Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188 (20 December 2006)

INTELLECTUAL PROPERTY – copyright infringement – cinematograph work – pirated DVDs – pornographic films – remedies – public policy – whether ground for refusing copyright protection – discretion to grant remedy – conversion – assessment of damages for conversion generally – statutory prohibitions and restrictions on resale – impact on assessment of value for conversion damages – Classification statutes of States and Territories – onus of proof in relation to illegality – failure by magistrate to give adequate consideration to assessment of damages by reference to illegality – evidence before magistrate inadequate to raise effect of statutory prohibitions and restrictions in respect of infringing articles

TORTS – conversion – damages - illegality

Copyright Act 1968 (Cth) s 86, s 101(1), s 115, s 116,
Classification (Publications, Films and Computer Games) Act 1995 (Cth) s 3
Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) s 6
Classification of Films Act 1991(Qld) s 39
Classification (Publications, Films and Computer Games) (Enforcement) Act 1995 (ACT)
Classification of Publications, Films and Computer Games Act (NT)

Cases cited in the judgments:

Walcot v Walker (1802) 7 Ves 1; 32 ER 1
Southey v Sherwood (1817) 2 Mer 435; 35 ER 1006
Murray v Benbow [1822] Jac 474n; 37 ER 929
Stockdale v Onwhyn (1826) 5 B&C 173; 108 ER 65
Baschet v London Illustrated Standard Co [1990] 1 Ch 73
Glyn v Weston Feature Film Company [1916] 1 Ch 261
Attorney-General v Guardian Newspapers Ltd (No 2) [1988] UKHL 6; [1990] 1 AC 109
Stephens v Avery [1988] 1 Ch 479
ZYX Music GmbH v Chris King and Others [1995] FSR 566
Hyde Park Residents Limited v Yelland [1999] RPC 655
Hyde Parks Residents Limited v Yelland [2001] Ch 143
Mitchell Bros Film Group v Cinema Adult Theatre (1979) 604 F2d 852
Jartech Inc v Clancy (1982) 666 F2d 403
Aldrich v One Stop Video Ltd (1987) 13 BCLR 2(d) 106
Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44
International Writing Institute Inc v Rimila Pty Ltd (1995) 57 FCR 135
Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1983) Aust Torts Reports, 81-244
Hall v Barclay [1937] 3 All ER 620
Kuwait Airways Corporation v Iraq Airways [2002] UKHL 19; [2002] 2 AC 883
Tom Hopkins International, Inc v Wall & Redekop Realty Ltd (1985) 20 DLR (4^th) 407
Infabrics Ltd v Jaytes Ltd [1997] UKHL 17; [1982] AC 1
Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538
Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120
Jackson v Harrison [1978] HCA 17; (1978) 138 CLR 438
Gala v Preston [1991] HCA 18; (1991) 172 CLR 243
Bowmakers, Ltd v Barnet Instruments, Ltd [1945] 1 KB 65
Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391
Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18
Blackburn v Properties Limited [1980] VR 290
Pasickniak v Dojacek [1928] 2 DLR 545
Attorney-General of the Commonwealth of Australia v Adelaide Steamship Co Ltd [1913] HCA 36; [1913] AC 781
North Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1984] UKHL 2; [1914] AC 461
Humphery v Wilson [1929] All ER Rep 171
Holidaywise Koala Pty Ltd v Queenslodge Pty Ltd [1977] VR 164
R v Hicklin (1868) LR 3 QB 360
John Calder (Publications) Ltd v Powell [1965] 1 QB 509
Burnett v Chetwood (1720) 2 Mer 441; 35 ER 1008
Lawrence v Smith (1822) Jac 471
R v Curl (1727) 2 Stra 788; 93 ER 849
British Oxygen Company Ltd v Liquid Air Ltd [1925] Ch 383
Mitchell Brothers Film Group v Cinema Adult Theater 604 F2d 852 (5^th Cir 1979)
Devils Films, Inc v Nectar Video 29 FSupp2d 174 (SDNY 1998)
Prior v Lansdowne Press Pty Ltd [1977] VR 65
General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] RPC 197
Watson, Laidlaw & Co Ld v Pott, Cassels and Williamson (1914) 31 RPC 104
Asamera Oil Corporation Ltd v Sea Oil & General Corporation and Baud Corporation, NV [1979] 1 SCR 633
Rodocanachi, Sons & Co v Milburn Brothers (1886) 18 QBD 67
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc [2000] FCA 660
Nichols Advanced Vehicle Systems Inc v Rees No 3) [1988] RPC 71
Manfal Pty Ltd v Longuet (1986) 8 IPR 410 (Qld Sup Ct)
O’Mara Books Limited v Express Newspapers plc [1999] FSR 49
Clark v Nicholson (1835) 1 CM&R 724
Morgan v Powell (1842) 3 QB 278; 114 ER 513
Reid v Fairbanks (1853) 13 CB 692; 138 ER 1371
Munro v Willmott [1949] 1 KB 295
Lewis Trusts v Bambers Stores Limited [1982 FSR 281
Fire Nymph Products Ltd and Alpen Holdings Pty Ltd v Jalco Products (WA) Pty Ltd (1983) 1 IPR 79
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231
Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 ALR 677
Beloff v Pressdram Ltd [1973] RPC 765
Redrow Homes Ltd v Betts Brothers Plc [1998] RPC 793
Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1
XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd [1985] HCA 12; (1985) 155 CLR 448

Copinger and Skone James on Copyright (15^th Edition, Sweet & Maxwell, 2005)
Cornish and Llewellyn, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (5^th Edition, Thomson Sweet & Maxwell, 2003)
Phillips J, Copyright in Obscene Works: Some British and American Problems (1977) 6 Anglo-Am L Rev 138
Rogers E, Copyright and Morals (1919-20) 18 Mich L Rev 390
Morgan O, Copyright, the Public Interest and Content Restrictions (Intellectual Property Institute of Australia Working Paper No 13/03 May 2003)
Lahore, Copyright and Designs (Butterworths)
Tettenborn, Wiley and Bennett; The Law of Damages, (LexisNexis UK 2003)
Tettenborn A, Damages in Conversion: the Exception or the Anomaly (1993) 52 CLJ 128
Buckley, Illegality and Public Policy (Sweet and Maxwell, 2002)

VENUS ADULT SHOPS PTY LTD, TROPHER INSTALLATIONS PTY LTD, ALAN GEORGE VASSALLO, JERRY GORDON AND PHILLIP SALVATORE DE PRIMA v FRASERSIDE HOLDINGS LTD AND CALVISTA AUSTRALIA PTY LTD
NSD 1617 OF 2005

FRENCH, KIEFEL AND FINKELSTEIN JJ
20 DECEMBER 2006
PERTH (HEARD IN SYDNEY)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1617 OF 2005

BETWEEN:	VENUS ADULT SHOPS PTY LTD First Appellant TROPHER INSTALLATIONS PTY LTD Second Appellant ALAN GEORGE VASSALLO Third Appellant JERRY GORDON Fourth Appellant PHILLIP SALVATORE DE PRIMA Fifth Appellant
AND:	FRASERSIDE HOLDINGS LTD First Respondent CALVISTA AUSTRALIA PTY LTD Second Respondent

JUDGES:	FRENCH, KIEFEL AND FINKELSTEIN JJ
DATE OF ORDER:	20 DECEMBER 2006
WHERE MADE:	PERTH (HEARD IN SYDNEY)

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	NSD 1617 OF 2005

BETWEEN:	VENUS ADULT SHOPS PTY LTD First Appellant TROPHER INSTALLATIONS PTY LTD Second Appellant ALAN GEORGE VASSALLO Third Appellant JERRY GORDON Fourth Appellant PHILLIP SALVATORE DE PRIMA Fifth Appellant
AND:	FRASERSIDE HOLDINGS LTD First Respondent CALVISTA AUSTRALIA PTY LTD Second Respondent

JUDGES:	FRENCH, KIEFEL AND FINKELSTEIN JJ
DATE:	20 DECEMBER 2006
PLACE:	PERTH (HEARD IN SYDNEY)

1 Fraserside Holdings Ltd (Fraserside) was incorporated in Cyprus. It produces what are known as "adult films", a term generally used to describe pornographic films. It is part of the corporate group known as "the Private Group" and is the production vehicle for films made by or on behalf of that group. These films are referred to as "Private Films". It also licenses the distribution of the films in DVD and VHS formats in a number of countries including Australia. Calvista Australia Pty Ltd (Calvista) has been its exclusive Australian licensee and distributor since 26 September 2001.

2 Venus Adult Shops Pty Ltd and Tropher Installations Pty Ltd are Australian companies which own and operate between them eight retail outlets under the name "Venus Adult Shops" (the Venus Shops). They sell adult films through those outlets. Messrs Jerry Gordon and Phillip De Prima are the directors of Venus. Mr Gordon and Mr Alan Vassallo are the directors of Tropher. The two companies are referred to collectively in these reasons as "Venus". Their directors are referred to collectively as "the Directors".

3 Fraserside holds, by assignment, copyright in films made before April 2000 previously owned by Milcorp Media Group SL (MMG), a related corporate member of the Private Group. It also owns copyright in a substantial number of films made since April 2000. Calvista has the exclusive licence to make copies, in Australia, of Private Films. Prior to 2003 Calvista supplied the Venus Shops with VHS videos and DVDs of the films.

4 In 2003, because of a dispute about accounts, Venus stopped dealing with Calvista. After 2003 they did not buy any of its films. The films previously supplied came in boxes or cases with feature photographs and accompanying art work known as "Slick Artwork". Each of the films produced and distributed in DVD format has artwork on the DVD disc ("Disc Artwork"). The Slick Artwork and the Disc Artwork were produced by employees of MMG which had assigned its copyright in the artwork to Fraserside and Calvista. Both the Slick Artwork and the Disc Artwork were original "artistic works" within the meaning of ss 10 and 32 of the Copyright Act 1968 (Cth) (the Copyright Act) respectively.

5 In December 2004 Fraserside and Calvista instituted proceedings in the Federal Magistrates Court against Venus and the Directors alleging that the two companies had made and/or authorised the making of copies of Private Films without any licence. They alleged that Venus had sold and offered for sale counterfeit copies of the films and that the two companies knew or ought reasonably to have known that the making of the copies constituted an infringement of copyright.

6 Fraserside and Calvista also said, in points of claim filed pursuant to an amended application, that at least from 10 January 2005 Venus had imported copies of Private Films into Australia without any licence and had made copies of them. It was alleged that they knew, or ought reasonably to have known, that the making of the imported copies was an infringement of copyright or would have constituted such an infringement had the copies been made in Australia.

7 As to the Directors, it was said they:
. authorised the acts of their respective companies;

8 Fraserside and Calvista claimed damages and injunctive relief to restrain repetition of the infringing conduct. They claimed nominal damages under s 115(2), conversion damages under s 116 and additional damages under s 115(4) of the Copyright Act. The additional damages were claimed on the basis, inter alia, that the acts allegedly done by the companies and their directors were flagrant and knowing and done with the intention that substantial financial benefit would accrue as a result of the infringements. After a hearing in May and June 2005 the Federal Magistrates Court delivered judgment on 21 July 2005. Injunctive relief had been agreed in the course of the hearing and consent orders made after the hearing in that connection. Although included with the injunctive relief in what purported to be "consent orders" the orders as to damages and costs were agreed for the purpose of giving effect to the magistrate’s findings. They were not true consent orders. Damages were awarded. The damages awards and orders for costs were made against Venus and each of the Directors except Mr De Prima. Venus and the Directors now appeal against the decision of the Federal Magistrates Court in relation to damages and costs.

9 For the reasons that follow the assessment of damages under s 116 of the Copyright Act should be reduced. On the appeal grounds as formulated no basis is shown for interfering with the quantum of additional damages. The appeal should be allowed in relation to the damages under s 116 by reducing them to $54,400. It should otherwise be dismissed with no order as to costs.
Reasons for judgment of the Federal Magistrates Court

10 There appears to have been no dispute that Fraserside had copyright in the Private Films and that Calvista had the rights of an exclusive licensee of that copyright to reproduce the films and to sell or exchange them in Australia.

11 The learned magistrate found that there was a fairly general practice, within the adult film industry, of parallel importing and distribution which extended to Private Films. None of the imported Private Film DVDs produced in evidence before him was classified under the National Classification Scheme. Calvista was aware of the practice but was not particularly concerned about the distribution in Australia of parallel imported Private Films which could not lawfully be sold because they were not classified. His Honour was not satisfied that Venus had imported any Private Films on their own account. He found however that Venus made infringing copies of Private Films imported into Australia by others and infringing copies of Private Films distributed by Calvista. Venus knowingly offered copies for sale or exchange and did in fact sell and exchange them.

12 His Honour found that Venus had commenced copying Private Films "... from at least the time that relations between the applicants and the respondents became less friendly". He also found that Mr Gordon "... must have been aware that some of the sales going on in his stores were sales (and by that I include swaps) of product copied by the Venus Shops." He found that Mr Vassallo did not know what was going on as he was not as hands on in management as Mr Gordon.

13 His Honour’s findings of fact in relation to the matters in dispute led him to the following conclusions:

14 Calvista was aware of its rights as sole distributor of Private Films in Australia. By advising Mr Vassallo that it was not concerned with imported "European or American Privates" it told Venus that it would not enforce its rights with respect to them. His Honour held that it would be unconscionable to allow Calvista to enforce its rights with respect to the sale of parallel imported Private Films during the period in which it had made no complaint. On this basis Calvista would not be entitled to damages under s 103 of the Copyright Act. The correctness of this conclusion and the reasoning by which it was reached were not in issue on this appeal.

15 Venus and the Directors had accepted from the outset that the case was essentially about assessment. His Honour identified two matters raised by them in connection with the damages question:

He also referred to a submission put by Venus that Calvista knew that Venus was selling its product illegally in New South Wales and Queensland and that therefore it was aiding and abetting a breach of the laws of those States.

16 After some discussion of cases in which copyright protection had been refused on public policy grounds, his Honour said, of the Private Film DVDs provided to the Court as exhibits and collected in the process of delivery up, that (at [41]):

The latter qualification informed his observation that a court could not act on public policy grounds on mere whim. Where no witnesses were called to allege artistic merit the court should look at the attitude towards the product in Australia and overseas. He observed that the classified Calvista product was "acceptable in at least two territories of this Commonwealth". The unclassified material was acceptable in countries overseas "... containing hundreds of millions of people." He could not say that the works were so grossly immoral or pornographic that they should lose the protection of the Copyright Act. There does not appear to have been any contention raised in the pleadings that copyright protection should be denied to Private Films on grounds of their immorality or pornographic character.

He then expressed a concern that the effect of declining to grant relief would be to give free reign to any pirate who wished to copy and publish the material. The relevance of his findings in this respect and their factual bases were not apparent. His Honour went on to say (at [42]):

The issue of refusal of copyright protection on public policy grounds was not before his Honour. The questions before him, raised in the points of defence, were whether the sale of the Private Film DVDs was contrary to law in any parts of Australia and, if so, what effect the illegality of the product in those parts would have on the amount of conversion and additional damages to be assessed.

18 In relation to the alleged sale of the products in New South Wales, the only evidence before the Court was that the relevant sales were made by Venus and not by Fraserside or Calvista. His Honour rejected the contention that Fraserside and Calvista were disentitled to damages because they had aided and abetted the commission of offences by Venus. Venus had not shown there was an offence in New South Wales and Queensland or Australia of aiding and abetting a breach of the relevant Classification Enforcement Acts. This is a surprising conclusion given the general provisions of the criminal law in each State and Territory relating to accessorial liability. He also suggested that such an accessorial offence would have to be proved "beyond all reasonable doubt". This is not a requirement in civil proceedings. His Honour found that, in any event, breach of a relevant State Classification Enforcement Act by sale of Calvista product, purchased from Calvista, was not the subject of the litigation. He said (at [43]):

His Honour rejected the submission by Venus that its own illegality in relation to the sale of private films constituted an effective defence to a claim for damages for infringement of copyright.

19 His Honour found difficulty in determining what amount of damages could be awarded to Fraserside and what amount to Calvista. He assessed damages on the basis that he should determine a global amount under each of the headings claimed and indicate the extent to which he had reduced it because of the acquiescence of Calvista in relation to the sale of imported infringing DVDs. He said (at[45]):

20 Fraserside and Calvista had elected to claim nominal damages of $1 under s 115(2). They did this against the possibility that s 116 conversion damages were only available if s 115 damages were also awarded. They contended that any inability to sell the infringing material because of the provisions of the relevant film classification laws in New South Wales and Queensland was not a defence to a claim for conversion damages. They argued that the Court should make the strongest assumption against Venus as to the value of the DVDs. They submitted that the evidence of Mr Gordon indicated an estimated 1,450 "converted Private films" had been sold or swapped over 18 months. Swapping represented a cost of $20 per DVD to the swapper. They argued that, on the basis of Mr Gordon’s evidence, the average sale price of a DVD should be assessed at $60 with a reduction of $13 to take into account the fact that two thirds of the stock was acquired for $20 and the rest by way of swaps. They argued that this yielded conversion damages, under s 116, of approximately $68,000.

21 In written submissions on quantum made at trial Fraserside and Calvista set out a table showing an estimated figure for conversion damages of $70,934. This was based upon estimated sales of 80 Private Films per month over a period of 19 months from May 2003 to December 2004. The alternative figure of $68,000 quoted in his Honour’s judgment relied upon an 18 month period. That figure was apparently advanced by Fraserside and Calvista in oral submissions.

22 Mr Gordon’s evidence on the matter was described by his Honour as "opaque and contradictory". His evidence, that 5% of his turnover came from Private Films was directed to what his Honour called "legitimate Private films", that is Calvista Private Films and parallel imports. His Honour did not think that Mr Gordon was talking about the Private Films which had been copied by Venus. On this basis he formed the view that the amount of $68,000 proposed by Fraserside and Calvista was too generous. He said (at [50]):

It is not apparent how these figures were arrived at. His Honour held that in the special circumstances of the case, damages under s 116 were appropriate and should be awarded "over and above the s 115(2) damages of $1.00 against each of the first to fourth respondents...".

23 His Honour considered the claim of additional damages under s 115(4) of the Copyright Act. He found that the conduct of Venus and their Directors was flagrant. They had deliberately set aside batches of Private Film DVDs to use as a library in order to copy them and keep their stock fresh. They knew that the copying was illegal and they knew that it was rampant in their industry. Any reluctance they had had about copying DVDs only lasted up to the point from which they were able to make copies cheaply and without difficulty.

24 His Honour reflected adversely upon the conduct of Venus and their Directors in connection with the proceedings. They had failed on a number of occasions to comply with court orders particularly those for delivery up. Deadlines were seldom met. His Honour would have awarded the applicants the sum of $100,000 under s 115(4) in addition to the conversion damages. However he reduced that sum to $85,000, again because of the acquiescence of Calvista in relation to the sale of imported films. He declined to make a declaration as to infringement.

25 On 18 August 2005 his Honour made orders to give effect to his judgment. These included injunctions, delivery up orders, an award of damages and costs. Orders 9 and 10 are in issue in this appeal:

26 In par 30 of their points of claim filed in the Federal Magistrates Court, Fraserside and Calvista alleged:

27 In the points of defence filed by Venus and the Directors, they responded to par 30 thus:

The text of par 19(b) was repeated in par 22(b) of the points of defence. That paragraph was a response to the claim for additional damages in pars 32 and 33 which relied, in par 33, on the matters set out in par 30 and additional matters.

28 The hearing commenced on 23 May 2005. It proceeded on 24 May and on 8 and 9 June 2005 and concluded on 21 June 2005 with the last written submission being filed on 24 June 2005. On or about 9 June 2005 Venus and the three directors sought to amend the defence. The proposed amendment was to par 19, to add a subparagraph 19(c) in the following form:

29 When the amendment was foreshadowed his Honour required a notice of motion for leave to amend to be filed along with the evidence to be relied upon to prove the additional matters pleaded. His Honour’s orders required the filing of:

The requisite motion was filed on 16 June. In addition, two affidavits sworn on 16 and 18 June 2005 by Tony Barber, the solicitor for Venus and the Directors were filed.

30 Mr Barber’s affidavit of 18 June 2005 exhibited a table setting out the names of various films, their classifications and the features and extras to be found on the DVD versions. He also set out in the table the basis upon which it was said that the non-classification of the DVDs was proven and the nature of the alleged breach involved in selling or offering them for sale. The substance of the argument seemed to be that when a VHS film was turned into a DVD it had additional features offered which would have required it to be reclassified under the Commonwealth Classification Act and that, absent such reclassification, its resale was illegal, at least in New South Wales and Queensland.

31 The motion to amend was dismissed by his Honour on 21 June 2005. He referred to the affidavits sworn by Mr Barber. In an annexure to Mr Barber’s affidavit of 16 June 2005 there were extracts from the classification database of the Office of Film and Literature Classification which could be correlated with the film titles contained in the schedule to the affidavit. Yet counsel for Venus and the Directors admitted that the vast majority of the film titles had not been distributed by Calvista in Australia. They were imports or copies of imports. Secondly, in relation to the 12 titles that were directly distributed by Calvista, there was no real evidence of the allegations made. Mr Barber had not deposed to his knowledge that the DVDs may or may not run as long as the original VHS or might contain additional material. He had obtained that information from the box and compared it with the information on the classification database advanced search.

32 There were further problems with the evidence. The proposed amendment to the defence relied upon an assertion that a film classified in a VHS format could not lawfully be issued as a DVD, without reclassification, unless in exactly the same format. It was argued that the addition of trailers of other films or interviews with actors of the type now common in DVDs would have required the DVDs to be reclassified. No basis for this assertion was shown to his Honour. On the other hand, he was referred by counsel for Fraserside and Calvista to the Commonwealth Classification Act setting out basic requirements for the classification of films. These did not support the argument for Venus.

33 While sensible of the requirement laid down by the High Court in State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 that amendment should usually be permitted where there is no prejudice to the other side other than one which could be cured by costs, his Honour said it was equally clear that an amendment must have some prospect of success if it was to be allowed. Although counsel for Venus said that the DVDs were in evidence and although he obtained a concession from a witness, Mr Newnham, that they may have to be reclassified in the event that they are taken from VHS masters and additions made, his Honour was not satisfied that an admission by a lay witness could bind the Court as to the law. His Honour said (at [7]):

34 There were 11 grounds of appeal. They are referred to in more detail below as each is considered. The principal issues arising from them and on which the appeal turns can be identified as follows:

35 Part IV of the Copyright Act is concerned with copyright in subject matter other than works which includes cinematograph films. Section 86 defines the nature of copyright in cinematograph films thus:

Section 102 includes in the definition of infringing conduct with respect to subject matter other than works the importation of articles for the purposes of sale or hire where such articles, if made in Australia by the importer would have constituted an infringement of copyright. Section 103 covers sale or hire of an article, the making of which constituted an infringement of copyright. Each provision conditions each definition of infringement upon the fact that the importer, vendor or hirer, as the case may be, knew or ought reasonably to have known, that the making of the article would have or did constitute an infringement as the case may be.

36 Remedies for infringement of copyright applicable to works and subject matter other than works are provided by ss 115 and 116 of the Act. Section 115 provides:

Statutory framework – The National Classification Scheme – Commonwealth, New South Wales and Queensland Statutes

38 As the legality of the sale of the Private Films under State and Territory laws was raised, it is convenient to outline the way in which those laws operate. The classification and censorship of films in Australia is administered under a National Classification Scheme. This is a co-operative arrangement between the Commonwealth, the States and the Territories. Under the agreement the Commonwealth is responsible for the classification process and the States and Territories for the enforcement of the Act, including restrictions on the sale of films.

39 The Classification (Publications, Films and Computer Games) Act 1995 (Cth) (Commonwealth Classification Act) expressly provides for the classification of publications, films and computer games for the Australian Capital Territory (s 3). The Commonwealth has used the Territory’s power to set up a regulatory structure for the classification process. The classifications determined under the Commonwealth Classification Act are enforced under separate Acts of the States and Territories within their respective jurisdictions.

As a note to the section observes, "Provisions dealing with the consequences of not having material classified and the enforcement of classification decisions are to be found in complementary laws of the States and Territories."

41 The Commonwealth Classification Act, when originally enacted, set out the National Classification Code in a schedule. By s 6 of the Commonwealth Classification Act, the Code can be amended with the agreement of the Commonwealth Minister and each Minister from the participating States and Territory. The Act established a Classification Board and a Review Board. The classification of publications, films and computer games is to be made by the Board in writing, on application (s 10(1)). The Board is required to take into account, in making a classification decision, a number of matters including:

42 The Commonwealth Classification Act provides for classification guidelines to be made by the Commonwealth Minister with the agreement of each State and Territory Minister. The guidelines are to assist the Board in applying the criteria in the Code (s 12). A film can be called in for classification by the Director of the Board who can require the publisher to submit an application for its classification (s 23(a)). Although this power is expressed to apply to films being published in the Australian Capital Territory, a like power is conferred upon the Director by the State Acts in relation to films published in the States. The Act provides for a review of a decision of the Board by the Review Board.

43 Section 7(2) of the Commonwealth Classification Act sets out the different types of classifications for films in what is called "ascending order". They are:

The National Classification Code in Item 3 sets out the criteria for the various film classifications. Relevantly for present purposes the criteria for the classifications RC and X 18 + are as follows:

45 The enforcement of restrictions on the sale of classified films in Queensland is done under the Classification of Films Act 1991 (Qld) (Queensland Classification Act). That Act contains a definition of "objectionable film" as:

47 The Classification (Publications, Films and Computer Games) (Enforcement) Act 1995 (ACT) (ACT Act) contains a list of definitions in a dictionary at the end of the Act. It defines the term "classified" as "classified under the Commonwealth Act, and includes reclassified under that Act". The word "film" is as defined under the Commonwealth Act. It is an offence under s 16 of the ACT Act to sell an unclassified film or a film refused classification. By s 17 a person commits an offence if the person sells a classified film "in a form other than the form in which the film is classified". It is also an offence to possess unclassified films or films classified RC at any premises where classified films are sold (s 20).

48 There is a general power in the relevant ACT Minister to exempt a film from specified provisions of the Act (s 55(1)). There are also powers in Pt VI of the ACT Act for the grant of licences to sell or copy X 18+ films. The Act establishes the office of a Registrar with licensing power. Interestingly, one of the matters to which the Registrar must have regard in determining whether to grant a licence is whether the applicant has infringed copyright within the meaning of the Copyright Act in relation to a cinematograph film.

49 The Classification of Publications, Films and Computer Games Act (NT) adopts the classification regime under the Commonwealth Act. Section 45 imposes a prohibition on the sale of a film unless it is classified and is sold under the same title as that under which it is classified and in the same form, without alteration or addition. There is also a prohibition on the possession of an unclassified film that would, if classified, be classified RC or R 18+, or possession of a film classified RC with the intention of selling or exhibiting it (s 50C). If a film is classified X 18+ it can only be displayed in a restricted publication area. A person cannot sell or hire the film to a person who has not made a direct request for it and cannot sell or hire it unless it was contained in a package made of opaque material (s 49).

50 There were amendments to the Commonwealth and State Acts in 2004 which introduced the classification X 18+ in lieu of X 18. The Act, as amended in 2004, has been outlined in the preceding summary. The amendments are not material for present purposes.
Refusal to permit cross-examination on illegality – ground 1

52 In cross examining Mr Newnham, Calvista’s general manager, counsel for Venus put to him that Calvista imported DVDs of adult films and that they were stored in Sydney or Melbourne. This drew an objection on the ground that it was irrelevant. The question was supported on the basis that it was "relevant to the question of illegality". This was a reference to prohibitions on the sale of such films in some places. The argument, as recorded in the transcript, was not easy to follow. It proceeded on a common assumption that the sale of the Private Film DVDs in New South Wales and Queensland would have been in breach of the State Classification Enforcement Acts. Counsel for Venus took the position that, on a royalty based claim, the only relevant notional sale from Calvista to Venus of the DVDs would necessarily have been in breach of State law. Counsel for Fraserside and Calvista argued that the relevant transactions between them and Venus could have taken place in the ACT and would have been lawful. The learned magistrate at one point said "I’ll allow the question". This elicited another round of argument. Counsel sought to canvass his Honour’s ruling. The position was confused in the transcript by the fact that the submissions made by counsel for Fraserside and Calvista were incorrectly attributed to the magistrate. That error was compounded when the same counsel was subsequently misdescribed as counsel for Venus.

53 Following the reopening of argument by counsel for Fraserside and Calvista, counsel for Venus was invited by his Honour to formulate the question which he wanted to put. He said:

54 Counsel for Venus was in turn misdescribed in the transcript as counsel for Fraserside and Calvista. He asserted that it was relevant to determine whether or not Venus should be penalised (under s 115(4)) for acting in flagrant disregard of the Copyright Act while those suing it had been acting "in flagrant disregard of the Act in six States in Australia". He also made a reference to equity and clean hands.

55 His Honour moved finally to a ruling, the reverse of that which he had made immediately before the reopening of the debate by counsel for Fraserside and Calvista. He said:

56 The ruling made by the magistrate did not express with clarity the class of evidence excluded nor the basis upon which it was excluded. Nevertheless it was apparent that counsel for Venus was not permitted to cross-examine Mr Newnham on matters relevant to the unlawfulness of reselling Private Film DVDs in the States and Territories of Australia. Underpinning the proposed cross-examination was the assumption that the Private Films in respect of which Venus had infringed copyright could not lawfully be sold in New South Wales or Queensland.

57 The issue re-emerged when counsel for Venus cross-examined Mr Newnham about the fact that Fraserside and Calvista imported Private Films in VHS video format and recorded them onto DVDs, some of which had additional material such as trailers included in them. Counsel put to Mr Newnham that when Fraserside and Calvista had a title on VHS which had been classified and released the same title on DVD they did not seek reclassification of the DVD film. The objection was raised that the question took the court back into "illegality territory". Counsel for Venus submitted that it was relevant to the determination of additional damages under the category of "other relevant matters" in s 115(4) of the Copyright Act. In the event, the magistrate would not allow counsel to further question the witness on the point. This appears to have been related, at least in part, to the necessarily imprecise nature of the answers that could be given by the witness. His Honour left it open to counsel to bring in material subpoenaed from the Commonwealth Classification Board and make the point "by tender".

58 Another line of attack advanced by Venus in argument about the cross examination was that, by supplying product whose sale or supply would be unlawful in New South Wales and Queensland, Fraserside and Calvista aided and abetted Venus in relation to the commission of unlawful acts knowing full well that the products supplied would be offered for sale in those States.

59 The magistrate, in disallowing the questions put to Mr Newnham, also seemed to rely, in part, upon the proposition that there was no necessary connection between the infringement of copyright alleged against Venus and any infringing notional sale of Private Film DVDs, contrary to State or Territory laws, by Fraserside and Calvista. No such connection seems to have been identified in the case beyond a generalised "clean hands" argument. Let it be assumed that a Private Film DVD copied by Venus was classified X 18+ under the Commonwealth Act. It did not follow that it would have been unlawful to sell or supply that film in all States or Territories of Australia. The parties seem to have assumed that any of the Private Film DVDs could be sold or supplied in the ACT or the Northern Territory. Somewhat confusingly it was common ground on the appeal that unclassified films could not be sold anywhere in Australia. The proportion of copied X rated films saleable in the ACT and the Northern Territory to copied unclassified films not saleable anywhere, was not the subject of any finding.

60 Mr Newnham could not have been asked for his opinion as to the legality of selling particular DVDs in the various States and Territories. That was a matter which would have required a factual foundation, the presentation of argument and a finding by the magistrate. Indeed his Honour disallowed further questions directed to Mr Newnham on the basis that he could not really give sensible answers on the matters being put to him. Venus never laid the factual foundation and Mr Barber’s evidence in support of the proposed amendment was not evidence at the trial.

61 The question of the lawfulness of the sale of films which had been argued was not a question to be answered by reference to whether Fraserside and Calvista sold or supplied or offered them for sale or possessed them contrary to the provisions of particular State or Territory laws. The questioning of Mr Newnham in that respect was irrelevant and rightly disallowed. The primary basis upon which Venus raised the issue was that it was relevant to the calculation of the value of the pirated DVDs for the purposes of assessing damages under s 116. This would have required, for each film copied, evidence of its classification or lack thereof and submissions about the application of each State and Territory law to its sale, offering for sale or possession for sale. Broad common assumptions about all of the films copied and the lawfulness of their resale in New South Wales, Queensland, the ACT and the Northern Territory were not sufficient for that purpose. The first ground of appeal is not made out.
Refusal of leave to amend – ground 2

63 In his oral argument at the appeal, counsel for Venus said at one point that he was:

This was evidently a reference to Mr Barber’s evidence. Counsel accepted, however, that when the amendment was refused the evidence which was tendered to support it fell away. He had not sought to tender it on any other basis. He then resiled from the suggestion that he would not pursue the amendment ground.

64 The proposed amendment to the defence involved a narrow point. That was that "damages should be denied because many Private films on DVD distributed for sale in Australia are not classified and/or display incorrect or misleading classification labels". The term "Private film" as noted earlier, refers to films produced by the Private film group with which Fraserside and Calvista are associated.

65 The question whether the amendment should be permitted involved the exercise of a discretion on the part of the magistrate. It was not suggested that there was any prejudice that might flow from the amendment which could not be cured by a costs order. However, his Honour was not satisfied that the proposed evidence was sufficient to sustain the amendment. There was no basis, in the evidence to be proffered, for the assertion that the DVDs would require reclassification. His Honour did not err in refusing the amendment. The second ground of appeal fails.
Factual errors relevant to the assessment of damages – grounds 3, 4 and 5

66 Grounds 3, 4 and 5 were taken together in the submissions made on behalf of Venus. The errors relied upon in such of this group of grounds as were pressed were as follows:

67 The first error of which complaint was made was the finding reflected in the magistrate’s reasons, when he said of Mr Gordon (at [29]):

This passage went to Mr Gordon’s accessorial liability but incidentally included the finding, based on inference, that copying had commenced in 2003. His Honour had earlier rejected evidence by Messrs Vassallo and Gordon that they were unaware until recently that DVDs could be copied. He said (at [14]-[15]):

68 The period of copying adopted by his Honour was a reasonable inference in the circumstances from the evidence of copying that was before the Court. It was a feature of the case that there were few detailed records kept by Venus. The commercial desirability to Venus of maintaining continuity in Private Film offerings would support the inference, more comfortably drawn in the absence of contrary evidence, that the copying commenced at or shortly after the time of the breakdown in relations with Calvista. The first alleged error is not made out.

69 The second alleged error raised in ground 3(c) is that Mr De Prima was wrongly held liable as an accessory for breaches of the Act by Venus when no such allegation had been made against him. The relevant finding appears at par [31] of the reasons for judgment in which the magistrate said:

Mr De Prima was a director and shareholder of Venus Adult Shops Pty Ltd. His Honour had earlier observed that he had consented to declarations and injunctions being made against him and that no damages or costs were sought.

70 The only orders made against Mr De Prima on 18 August 2005 were by way of injunctions which were made by consent. In the course of the trial in the Federal Magistrates Court, Venus and the Directors offered to consent to orders for permanent injunctions but not to pay any damages. Fraserside and Calvista said at the hearing that they would not pursue Mr De Prima for anything other than the injunctive relief to which he had offered his consent. In the magistrate’s reasons for judgment he recorded that Venus and the Directors had consented to the grant of permanent injunctions. The final orders made by his Honour, all purported to be made by consent. However those which related to damages and costs were agreed, after publication of the reasons, in order to give effect to the magistrate’s reasons. They were not true consent orders.

71 The magistrate’s finding of accessorial liability on the part of Mr De Prima was not justified having regard to the absence of any factual findings to ground it beyond the fact that he was a director of Venus Adult Shops Pty Ltd. However, there were no damages and no costs sought or awarded against him. The appeal by Venus and the Directors is about damages. There is no basis disclosed on which the injunctive orders could be set aside as they were made by consent. In the circumstances there is no order flowing from the allegedly erroneous finding which could be the subject of appeal. Nor is there any basis upon which the damages award, so far as it relates to damages under s 116 of the Copyright Act, could be reduced by reference to the fact that no damages were sought against Mr De Prima. The amount of the conversion damages remains the same regardless of how many people were involved in the copying. There is nothing in the submissions to indicate the way in which Mr De Prima’s position could have affected the quantum of additional damages awarded.

73 The third error, which is raised in ground 4, alleges failure on the part of the magistrate to reduce or adequately reduce the damages recovered by Fraserside and Calvista in light of certain factual findings. The relevant findings of fact cited by Venus and the Directors all went to the question whether Venus had infringed the rights of Fraserside and Calvista by the sale of parallel imported Private Films. As acknowledged in the ground of appeal itself, the magistrate found that Calvista was not entitled to damages for breaches of s 103 of the Copyright Act in relation to parallel imported Private Films. It is difficult therefore to see how the magistrate’s findings should otherwise have affected the assessment of damages. The written submissions refer to his Honour’s findings that the conversion damages of $68,000 calculated by Fraserside and Calvista on the basis of Mr Gordon’s evidence (taken by them to represent a minimum position) was too generous to Venus and the Directors. That complaint about this aspect of his Honour’s reasons was not shown to have anything to do with his findings of fact relevant to parallel importing. Ground 4 cannot succeed as a basis for challenging the assessment of damages. The question of his Honour’s substitution of a higher figure for conversion damages than that advanced at the hearing is dealt with in ground 9.

The assessment of damages for infringement of illegal or immoral copyright works – grounds 6 and 7

76 Before considering these grounds against the learned magistrate’s reasons, it is helpful to consider some questions of general principle which they raise. These include:

77 There is long standing authority in England for the proposition that copyright protection will not be extended to a publication whose content is contrary to community standards or values. This seems to have originated in a judge-made doctrine emanating from the Courts of Equity – Walcot v Walker (1802) 7 Ves 1; 32 ER 1; Southey v Sherwood (1817) 2 Mer 435; 35 ER 1006. In the latter case Lord Eldon refused to enjoin infringing publication of "Wat Tyler" because of its libellous tendency. In the result, as Lord Campbell observed: "hundreds of thousands of copies of Wat Tyler were circulated over the kingdom": Lives of the Chancellors (4^th Ed, 1857). In Murray v Benbow [1822] Jac 474n; 37 ER 929 Lord Eldon said that no work injurious to religion was entitled to copyright protection. He refused to enjoin publication of a pirated edition of Byron’s "Cain". Leach VC did the same for Lord Byron’s "Don Juan" in Byron v Dugdale (1823) 1 LJ Ch 239. In Stockdale v Onwhyn (1826) 5 B&C 173, 108 ER 65, damages were refused for infringement of copyright in the Memoirs of Harriette Wilson, a book about the love life of a courtesan. In Baschet v London Illustrated Standard Co [1900] 1 Ch 73 the Court of Appeal refused injunctive relief and damages under the Fine Arts Copyright Act 1862 to two out of seven photographs in which copyright subsisted under French law on the basis that the two were indecent.

78 The existence of "immoral tendency" as a basis for denying copyright protection was influentially reasserted in Glyn v Weston Feature Film Company [1916] 1 Ch 261. Younger J said that it was "... clear law that copyright cannot exist in a work of a tendency so grossly immoral as this, a work which apart from its other objectionable features, advocates free love and justifies adultery where the marriage tie has become merely irksome" (269). Glyn was cited with approval by Lords Keith, Griffith and Jauncey in the Spycatcher case: Attorney General v Guardian Newspapers Ltd (No 2) [1988] UKHL 6; [1990] 1 AC 109 at 262, 275-276 and 294. Browne-Wilkinson VC in Stephens v Avery [1988] 1 Ch 479 referred to it and said he entirely accepted the principle that "a court of equity will not enforce copyright ... relating to matters which have a grossly immoral tendency" (482). The existence of a discretion to refuse copyright protection on "public policy grounds" was restated by Lightman J in ZYX Music GmbH v Chris King and Others [1995] FSR 566 at 577. The public policy grounds related to works which were "dishonest or misleading", "of a grossly immoral tendency" or "reeking of turpitude", the latter referring to breach of confidence.

79 In Hyde Park Residents Limited v Yelland [1999] RPC 655 Jacob J asserted that "in principle public policy can prevent copyright enforcement completely". He added that while some might say it was remarkable that the courts take away what was given by parliament "... that is what the courts have done in extreme circumstances". This is a proposition which would be constitutionally untenable in Australia in both Federal and State jurisdictions. The Court of Appeal in Yelland found legislative space and constitutional legitimacy for a public policy ground for denial of protection in s 171(3) of the Copyright Patents and Designs Act 1988 which provided that "Nothing in this Part affects any rule of law preventing or restricting the enforcement of copyright, on grounds of public interest or otherwise". Aldous LJ considered the power of the courts to refuse to enforce copyright on public interest grounds as an aspect of their "inherent jurisdiction to refuse to allow their process to be used in certain circumstances": Hyde Park Residents Limited v Yelland [2001] Ch 143 at 160 [44] Aldous LJ).

80 A more restrained judicial censoriousness was predicted in the 15^th edition of Copinger and Skone James on Copyright:

81 The Courts of the United States reflected, in a long line of cases, a doctrine of non-protection of works found to be obscene, immoral, blasphemous, libellous, irreligious and even merely misleading – see Phillips J, Copyright in Obscene Works: Some British and American Problems (1977) 6 Anglo-Am L Rev 138. An interesting and elegantly penned historical review is also to be found in Rogers E, Copyright and Morals (1919-20) 18 Mich L Rev 390. In 1979 however the Court of Appeal for the 5^th Circuit rejected the contention that obscene content in a copyright work is a defence to a claim for its infringement: Mitchell Bros Film Group v Cinema Adult Theater (1979) 604 F2d 852 and was followed in Jartech Inc v Clancy (1982) 666 F2d 403. A comprehensive review of United States, Canadian and English authority was essayed by Davies J in the Supreme Court of British Colombia in Aldrich v One Stop Video Ltd (1987) 13 BCLR 2(d) 106. The cases and issues are discussed, from an Australian perspective, in Morgan J, Copyright, the Public Interest and Content Restrictions (Intellectual Property Institute of Australia Working Paper No 13/03 May 2003).

82 In the Phillips’ paper the author pointed quite properly to the difficulty of conditioning the existence of a property right on a legal test whose application was "no more than a value-judgment based upon a variety of psychological apprehensions which we are unable to comprehend". He added (at 168):

83 Whatever the powers of English Courts past and present, Lahore makes the point correctly about the Australian Act:

This position is consistent with the rejection, by Gummow J in Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 at 57, of a public interest defence to copyright infringement. Although lying on the other side of the moral coin the principle governing such a rejection is applicable to reject defences based upon the immorality of the copyright work. As Gummow J said of the public interest defence (at 57):

84 In relation to works and subject matter other than works there is no room, in the definition under the Act, of the rights comprised in the relevant copyright, for a qualification based upon general public policy considerations. There is no equivalent of s 171(3) of the Copyright, Designs and Patents Act 1988 (UK). The closest approach to such a provision is to be found in s 9(3) which preserves the operation of the law relating to breaches of trust or confidence. There is therefore no statutory basis under existing Australian copyright law for a finding that copyright does not subsist because the content of the relevant work or subject matter offends against community values or standards. That is not to say that such considerations may not inform the discretion to award particular classes of remedy but the scope of such an exercise of discretion would seem to be narrow.

85 Accepting that copyright protection in Australia is not to be denied by reference to normative concerns about the "content" of a work or other subject matter in which copyright subsists, it is necessary to consider how statutory prohibitions or restrictions upon the production, possession, sale or distribution of an article the subject of copyright interacts with the availability of damages for its imputed conversion under the Act. This requires a brief consideration of the way in which conversion damages following infringement of copyright are assessed under s 116.

86 Section 116 of the Copyright Act should not be regarded as creating a fictional conversion of infringing copies. Rather, it creates a fictional ownership in them. Infringement by reproduction does not of itself establish conversion or give rise to an entitlement to damages under s 116. Conduct constituting conversion of the infringing copies according to the common law governing that tort, must be demonstrated. In an action for damages on which s 116 is invoked the facts constituting the conversion of the infringing copies should be pleaded. In International Writing Institute Inc v Rimila Pty Ltd (1995) 57 FCR 135, the Full Court said (at 139):

87 The mere production of infringing material by copying from an original work does not constitute an imputed conversion for the purposes of s 116 because no infringing copy comes into existence until after the reproduction has occurred. This is a consequence of the language of s 116(1A) which allows the grant of remedies available in an action for conversion in relation to infringing copies "as if ... the owner of the copyright had been the owner of the infringing copy since the time the copy was made." That reflects the long-standing approach to similar provisions in English copyright statutes (which no longer contain a conversion remedy) expressed in Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 at 202 (Lord Porter, Lords Thankerton and Roche agreeing).

88 The essence of conversion is interference with a right of possession. It is nevertheless properly described as a "varied and somewhat amorphous tort" serving two distinct functions. One function is tortious, whereby it compensates a person deprived of the use of goods. However it also acts as a "surrogate for the Roman vindicatio; that is, in order to give a dispossessed owner the means to recover his goods in specie, or if that is not appropriate their market value" – Tettenborn, Wiley and Bennett; The Law of Damages, (LexisNexis UK, 2003) (at 294). The conduct which may constitute conversion is diverse. It has been said to include:
(i) refusal to return;
(ii) taking;
(iii) receipt;
(iv) disposal or deprivation of title;
(v) destruction;
(vi) loss as a bailee;
(vii) keeping.
The diversity of that list raises questions about the universal appropriateness of a "market value" approach to the assessment of damages – Tettenborn A, Damages in Conversion: the Exception or the Anomaly (1993) 52 CLJ 128.

89 Mere possession by a person of the goods of another does not necessarily constitute their conversion – Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports, 81-244 (Young J). On the other hand there is nothing in the judgment of the Full Court in International Writing Institute Inc v Rimila supportive of a condition requiring sale of infringing copies to have taken place before damages can be awarded under s 116. When infringing copies are brought into existence for the purpose of sale or letting or some other form of disposal enough may be shown to indicate an assertion of dominion over them inconsistent with the deemed ownership of the copyright owner. So conversion may be demonstrated at that point. In the present case, on the facts found by the learned Federal Magistrate which are not in dispute, it could be inferred that conversion occurred at or about the time that the infringing copies came into existence.

90 The measure of damages for conversion is said to be well settled but its application may be difficult. The normal measure is the market value of the goods converted. But as Lord Porter observed in Caxton, it cannot be said that an article is to be treated as valueless to its owner because there is no means of selling it. He put the question rhetorically (at 203):

One way of assessing value is to find out "what price for infringing matter ... the public or some individual is prepared to pay or in some other way in the light of other events": Caxton at 2043-204 (Lord Porter).

91 In the 17^th edition of McGregor on Damages at 33-006, it is accepted that conversion damages may have to be calculated when there is no market value. In Hall v Barclay [1937] 3 All ER 620 there was no current market value for the converted goods. The Court of Appeal held that the measure of damages in that event was the cost of their replacement. Scott LJ described market value as a convenient means of valuation where there is a current market value for the article in question. He added (at 627):

See also Kuwait Airways Corporation v Iraq Airways [2002] UKHL 19; [2002] 2 AC 883 in which conversion damages for aircraft were assessed by reference to current market price, that is the replacement cost of the converted aircraft.

92 The British Columbia Court of Appeal in Tom Hopkins International, Inc v Wall & Redekop Realty Ltd (1985) 20 DLR (4^th) 407 was concerned with a copyright case involving "meagre market data". It referred to the discussion of assessment absent "market value" evidence in Mayne and McGregor (the 13^th edition) and to Hall v Barclay. The Court said (at 414):

A figure of $3,000 was awarded. The basis upon which it was selected was not clearly stated. It seems to have been a prudentially low estimate.

93 The position in England has changed since the Copyright Act 1956 was replaced by the Copyright Designs and Patents Act 1988 and the remedy in conversion abolished. Before that change the anomalies to which conversion could give rise were referred to in Infabrics Ltd v Jaytex Ltd [1997] UKHL 17; [1982] AC 1 when Lord Wilberforce spoke of the "very harsh results" that might arise in some cases (18) and Lord Scarman spoke of the "perplexities" of the conversion damages and compensatory damages provisions and their relationship to each other (25). The remedy was considered in Australia by the Copyright Law Review Committee in its report on Conversion Damages published in July 1990. The Committee recommended against its abolition on the basis that, in its absence. "... defendants can readily and unfairly avoid losing the value of infringing copies in their possession by disposing of them following receipt of a letter of demand or other notice from a copyright owner" (par 40). The Committee recommended retention of the remedy coupled with a "wide discretion to determine whether a particular case is an appropriate one in which to order delivery up and/or to award conversion damages" (par 41). The present form of s 116 was enacted by the Copyright Amendment Act 1997 (Cth) which gave effect to the recommendations of the Copyright Law Review Committee.

94 The remedy under s 116 is discretionary. It is limited by the prohibition upon the grant of relief if the Court is of the opinion that relief it has granted or proposes to grant under s 115 is a sufficient remedy. As to that, it should not be assumed that a copyright owner can simply elect to pursue conversion damages. Such an assumption appears to have informed the approach taken in this case. The claim for compensatory damages under s 115(2) was limited to a nominal figure so that conversion damages could be pursued. The correctness of the assumption underpinning that approach does not fall for decision in this appeal.
"Illegal" works and the conversion damages remedy

95 The preceding discussion does not involve consideration of the effect, on remedies for infringement, of statutory restrictions or prohibitions on the possession, sale or hiring of the work or article in which the copyright is said to subsist. Section 116(1A) allows a court, in an action for conversion in relation to infringing copies to grant "all or any of the remedies that are available in such an action". To the extent that illegality would provide a defence to an action in conversion at common law it would also provide a defence to proceedings in conversion under s 116.

96 It has been said to be a "fundamental principle of the common law ... that a court will not lend its aid to a plaintiff who founds a cause of action upon an immoral or illegal act, particularly when both parties are equally at fault". That proposition, as noted in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 at 554 (Deane and Gummow JJ), dates back to Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120. Alleged statutory illegality requires consideration of the relationship between the relevant prohibitions or restrictions and the cause of action asserted or the relief claimed in relation to it. That necessity was discussed in the context of equitable claims in Nelson. The discretionary approach of the "clean hands" doctrine in equity was there distinguished from those cases in which an applicant for relief seeks to enforce a transaction or trust which is prohibited by law.

97 Here the Court is concerned with an "illegality" question in relation to the grant of a tortious remedy imported by reference into the Copyright Act. In that context it is worth noting the observation in Nelson that illegality has been of diminishing significance in tort – Nelson at 561. In negligence claims it has been reduced to a factor relevant to the existence and/or standard of a duty of care – Jackson v Harrison [1978] HCA 17; (1978) 138 CLR 438 and Gala v Preston [1991] HCA 18; (1991) 172 CLR 243. A somewhat controversial English example of its non-application in conversion was Bowmakers, Ltd v Barnet Instruments, Ltd [1945] 1 KB 65. The case involved an action for the wrongful conversion of machine tools delivered under hire purchase agreements which contravened wartime statutory orders. The Court of Appeal said (at 71):

The Court went on to say, however, that an "obvious exception" to the general rule it had stated was "the class of cases in which the goods claimed are of such a kind that it is unlawful to deal in them at all, as for example, obscene books". No further analysis of the logic of the exception was offered.

98 Bowmakers was distinguished in Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391 in which a bailee held gold contrary to the National Security (Exchange Control) Regulations which required its deposit in the Commonwealth Bank. There the conversion action was time barred. Action on the bailment would have been action upon an illegal contract. The exception mentioned in Bowmakers for obscene books was adverted to in passing in Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18. It was inapplicable in that case which concerned the viability of a defence to an action for the return of articles seized from the Australian Pedophile Support Group. It was alleged in the defence that the articles were intended by their owners to be used for illegal purposes. The defence was not tenable as the relevant statute did not penalise intention. Nor was it clear that mere possession was unlawful. A repleading of the defence to assert a public policy ground for denying relief was permitted. Bowmakers has been criticised in England on the basis that it allows, via enforcement of property rights, the enforcement of illegal contracts. However it has been applied in Australia in Blackburn v Properties Limited [1980] VR 290 to allow enforcement of a resulting trust in land held pursuant to a transfer intended to deceive planning authorities – see generally the discussion in Buckley R, Illegality and Public Policy, (Sweet and Maxwell, 2002) at 16.04.

99 As a matter of first principle it is difficult to see how an owner of copyright could invoke the conversion remedy if the infringing copies are such that their possession is contrary to law. In such a case it is arguable there would be no conversion because the person, whose ownership is imputed by operation of s 116, has no right of possession that could be the subject of interference. It may be simply another way of saying the same thing to say that no remedy could be granted the enforcement of which would necessarily involve illegal conduct. That proposition goes to the existence of the remedy. Alternatively, the illegality associated with enforcement would go to the exercise of the discretion to withhold relief. So an applicant could not expect to get delivery up of infringing copies of a work which it is unlawful to possess under Commonwealth law. Illegality under State law would also probably be accommodated within s 116.

100 In the present case there are prohibitions in certain of the classification statutes referred to earlier, affecting possession of Unclassified or X-rated films at premises where classified films are sold (ACT Act s 20) or with intent to sell (NT Act s 50C). But mere possession of such films does not appear to be an offence. The case below was not contested on the basis that it is an offence. As in Gollan v Nugent illegality cannot be invoked simply on the basis that there is an intention to commit an offence in the way that the infringing DVDs, if recovered by the copyright owner, would be used. This is, however not the end of the relevance of the statutory restrictions upon sale or hire of the films the subject of these proceedings. There is a distinct question whether legal restrictions on the sale of the copyright works are logically relevant to the market value and so to the assessment of damages in conversion of infringing copies. This was the point that, as observed later in this review, was not adequately considered by the learned magistrate in his reasons for judgment.

101 In Stockdale v Onwhyn the effect of the absence of a "right to sell" was considered by Abbott CJ (at 176):

See also Holroyd J at 177. After citing Stockdale v Onwhyn, Fullarton JA in the Manitoba Court of Appeal in Pasickniak v Dojacek [1928] 2 DLR 545 said (at 548):

In relation to remedies for delivery up and, alternatively, damages for conversion Davies J referred to s 21 of the Copyright Act RSC 1970 which, like s 116 of the Copyright Act 1968, effectively deems a copyright owner to own infringing copies. Davies J said of the remedy of damages for conversion (at [124]):

As a general proposition it is difficult to see how a market value assessment could be undertaken of goods which, by law, cannot be sold. Damages assessed in respect of such goods could properly be based upon the cost of their replacement as in Hall v Barclay or Kuwait Airways Corporation v Iraq Airways.

103 A further issue relevant to the present appeal is where the onus of proof lies in relation to the effect of statutory prohibitions or restrictions upon the sale of infringing articles. In the ordinary course where illegality is alleged in respect of a contract the burden is upon those who invoke it to prove the illegality – Attorney-General of the Commonwealth of Australia v Adelaide Steamship Co Ltd [1913] HCA 36; [1913] AC 781; North Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1984] UKHL 2; [1914] AC 461 at 480 (Lord Sumner).

104 In relation to the legality of a loan to a firm of bookmakers, Scrutton LJ said, in Humphery v Wilson [1929] All ER Rep 171 at 173:

That decision was cited with approval in Commissioners of the State Bank of Victoria v Tripp [1985] VR 297 at 303 (Tadgell J).

105 In Holidaywise Koala Pty Ltd v Queenslodge Pty Ltd [1977] VR 164, the legality of a lease granted for use of premises as a motel without any development permit was held not to be on its face illegal. In discussing the onus of proof of illegality, Gillard J said (at 176):

106 There may be cases in which the illegality of a transaction or conduct relied upon to support a cause of action is patent and the court obliged to have regard to that illegality whether or not it is raised by a party. It is not for the Court, however, to search out illegality whether in contract cases or otherwise. As a general rule the party who affirms illegality much establish the necessary factual basis for that contention. The burden of proof does not apply to the establishment of a proposition of law based upon facts found, but the party advancing the proposition will ordinarily be expected to make it good in argument.

107 In the case of a claim for damages for conversion of goods where the owner of the goods has shown that there is a market for their sale and the illegality of their sale is not patent, it is not for the owner to demonstrate that their sale in that market is lawful. It is for the respondent to show the facts upon which it could be concluded that their lawful sale is not possible or that it is so conditioned by statutory restrictions as to affect their value. There may be some cases in which illegality is apparent by reference to facts which are not in dispute. That is not this case.
The challenge to assessment of conversion and additional damages based on illegality – grounds 6 and 7

108 The first complaint in ground 6 relates to his Honour’s digression into the question whether copyright protection should be denied on public policy grounds because of the "immorality" of the content of the Private Films copyright in which had been infringed. This was a distraction as the defence did not rely upon the "immorality" of the films as a reason for denying relief on public policy grounds. His Honour held that there is what he called "... a remedial power to refuse protection to works having a grossly immoral tendency by present day standards". In the light of the authorities discussed earlier and the position under the Copyright Act 1968 there is no basis for a conclusion that the scope of copyright protection is qualified by reference to community standards and the content of the copyright work or other subject matter. To the extent that his Honour was referring to the availability of relief there is nothing in the Act that limits the availability of the remedies for which it provides by reference to community standards and the content of the works. While there may be a case in which the content of a work would be a factor relevant to the grant of particular remedies on public policy grounds, the scope for the refusal of relief on such grounds is likely to be quite narrow. An example of an arguable basis, in public policy, for the refusal of relief in relation to articles likely to be put to illegal uses was seen in Gollan v Nugent, discussed earlier in these reasons. See also in the context of statutory illegality the discussion of "the equity of the statute" in Nelson v Nelson.

109 In the present case the learned magistrate refused to decline relief on the basis of the immorality of the films. His finding in that respect is not challenged on appeal. Rather it is said to have distracted him from the question of illegality and its effect upon the assessment of damages which was raised in pars 19 and 22 of the points of defence. His Honour expressly referred in his reasons to pars 19 and 22 of the points of defence. However his reasoning does appear to have conflated the public policy and illegality issues.

110 His Honour referred to the argument made by Fraser and Calvista that any inability to sell the infringing article because of the provisions of the Classification Act is not a defence to a claim in conversion and that on the contrary the Court should make the strongest presumption against a respondent as to the value of the DVDs where, as here, there is a paucity of evidence as to the number or cost of goods sold or the amount received for the exchanges. It seems that his Honour accepted that submission. He proceeded to assess the value of the infringing articles in a way strongly adverse to Venus and the directors. Indeed he took the view that the amount of $68,000 conversion damages proposed by Fraser and Calvista was too generous. He did not deal clearly in his reasons with the illegality issue as it affected assessment of damages which was raised by Venus and their directors in the points of defence. The question is whether there was evidence upon which the assessment of damages under s 116 could have been affected by an examination of the statutory prohibitions and restrictions under the Classification Acts of the States and Territories.

111 In written submissions to this Court, Venus and the Directors relied upon evidence before the Federal Magistrates Court from Messrs Gordon and Vassallo. Referring to the Fraserside and Calvista DVDs as "Private films" by reference to the name of the corporate group with which those companies were associated, Mr Gordon stated in his affidavit evidence in chief; "I verily believe that all the Private DVDs and the VHSs sold, offered for sale and exchanged by Tropher and Venus have at all times been and are either classified ‘X-Rated’ by the Office of Film and Literature Classification (‘OFLC’) or are not classified by the OFLC". Mr Vassallo made a statement to similar effect in his affidavit. These were statements of belief concerning a class of film by reference to its producer. Their factual basis was not disclosed. Independently of any ruling as to relevance the learned magistrate would have been entitled and indeed, absent concession, bound to disregard them.

112 The evidence before the learned magistrate did not establish a factual foundation for a finding that the sale of the infringing articles was prohibited under State and Territory classification statutes. The generalised and unsupported statements of belief in the affidavits of Messrs Gordon and Vassallo were inadequate for that purpose. The affidavit evidence of Mr Barber which was tendered in support of the proposed amendment to the defence was relevant to the proposition that DVDs reproducing VHS films, for which classification had been granted, would require reclassification because of additional material contained in them. That evidence was received only for the purpose of assessing whether the amendment should be allowed. Had the amendment been allowed, then it would have been evidence adduced pursuant to the amendment. The learned magistrate held it was insufficient to justify the amendment. As counsel accepted in the course of argument in the appeal, the Barber affidavits were not evidence in the proceeding and were not tendered as such.

113 It seems to have been common ground that the products could be sold in X-rated versions in the ACT and the Northern Territory. Even if they were the only markets in which they could have been sold, there was no basis advanced upon which the conversion damages could be limited by reference to that restriction. In any event, even in relation to New South Wales and Queensland, there was no adequate foundation upon which to make findings about the application of particular restrictions to particular films copied and/or sold by Venus. In the result, even though his Honour’s reasons, with respect, failed to adequately discuss the illegality question and its relevance to the assessment of damages, there was no evidence before him from which he could have come to a different result on that basis. The effect of the statutes in the assessment of damages required that a relevant factual substratum be established by the defendants who bore the burden of proving the necessary facts. They failed to discharge it. This aspect of grounds of appeal 6 and 7 therefore fails.

114 So far as additional damages are concerned, these embody both aggravated and exemplary elements. The latter element is punitive in character. The question of the availability of a market for the films was not relevant to this head of damages. The inadequate evidence as to illegality of the films in the class of "Private Films" referred to in the grounds of appeal and the common ground that there were markets in which they could legally be sold, militates against any argument that illegality would have supported a public policy basis for reducing the award of additional damages. No other basis was shown for reducing his Honour’s award in this respect, there being no necessary connection between that assessment and the primary damages awarded in conversion.

115 The same comments apply to ground 7. Both grounds 6 and 7 therefore fail.
Relevant and irrelevant factors in assessment of additional damages – ground 8

116 In ground 8 Venus and the Directors complain that the magistrate erred in his assessment of additional damages under s 115(4) of the Act by failing to take into account the following matters:

It is also complained that his Honour gave "too much account" to the allegedly poor conduct of Venus and Messrs Gordon and Vassallo during the proceedings and their failure to provide meaningful financial data.

117 As appears from the reasons for judgment, his Honour took into account the following factors in assessing additional damages:

118 His Honour also referred to a suggestion made by Fraserside and Calvista that Venus and the Directors had purchased parallel imported Private Films for the purpose of the Court proceedings in order to minimise the damages that could be claimed against them. However he was not satisfied of that from the evidence that he had heard. The relevant purchases were genuine and appeared to include a large number of those offending films.

119 His Honour did not, in awarding additional damages, refer to the agreement by Venus and the Directors to consent to permanent injunctions. It is perhaps not surprising that that was not taken into account as it only occurred in the course of the hearing. He did take into account the absence of any prior warning to Venus and the Directors before Fraserside and Calvista commenced proceedings. He discounted the suggestion that Venus had purchased parallel imported Private Films to minimise damages in the proceedings. Contrary to what seems to be implied in Ground 8 the absence of any such purchase intention could not be a mitigating factor in relation to additional damages. His Honour referred to the fact that parallel imported Private Films were a significant proportion of the Venus turnovers. He had regard to the acquiescence of Calvista in relation to the purchase and sale of parallel imported Private Films. He discounted the additional damages assessed by reference to that acquiescence. He took into account the conduct of Venus and the Directors during the proceedings and their failure to provide meaningful financial data. None of these matters could be viewed as irrelevant to the determination of additional damages which attracts a broad discretion. There is nothing to indicate that his Honour gave too much weight or too little weight to any of them. In any event the weighting of relevant factors was a matter for him. In respect of the matters raised in ground 8, his discretion is not shown to have miscarried and ground 8 therefore fails.
Increasing conversion damages beyond amount proposed – ground 9

121 The aspect of his Honour’s reasoning attacked by this ground relates to his assessment of damages under s 116 at a higher figure than was sought by Fraserside and Calvista and his discount using that figure as a base. The case advanced by Fraserside and Calvista involved a figure of $68,000 calculated by reference to sales of infringing Private Films at the rate of 80 per month at $47 each (discounted for costs and swaps). The table produced showed a figure of $70,934 calculated over 19 months. His Honour took the higher figure of $80,000 on a view of Mr Gordon’s evidence less favourable to Venus and the Directors than that advanced by Fraserside and Calvista which his Honour saw as too generous. Venus and the Directors submitted in the appeal that his Honour’s impression that the Fraserside and Calvista figure was too generous was neither open on the evidence nor squarely put to Mr Gordon.

122 His Honour erred in taking the figure of $80,000 as the base line for conversion damages. No case for such a figure had been advanced. It was therefore a breach of procedural fairness to adopt it. To this extent this ground of appeal succeeds. The discount which his Honour allowed from the sum of $80,000 reflected his opinion that Calvista, in effect, had acquiesced in the sale of a number of the films which were "parallel imported films". There does not seem to have been any complaint about the proportionate reduction that he made. The figure of $65,000 which his Honour assessed in the end reflects a reduction of 20% from the base line figure of $80,000. Applying that logic to the proper base line figure of $68,000 would have resulted in damages of $54,400. Ground 9 therefore succeeds.
Conclusion

123 For the preceding reasons the damages awarded under s 116 should be reduced to $54,400. This does not lead to any consequential reduction in the amount of additional damages as there is no necessary linkage between additional damages and conversion damages. No basis is shown for disturbing the other orders made by his Honour. Having regard to the limited scope of success of the appeal there should be no order as to costs.

I certify that the preceding one hundred and twenty-three (123) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices French and Kiefel.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1617 of 2005

BETWEEN:	VENUS ADULT SHOPS, TROPHER INSTALLATIONS PTY LTD, ALAN GEORGE VASSALLO, JERRY GORDON and PHILLIP SALVATORE DE PRIMA Appellants
AND:	FRASERSIDE HOLDINGS LTD and CALVISTA AUSTRALIA PTY LTD Respondents

JUDGES:	FRENCH, KIEFEL and FINKELSTEIN JJ
DATE:	20 DECEMBER 2006
PLACE:	SYDNEY

1 This appeal raises what in Australia is a novel and important question about the subsistence of copyright in film recorded on DVDs and in the associated artwork. The films are not the usual kind of commercial film one expects to find on a DVD. A list of the more than 200 titles of the works in suit indicates that they are all hard-core pornography: they are usually referred to as "adult films". We were not asked to view any of the DVDs. Nonetheless I have proceeded on the basis that the films depict explicit details of actual sexual activity, have little by way of plot and not much dialogue. Ever since Deep Throat, one of the most popular pornographic films ever made, producers of adult films have reaped millions of dollars in profits. There is a price. Linda Lovelace, the "star" of Deep Throat described in great detail the abuse inflicted on her both before and during the production of Deep Throat: see Linda Lovelace’s Ordeal (1980). Many people find these kinds of films obscene. Does that prevent them from attracting copyright? If copyright, is the owner entitled to the usual remedies for infringement?

2 The facts are straightforward. Fraserside Holdings Ltd (the first respondent), a company incorporated in Cyprus, is engaged in the business of producing and distributing adult films in DVD and VHS format. Fraserside is the owner of copyright in ‘Private’ label adult films, which include the 200 plus works in suit. Calvista Australia Pty Ltd (the second respondent) has a licence to distribute Fraserside’s films in Australia. The appellants also trade in pornography. The corporate appellants own the Venus Adult Shops and have outlets in New South Wales and Queensland. Adult films may be purchased or exchanged at those outlets. To obtain stock at the lowest possible cost, the corporate appellants imported several dozen Fraserside DVDs and made counterfeit copies. They also purchased directly from Fraserside more DVDs and made counterfeit copies of them as well. The pirated DVDs were then sold through or exchanged at the Venus outlets.

3 The Magistrate made orders by consent restraining the corporate appellants from infringing Fraserside’s copyright and restraining the individual appellants (the directors of the corporate appellants) from authorising any further infringements. Orders for delivery up were also made. Following a contested hearing the Magistrate awarded the respondents damages of $150 000 comprising $65 000 by way of conversion damages and $85 000 additional damages. This appeal is confined to the damages awards.

4 There are legislative restrictions on dealings in adult films in Australia. At one time these restrictions were modelled on the Obscene Publications Act 1857 (UK) which made it an offence to keep "obscene books, prints drawings and other obscene articles" for the purpose of sale, distribution, exhibition for gain or lending on hire. There was no definition of obscenity. The common law courts soon developed one. In R v Hicklin (1868) LR 3 QB 360 at 371 Cockburn CJ said that a publication was obscene if had a tendency to deprave and corrupt those whose minds were open to immoral influence and into whose hands it might fall. Interestingly, but not surprisingly, this definition did not confine obscenity to sex (John Calder (Publications) Ltd v Powell [1965] 1 QB 509) much less to publications which depict the sexually explicit.

5 In the last decade or so Parliament has moved away from banning obscene publications. Now every State and Territory has enacted legislation which imposes restrictions in the case of publications that offend against generally accepted standards of moral decency and propriety. The legislation attempts to strike a balance between on the one hand the rights of adults in a free society to see what they wish and on the other hand to impose some constraints on those rights for the good of society as a whole. All film for public exhibition and all film on DVD or VHS format must be classified by the Censorship Board, a Commonwealth body. Dependent upon its classification, the film may either be exhibited or sold to the public at large or it may be subject to some restriction in relation to the audience to whom the film may be shown. For example some films may not be shown to children, or to children not in the company of their parents or guardians.

6 Special provision is made for films that depict, express or otherwise deal with matters of sex, drug misuse or addiction, crime, cruelty, violence or revolting or abhorrent phenomena in a way that offends against the standards of morality, decency and propriety. These films are given an RC classification. Films (except RC films) that contain real depictions of actual sexual activity between consenting adults in which there is no violence, sexual violence, sexualised violence, coercion, sexually assaultive language, or fetishes or depictions which purposefully demean anyone involved in that activity for the enjoyment of viewers, in a way that is likely to cause offence to a reasonable adult are given an X 18+ rating. In every State and Territory it is an offence to produce or possess for sale an RC rated film. In every State, but not in any Territory, it is an offence to possess for sale an X 18+ rated film. It is, however, lawful to sell X 18+ rated films in the Australian Capital Territory and the Northern Territory. It may be supposed that they are sold by mail order or internet purchase to residents of the States.

7 The Copyright Act 1968 (Cth) does not expressly deny copyright to a work that is pornographic. Nevertheless, there is longstanding authority for the view that works that are blasphemous, seditious, libellous or obscene cannot be copyright. The doctrine can be traced back to Burnett v Chetwood (1720) 2 Mer 441; 35 ER 1008 and to observations made by Eyre CJ in Dr Priestley’s Case, which is not reported but noted in Southey v Sherwood (1817) 2 Mer 435 at 437; 35 ER 1006 at 1007. Dr Priestly brought an action against a municipality for property damage, including the loss of an unpublished manuscript, that had been destroyed during a riot. By way of defence the defendant claimed that Dr Priestly published works injurious to the government. But it produced no evidence. Eyre CJ said that such evidence would have been admissible if produced, meaning, no doubt, that if proven, there would be a defence to the claim. Eyre CJ’s statement is wrong: the evidence would not be admissible unless it was concerned with the specific work. Be that as it may, the dictum appears to be the foundation of the rule that the author of an immoral or obscene publication could not obtain copyright protection.

8 When he was Chancellor, Lord Eldon, applied the rule to immoral or obscene publications in several cases in the Chancery. The first is Walcot v Walker (1802) 7 Ves 1; 32 ER 1. There the plaintiff sought to prevent the defendant from publishing an allegedly libellous work. Relying on Dr Priestley’s case, Lord Eldon refused an injunction and an account of profits. He claimed that he was "in total ignorance of the nature of [the] work" but said that he would grant no remedy where the work is "of such nature, that the author can maintain no action at law for the invasion of that, which he calls his property, but which the policy of the law will not permit him to consider his property": Walcot 7 Ves 1, 2; 32 ER 1 at 1).

9 Lord Eldon’s stance was severely criticized by Lord Campbell in his "Lives of the Chancellors" 5th ed vol 10 at 252. Lord Campbell went so far as to suggest that Lord Eldon was in truth well acquainted with Walcot’s book but that, when Attorney-General, he had been afraid to prosecute Walcot before a jury for his libel. According to Lord Campbell, when the case came on Lord Eldon "thought it a more convenient cause to unite in his own person the functions of prosecutor and of judge."

10 Blasphemous publications were also denied protection by Lord Eldon. In Murray v Benbow (1822) 4 State TR NS 1409 he refused to restrain the publication of a pirated edition of Lord Byron’s poem, Cain, a poem that had been dedicated to Sir Walter Scott. Lord Eldon said (at 1410) that the poem was "intended to vilify and bring into discredit that portion of the Scripture history to which it relates". Lord Eldon also refused protection to Sir William Lawrence’s Lectures on Physiology, Zoology and the Natural History of Man. Sir William was an eminent surgeon, but Lord Eldon said his lectures were hostile to natural and revered religion and to the doctrine of the immortality of the soul: Lawrence v Smith (1822) Jac 471.

11 Lord Eldon explained his views more fully in Southey v Sherwood. Southey was then and still is a highly regarded poet. He sought an injunction to restrain the defendant publishing his poem, Wat Tyler. The injunction was opposed on the ground that the poem had "libellous tendency". Lord Eldon said that if the publication was innocent the plaintiff would get his injunction. But if it were not "that is if it could not have lawfully been published by the author, the injunction would be refused": 2 Mer 435 at 437; 35 ER 1006 at 1007. Lord Eldon said (2 Mer 435 at 439; 35 ER 1006 at 1008) that "Lord Chief Justice Eyre... has expressly laid it down that a person cannot recover in damages for a work which is, in its nature calculated to do injury to the public. Upon the same principle, this Court refused an Injunction, in the case Walcot v Walker, inasmuch as he could not have recovered damages in an action." On my reading, Lord Eldon seems to be saying that the common law would deny copyright recognition to the work in question, so he would deny equitable relief. Presumably the common law would deny recognition because the publication of the work was illegal as being an obscene libel, as to which see R v Curl (1727) 2 Stra 788; 93 ER 849.

12 It was not only the Chancery Court that denied relief. In Stockdale v Onwhyn (1826) 5 B&C 173 the question was whether the plaintiff could recover damages for the unauthorised publications of a book entitled Memoirs of Harriette Wilson. The work, which professed to be the history of "the amours of a courtezan" contained "in some parts matter highly indecent, and in others matter of a slanderous nature upon persons named in the work": Stockdale at 176. The publication of the work was a criminal act. Abbot CJ said (at 176) that for the plaintiff to establish his claim to recover damages he had to "show a right to sell; for if he has not that right, he cannot sustain any loss by an injury to the sale." The other judges agreed, with one of them, Bayley J, basing his reasoning on Southey v Sherwood.

13 The true basis for denying protection to obscene works is not clear. One possibility is that there can be no copyright in an obscene work. Another is that there is copyright but the court will not lend its assistance to the owner because of the nature of the work, that is the court will not interfere on public policy grounds. This latter approach is well and good in a case where the court is being asked to grant discretionary relief, for example, an injunction or an account of profits. It is an oft stated principle that when a plaintiff seeks equitable relief he must have clean hands.

14 It seems to me that the only sound basis for the rule, if there be any rule, which is a basis that finds some support in the cases, is that when the plaintiff cannot turn his work to profit (as would be the situation if its publication were illegal), the plaintiff has not suffered any compensable loss. That would be an answer to a claim in law, but not when the plaintiff is seeking equitable relief. Then the doctrine of clean hands would apply. On the other hand, if the plaintiff is able to profit from his work (that is when dealings in it are not unlawful) what then? It seems to me there is no basis for denying him the usual relief whether it be in law or in equity.

15 The position has not been clarified by any of the recent English cases. In Glyn v Weston Feature Film Company [1916] 1 Ch 261 Younger J refused protection to a novel which advocated free love and justified adultery. It is not clear whether he founded his decision in the absence of copyright or whether he simply refused to allow copyright to be enforced on the basis that the novel was "of a tendency so grossly immoral". There are passages in his judgment which support each position. In British Oxygen Company Ltd v Liquid Air Ltd [1925] Ch 383 Romer J granted an injunction to prevent rival manufacturers publishing a letter written by the plaintiff manufacturer to a trade customer. In the reasons of his decision he had to consider whether the writing and sending of the letter (albeit a fairly rude letter) offering the plaintiff’s goods at a low price "was an act contrary to public policy, as being in restraint of trade" and therefore disentitled the plaintiff’s to copyright protection: British Oxygen at 392. First, he found (at 391) that the plaintiff had copyright in the letter. He then held that the plaintiff should be entitled to protection because sending the letter was not unlawful or contrary to public policy. In the process he referred to Glyn v Weston. Lord Keith also referred to Glyn v Western in his speech in the Spycatcher Case, Attorney-General v Guardian Newspapers Ltd (No2) [1988] UKHL 6; [1990] 1 AC 109 at 262. He said that "the Courts of [England would not] enforce a claim by them to the copyright in a work the publication of which they had brought about contrary to the public interest". Accordingly, "Mr Wright [the author] was powerless to prevent anyone who chooses to do so from publishing [his work] in whole or in part in this country, or to obtain any other remedy against them". Again it is not clear whether Lord Keith was of opinion that there was no copyright in the work or whether it was copyright, but the court would not protect it.

16 Finally, so far as the English cases are concerned, in Hyde Park Residence Ltd v Yelland (CA) [2001] Ch 143, Aldous LJ suggested that the rule could be justified on the basis that courts have an inherent jurisdiction to refuse to allow their processes to be used in certain circumstances. He noted (at 160), that "the courts will not give effect to contracts which are, for example, illegal, immoral or prejudicial to family life because they offend against the policy of the law". He then referred to s 171(3) of the Copyright Act 1988 (UK) which provides that: "Nothing in this Part affects any rule of law preventing or restricting the enforcement of copyright, on grounds of public policy or otherwise." He said this made it clear that the jurisdiction to decline hearing a case could be exercised in a copyright case. The Australian Copyright Act, however, has no equivalent provision.

17 Where does this leave us? For my own part, I do not accept that there is no copyright in a pornographic work. There is no such exception in the Copyright Act. In my opinion the court does not have power to create the exception. I am prepared to assume, in conformity with the early cases, that, in some circumstances, public policy may require a court to deny to a pornographer the relief that Parliament has provided to all copyright owners, but then only when the relief is discretionary. Even so, prima facie at least, the owner is entitled to discretionary relief, for example, an injunction to restrain the unauthorised publication of his work. The pornographic nature of the work will be of relevance in a claim for damages only when it is illegal to sell the work. If an author cannot sell his work he cannot suffer damage.

18 I take this approach because, to my mind, there are insurmountable difficulties standing in the way of denying copyright or copyright protection to works that may be regarded as obscene or pornographic. For one thing there is no satisfactory definition of what is obscene or pornographic. The inquiry will inevitably involve both moral and political considerations. The inquiry will be complicated because the question will often depend upon the audience which the publication is likely to reach. If Parliament requires such an issue to be considered by a judge then, of course, the judge must consider it. But, in truth, a judge is not well suited to the task and, as often as not, will reach the wrong result.

19 Here I have in mind that in Australia there have been many ill-considered decisions about which works are obscene. The list of obscene works includes (in no particular order): Lawrence’s Lady Chatterley’s Lover, Joyce’s Ulysses, Nabakov’s Lolita, Huxley’s Brave New World, Balzac’s Droll Stories, Reed’s Ten Days that Shook the World, Stead’s Letty Fox: Her Luck and A Little Tea, a Little Chat, Winsor’s Forever Amber and Roth’s Portnoy’s Complaint. Inevitably a list of non-copyright works will, at some point, contain more great literary works.

20 True it is that the decisions to judge these works as obscene may be explained by the fact that the standard as to whether a work is obscene varies from time to time. But that merely identifies another problem. How will one know when a work is or is not protected. Ought we have a rule which in its operation denies copyright protection on one day but permits it the next? What, in any event, is the jurisprudential foundation for a rule that gives this kind of ambulatory effect to a copyright statute? A rule that is required to work in this way is, in my view, too arbitrary for it to be adopted.

21 The position which I think is correct is that adopted by courts in the United States and Canada. In the United States the leading case is Mitchell Brothers Film Group v Cinema Adult Theater 604 F2d 852 (5th Cir 1979). The Court held that there is no obscenity defence to a copyright infringement claim. Several reasons were put forward, some of which do and others do not have application here. First, the court pointed out that there was nothing in the Copyright Act 17 USC SSSS 1-216 which restricted copyright in obscene or non-obscene works that otherwise met the requirements of that Act. This indicated that Congress did not have in mind the worth of the work in assessing whether it was copyright. Second, such a defence would be unconstitutional, as being contrary to the First Amendment. Third, although the obscenity defence had been allowed in English cases, this approach was said (at 861) to be the "vestige of a bygone era". The US courts said that it was wrong "in the absence of some guidance or authorization from the legislature, to interpose its moral views between an author and his willing audience". The court also rejected what it described as a "judicially-created doctrine", namely the theory that a person could have no property in obscene works. It rejected this doctrine because it "merely expresses by means of a legal fiction the underlying judicial moral conclusion that the work is not worthy of protection": Mitchell Brothers at 861. The court dismissed out of hand another "judicially created doctrine" namely that of unclean hands, pointing out that, for the most part, this was an English theory not adopted in any American copyright infringement action. See also Jartech Inc. v Clancy 666 F2d 403 (9th Cir 1982).

22 It is, however, interesting to note that in Devils Films, Inc v Nectar Video 29 FSupp2d 174 (SDNY 1998) a district court judge refused an interlocutory injunction to restrain the publication of pirated copies of pornographic material on the basis that the plaintiff was likely to be acting in breach of a local statute by selling obscene material in the course of interstate commerce. The plaintiff’s works were also subject to forfeiture under that Act. The judge concluded (at 175) that "[G]iven the clearly criminal nature of the plaintiff’s operation, it is self-evident that the Court should not use its equitable power to come to the plaintiff’s assistance and should invoke the doctrine of unclean hands and leave the parties where it finds them".

23 The Canadian courts accept that copyright subsists in an obscene work. In Pasickniak v Dojacek (1928) 2 DLR 545 an obscenity defence was taken to a book printed in the Ukrainian language whose title, when translated into English, meant "Large Dream Book", the contents of which were offensive to some people. Fullerton JA said that under Canadian copyright law, copyright could not be denied to an obscene work. He held (at 548) that unless there was something which made the sale of the work an offence, the plaintiff had the right to restrain the defendant from infringing his copyright. Dennistoun JA added (at 554) that the court would refuse the plaintiff’s damages if it was illegal for him to publish his work, but otherwise the usual remedies including an injunction could be available. There will be occasions when certain relief might be refused. For example, in Aldrich v One Stop Video Ltd (1987) 39 DLR 362 the judge refused to order an account of profits where the defendant had sold an obscene work contrary to certain provisions in the Canadian Criminal Code. He said that by taking an account, the owner would condone the infringement and profit from the unlawful conduct.

24 The second issue raised by this appeal concerns the manner in which the Magistrate went about the assessment of damages. This is not the occasion upon which to discuss in detail the kinds of damages that can be awarded for copyright infringement. The general principle is that damages are awarded for the depreciation in the value of the plaintiff’s copyright: Caxton Publishing Company Ltd v Sutherland Publishing Company [1939] AC 178; Prior v Lansdowne Press Pty Ltd [1977] VR 65. That statement of principle is not as helpful as it might be. A better approach is to proceed on the basis that, speaking generally, the damages to which a plaintiff is entitled are those that flow directly from the infringement. In the case of a work which has a market in which the plaintiff sells or otherwise deals, the plaintiff will be entitled to the profit he would have made had he made the sales that were made by the defendant: General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] RPC 197. If the plaintiff could not have made all the sales, then the plaintiff’s damages will be assessed on the basis of the sales he actually lost with a notional royalty for the rest: Watson, Laidlaw & Co Ld v Pott, Cassels and Williamson (1914) 31 RPC 104. In an appropriate case, instead of claiming damages the plaintiff may ask for an account of profits.

25 A plaintiff may also seek conversion damages under s 116 of the Copyright Act. Section 116 creates a legal fiction. The fiction is that the plaintiff is the owner of a work that has been brought into existence by the defendant in breach of copyright. Then, as the owner the plaintiff may sue for conversion if the work has been converted or he may bring an action in detinue.

26 The measure of damages for conversion is the value of the work converted. That value is usually determined at the date of conversion: Caxton Publishing [1939] AC 192 at 203. There are circumstances (such as in a rising market) when it may be appropriate to determine the value at some later point in time, for example, the date of the issue of the writ or the date of judgment: Asamera Oil Corporation Ltd v Sea Oil & General Corporation and Baud Corporation, NV [1979] 1 SCR 633. In this case it was accepted by both sides that the conversion date was the appropriate date.

27 If there is a market for the work the value of it is taken to be the market price: Rodocanachi, Sons & Co v Milburn Brothers (1886) 18 QBD 67 at 76; Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc [2000] FCA 660 at [98]. Sometimes, the price which the defendant has obtained for the work is treated as the market price: see generally Nichols Advanced Vehicle Systems Inc v Rees (No3) [1988] RPC 71; Manfal Pty Ltd v Longuet (1986) 8 IPR 410 (Qld Sup Ct); cf O’Mara Books Limited v Express Newspapers plc [1999] FSR 49. In that event the defendant is allowed the expense of sale on the basis that the plaintiff would have incurred those expenses himself: Clark v Nicholson (1835) 1 CM&R 724. In addition, in a conversion action the defendant must be given credit for any work and materials he put into the converted work: Morgan v Powell (1842) 3 QB 278; 114 ER 513; Reid v Fairbanks (1853) 13 CB 692; 138 ER 1371; Munro v Willmott [1949] 1 KB 295. There is an English case which holds that a defendant in a copyright action is not to be given any credit for work and material he put into the infringing work, in particular the cost of manufacturing, labelling, packaging, storing, advertising the goods or distributing them to retailers: Lewis Trusts v Bambers Stores Limited [1982] FSR 281. I doubt whether this case is correctly decided. The question of credit for work and material to be allowed for in favour of a defendant was discussed by Toohey J in Fire Nymph Products Ltd and Alpen Holdings Pty Ltd v Jalco Products (WA) Pty Ltd (1983) 1 IPR 79 at 116. Lewis Trusts was referred to, but not approved, by Lindgren J in Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 at 247-248. In Australia it matters not whether the English case is correct, for the common law principles, as I understand them to be, are given effect in relation to conversion damages by reason of s 116(1D). That subsection requires the defendant to be given credit for both pre and post conversion expenses.

28 The Magistrate assessed conversion damages in the following ways. First he found that the appellant companies had converted approximately 1450 DVDs. The conversion was by sale or exchange. According to the appellants an exchange involved a cost; the cost was $20 per DVD. The respondents, on the other hand, said that the average sale price of each converted DVD was $60, with a cost to the corporate appellants of $20. They submitted that the corporate appellant’s claim should be further "reduced by $7 [per DVD] to take into account the fact that one third of the stock was represented by swaps". They argued that they should recover a sum equal to 1450 (the number of converted DVDs) multiplied by $47 (the corporate appellants’ profit after taking into account the reduction for the percentage of stock represented by swaps). This would have produced a figure for conversion damages of approximately $68 000. The Magistrate said, however, that he would "reduce the conversion damages which [he] intended to award from $80 000 to $65 000 to take into account [the second corporate appellant’s] acquiescence in the sale of the parallel imported films".

29 This method of assessing conversion damages, which has some of the hallmarks of an account of profits, followed the wrong path thus leading the Magistrate to make several errors. The issue for the Magistrate was to determine the value of the DVDs as if in the fictional ownership of Fraserside. The starting point was to ascertain the market value of the DVDs at the conversion date. That value would depend upon, or be affected by, a number of factors including: (1) Whether the DVDs could lawfully be sold in the ACT or the Northern Territory; and (2) The terms of the distributorship agreement between Fraserside and Calvista. The first factor would require the Magistrate to consider several subsidiary issues including: (1) Whether the DVDs were classified RC or X 18+; (2) If the DVDs had not been classified, whether they could be classified RC or X 18+. Armed with the answers to these questions the Magistrate was then required to determine whether there was a market for the X 18+ rated DVDs. If there was a market it would then have been necessary for the Magistrate to work out the price at which the DVDs could have been sold, taking into account, if relevant, the terms of the distribution agreement. If any of the DVDs were not classified, but were capable of being classified with an X 18+ rating, then, in the absence of contrary evidence, it might be assumed that their market value would be equal to their sale price reduced by the cost (both direct and indirect) necessarily incurred in obtaining the classification. Then it would be necessary to calculate the deductions required by s 116(1D). One would then have the information necessary to calculate the conversion damages.

30 Now, nothing of the sort was done by the Magistrate. In my opinion the case should go back to the Magistrate for him to assess the damages. I appreciate that the errors I have identified were not complained about in the Notice of Appeal. Nevertheless they were the subject of debate on the appeal and it is only fair that damages should be reconsidered.

31 The Magistrate also awarded additional damages under s 115(4) of the Copyright Act in the sum of $85 000. It has been said that this section permits an award of damages that are exemplary or aggravated or even penal in nature: Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 ALR 677 at 683. If this be correct then the court has power to award damages that are not available in the United Kingdom under the equivalent section of their Copyright Act. In that country only aggravated damages or its equivalent can be claimed: Beloff v Pressdram Ltd [1973] RPC 765; Redrow Homes Ltd v Betts Brothers Plc [1998] RPC 793, a decision of the House of Lords.

32 The order for s 115(4) damages was made because the Magistrate thought the appellants’ conduct was "flagrant". He explained that the appellants "deliberately set aside batches of DVDs to use as a library for the purposes of copying and keeping their stock fresh. They knew that copying was illegal and they knew that it was rampant in the industry, particularly in the days when VHS was the method of distribution. Their reluctance to copy DVDs lasted only until the time they were able to make copies cheaply and without difficulty."

33 I would set aside the award of additional damages. Additional damages should only be awarded if, to summarise the effect of s 115(4)(b), the defendants’ conduct deserves punishment or there is a need for deterrence: see also on exemplary damages Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1 at 8; XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd [1985] HCA 12; (1985) 155 CLR 448 at 471. A defendant will deserve punishment if his conduct was vindictive, reprehensible, malicious or something of that sort. If the defendants’ conduct is not outrageous, then there is no occasion to award additional damages. That is the situation here. This conclusion makes it unnecessary to decide whether as a matter of policy a court should grant a windfall profit to a pornographer.

34 Finally, if it matters, there are other difficulties in the way of the award. It is not possible to calculate additional damages without knowing what are the actual damages which the respondents will recover. And, in any event, in arriving at his decision the Magistrate failed to take into account two important facts. The first is that before trial the appellants had conceded the existence of copyright in the DVDs. In the absence of this concession the respondents may not have been able to prove their case. At least it would have been an extremely messy case to make out. The appellants should be given credit for saving the respondents significant costs as well as saving the court significant time. They should also be given credit for having submitted to injunctions in the form demanded by the respondents. That also saved the parties and the Court time and expense. So, as a matter of discretion, there should have been no award. This is another way of saying that, in my view, the award was unreasonable.

35 For these reasons I would allow the appeal, set aside the orders relating to damages and remit the matter to be reheard on quantum. The appellants should in my view have the costs of the appeal.

I certify that the preceding thirty five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Counsel for the Appellant:	Mr AG Melick SC with Ms M Avenell

Solicitor for the Appellant:	Redmond Hale Simpson

Counsel for the Respondent:	Mr R Cobden SC with Mr JM Hennessy

Solicitor for the Respondent:	Gilbert & Tobin Lawyers

Date of Hearing:	8 May 2006

Date of Judgment:	20 December 2006

Federal Court of Australia - Full Court Decisions

Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188 (20 December 2006)