintiff is
so clearly untenable that it cannot possibly succeed."

(See also Pannizutti v Trask (1987) 10 NSWLR 531 at pp 536, 537)

8. The background facts to this application may be stated shortly. The first and third applicants are corporations created under the laws of the state of Massachusetts and Utah respectively in the United States of America. The first applicant is the owner of copyright in certain computer programs which are referred to in the pleadings as the "Lotus Programs". The third applicant is the owner of copyright in certain computer programs referred to in the pleadings as the "WordPerfect Programs". The programs are well known and extensively used in commerce in association with desktop computer apparatus.

9. The second applicant is a company incorporated in New South Wales. It is a wholly owned subsidiary of the first applicant and is an agent of the first applicant in Australia. The fourth applicant is registered in New South Wales as a foreign corporation. It is said to be an "affiliated" company of the third applicant. It distributes the WordPerfect Programs in Australia.

10. The first respondent is a company incorporated in Victoria. It has a large number of business activities and carries on business in a large number of premises throughout Australia. In the carrying out of its business activities it makes extensive use of computer hardware and software. The second respondent was an employee of the first respondent being the National Administration Manager of its Rapid Transport Industries Division. It is not disputed that the first respondent through the activities of the second respondent brought into existence infringing copies of the relevant software of the first and third applicants and supplied those copies to its employees for use in their work. It appears that quite a considerable number of such infringing copies were so made and supplied. There is a factual issue, to which I shall make reference hereafter, as to whether supply extended beyond the company's employees. The first respondent has admitted the making of the infringing copies and the supply of them to its employees. It concedes that so far as the proceedings brought by the first and third applicants are concerned that they will be confined to an assessment of damages, undertakings having been given as to cessation of infringement.

11. The second applicant, whilst conceding that it has no standing to claim damages for infringement of copyright, seeks, as already indicated, damages for alleged breaches of s 52 of the Act. The fourth applicant makes a similar claim under s 52, but also claims entitlement for infringement of copyright on the basis that its agreements with the third applicant constituted it an exclusive licensee of the third applicant's relevant copyright, under s 10 of the Copyright Act 1968.

12. The first and second respondents claim that these latter proceedings are clearly untenable and should be struck out with the result that the second and fourth applicants should be removed as parties. They do so in the context that they wish to make an open offer to the first and third applicants of an amount of compensation for the admitted infringements.

13. It is convenient in the first instance to consider the claims under s 52 of the Act.

14. The allegations of representations in contravention of s 52 are set out in paragraph 29 of the Statement of Claim as follows:-

"...the respondents have, in trade or commerce, represented
and warranted that:
(a) they were authorised or licensed by the
applicants to make copies of the applicants'
programs;
(b) that employees of the first respondent were
authorised or licensed to make copies of the
applicants' programs;
(c) that third parties to whom they gave copies of
the applicants' programs were entitled to use
them and would enjoy quiet possession of them."

15. The second respondent is also said, in paragraph 31, to have aided and abetted, counselled or procured, or to have been knowingly concerned in or a party to, the contraventions.

16. Particulars were requested, in the usual way, of the representations relied upon. In answer to the request, it was stated on behalf of the applicants that the representations were implied "from the circumstances that the respondents supplied copies of the applicants' programs to employees and customers of the first respondent for their use; that copies of the programs cannot be made without the licence of the relevant copyright owners or their licensee; that the shrink wrap packaging of the programs and their startup screens and associated documentation make it clear that the respective applicants own the copyright in the programs; that the applicants and their programs are well known and widely used in business; that the first respondent is a widely known and highly respected public company, a fact that would be well known to its employees and customers; that the employees and customers were not advised by the respondents that the copies given to them were copies not authorised by the applicants; that the employees and customers would not expect the copies supplied to them to be unauthorised."

17. It is submitted on behalf of the respondents that the representations so particularised, could not, in law, amount to a relevant breach of the section. It is to be noted that supply of copies is alleged to have been made to both employees and customers of the first respondent. The respondents' submissions vary as between these two categories of recipient.

18. It is submitted by the respondents that in relation to the supply of the infringing copies to employees, whether or not the implied representation could be said to arise, the representation would nevertheless not be one made in trade and commerce within the meaning of s 52.

19. The respondent submit that this result inevitably flows from the decision of the High Court of Australia in Concrete Construction (N.S.W.) Pty Limited v Nelson [1990] HCA 17; (1990) 92 ALR 193. That case was concerned with the question whether a statement made by the foreman of a construction company to an injured worker to the effect that it was safe to remove bolts from a grate in a particular manner was a representation made in trade or commerce attracting the application of s 52. It was held that it was not. In the majority judgment (Mason CJ, Deane, Dawson and Gaudron JJ) it was said (at p 197):-

"What the section is concerned with is the conduct of a
corporation towards persons, be they consumers or not, with
whom it (or those whose interests it represents or is
seeking to promote) has or may have dealings in the course
of those activities or transaction which, of their nature,
bear a trading or commercial character. Such conduct
includes, of course, promotional activities in relation to,
or for the purposes of, the supply of goods or services to
actual or potential consumers, be they identified persons or
merely an unidentifiable section of the public. In some
areas, the dividing line between what is and what is not
conduct `in trade or commerce' may be less clear and may
require the identification of what imports a trading or
commercial character to an activity which is not, without
more, of that character. The point can be illustrated by
reference to the examples mentioned above. The driving of a
truck for the delivery of goods to a consumer and the
construction of a building for another pursuant to a
building contract are, no doubt, trade or commerce in so far
as the relationship between supplier and actual or potential
customer or between builder and building owner is concerned.
That being so, to drive a truck with a competitor's name
upon it in order to mislead the customer or to conceal a
defect in a building for the purpose of deceiving the
building owner may well constitute misleading or deceptive
conduct `in trade or commerce' for the purposes of s 52. On
the other hand, the mere driving of a truck or construction
of a building is not, without more, trade or commerce and to
engage in conduct in the course of those activities which is
divorced from any relevant actual or potential trading or
commercial relationship or dealing will not, of itself,
constitute conduct `in trade or commerce' for the purposes
of that section. That being so, the giving of a misleading
handsignal by the driver of one of its trucks is not, in the
relevant sense, conduct by a corporation `in trade or
commerce'. Nor, without more, is a misleading statement by
one of a building company's own employees to another
employee in the course of their ordinary activities. The
position might well be different if the misleading statement
was made in the course of, or for the purpose of, some
trading or commercial dealing between the corporation and
the particular employee.
The alleged misleading or deceptive conduct of the
company's foreman in the present case consisted of an
internal communication by one employee to another employee
in the course of their ordinary activities in and about the
construction of the building. It follows from what has been
said above that that conduct was not, for relevant purposes,
conduct `in trade or commerce' and would not, if
established, constitute a contravention of s 52 of the Act."

20. In the present case, the factual situation is not yet completely clear. Material in the affidavit of Martin John Collett filed on behalf of the applicants establishes that, at the instance of the second respondent, copying of the relevant software took place onto the appropriate computers in the offices of John Lysaghts and Tubemakers in Melbourne which corporations were customers of the first respondent. It is said, however, on behalf of the respondents that it will be demonstrated in the case that, although the copying took place at the premises of these customer organisations, the computers in respect of which the copies were installed were not the property of those organisations. They were installed in offices which, although situated within the buildings of those organisations, were maintained simply for the purposes of the first respondent, which carried on its own activities in those offices. The computers and the infringing copies of software were solely for the use of the first respondent's employees working in their offices. It was similarly put that the establishment of infringing copies of the third applicant's software on the "personal computer" of one Roger Greenlee at one of the first respondent's offices was, simply an example of the provision of the material to an employee. It was submitted that, given that the supply of the infringing material was made simply by one employee of the respondent to another employee, and not to a customer of the first respondent, it could not be a supply in "trade or commerce", the situation being plainly covered by the decision in Concrete Constructions.

21. On behalf of the applicants, it was submitted, firstly, that the factual situation was not, at this stage of the litigation, sufficiently explored. They were entitled to the ordinary procedures of discovery and interrogation in order to ascertain with precision what the arrangements were in relation to the use of the computers in the premises of the respondent's customers. Additional facts might take the situation out of the area of a mere transaction between employees into an area of customer-involvement sufficient to satisfy the section.

22. It was further submitted on behalf of the applicants that, even if the representations relied upon were made simply between employees of the first respondent, that would not necessarily produce a situation where the decision in Concrete Constructions governed the result. The present case was not one of a statement, express or implied as to the suitability or safety of a particular work practice. It involved a representation as to the legality of a particular commercial practice, namely the use in the first respondent's business of copyright material. This fact was capable of founding an argument that the representation even though made between employees was, nevertheless, made in trade or commerce. It was said that the applicants wished to argue the case was distinguishable from Concrete Constructions and that it was inappropriate so to do in a merely interlocutory application.

23. I have had some hesitation in accepting this submission, but have come to the conclusion that, especially in view of the fact that the factual situation is not fully explored that I should not order that the second and fourth applicants cease to be parties.

24. Although it is conceded that the second applicant has no locus standi to allege infringement of copyright, I consider that its claim based upon breach of s 52 of the Act is not shown to be completely untenable. I should add that it has also been demonstrated that in a rather involved way, it could suffer some damage as a result of the breach if such be established.

25. In relation to the fourth applicant, although, it would appear, the provision of the infringing copy of the third applicant's software was, admittedly, on a more limited basis and to an employee of the respondent for use in his "personal" computer, I am of the view that the same considerations apply. The factual situation has not been, at this stage, fully explored. The question whether the supply and accompanying implied representation was made in the context of the first respondent's trading with a customer or was otherwise in trade of commerce remains, in my view, for further exploration and argument. I consider, therefore, that it is not appropriate that an order be made that the fourth applicant cease to be a party.

26. In these circumstances I do not consider it appropriate that I enter upon a construction of the documents relied upon by the fourth applicant as establishing that it had been constituted an exclusive licensee of the third applicant. It may well be that the documents are not sufficient to take the fourth applicant into that relationship having regard to the decision of the High Court in Avel Pty Limited v Multicoin Amusements Pty Limited and Anor [1990] HCA 58; 18 IPR 443, but this is a question which, in my view, should await full argument at the final hearing of this matter.

27. As the respondents have succeeded in this application on the basis of amendments made to the proceedings after the Notice of Motion had been taken out, I think that the proper order for costs is that each party bear its own costs of this motion.