Microsoft Corp & Anor v Adelong Electronics Pty Ltd [1997] FCA 103 (11 February 1997)

CATCHWORDS

PRACTICE AND PROCEDURE - amendment of pleading - discovery - "trap" purchase of personal computer from trader - evidence of loading of computer programs onto hard disk in infringement of copyright in the programs - whether copyright owner entitled to widen allegations in statement of claim to encompass earlier course of infringement, instances of which not presently known, in addition to infringement associated with "trap" order - whether abuse of process to widen allegation in pleading in order to obtain discovery by alleged infringer of documents relating to earlier infringements.

MICROSOFT CORPORATION & ANOR v ADELONG ELECTRONICS PTY LIMITED

No NG 422 of 1996

Lindgren J

Sydney

11 February 1997

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY ) No NG 422 of 1996

GENERAL DIVISION )

BETWEEN:

MICROSOFT CORPORATION

First Applicant

MICROSOFT PTY LIMITED

Second Applicant

AND:

ADELONG ELECTRONICS PTY LIMITED

Respondent

CORAM: Lindgren J

PLACE: Sydney

DATE: 11 February 1997

MINUTE OF ORDERS

THE COURT ORDERS:

1. That the applicants be granted leave to amend the Statement of Claim filed herein in the form of the proposed amended Statement of Claim annexed and marked "C" to the affidavit of Faye Evelyn Chatillon sworn on 11 November 1996.

2. THAT the respondent give verified discovery by 8 April 1997 of all documents falling within the following categories:

(a) all documents relating to the respondent's purchase of Microsoft Programs (as defined in the statement of claim) from 1 March 1993 to 24 May 1996;

(b) all documents relating to the respondent's supply of Microsoft Programs from 1 March 1993 to 24 May 1996; and

(c) all documents relating to the respondent's sale of personal computers from 1 March 1993 to 24 May 1996.

3. THAT the respondent pay the applicants' costs of the motion.

4. THAT the applicants pay any costs of the respondent thrown away by the making of the amendment.

5. THAT the matter stand over until 18 April 1997 at 9.30 am before Lindgren J for further directions.

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 ) No NG 422 of 1996

GENERAL DIVISION )

BETWEEN:

MICROSOFT CORPORATION

First Applicant

MICROSOFT PTY LIMITED

Second Applicant

AND:

ADELONG ELECTRONICS PTY LIMITED

Respondent

CORAM: Lindgren J

PLACE: Sydney

DATE: 11 February 1997

REASONS FOR JUDGMENT

(ex tempore)

INTRODUCTION

The applicants move for leave to amend their statement of claim and for an order that the respondent give discovery of documents falling within certain categories.

FACTS

The application was filed on 24 May 1996. It relates to the 112 computer programs referred to in Annexure A to the statement of claim which accompanied the application. These are referred to in the statement of claim as "the Microsoft Programs" and I will so refer to them. According to the pleading, the first applicant is incorporated in the United States of America, and is the owner of the copyright in the Microsoft Programs, and the second applicant is its Australian subsidiary.

The statement of claim alleges that the respondent has infringed the copyright of the first applicant in "one or more of the Microsoft Programs." The relief sought in the application is in the nature of injunctive relief, damages, an order for delivery up, an account of profits and costs.

The particulars of infringement given in the statement of claim are limited to infringement on a single occasion of only seven of the Microsoft Programs. As will be seen, it is an attempt of the applicants to widen the allegation which has given rise to the current motion.

The statement of claim pleads that the respondent carries on the business of selling computer products under the name "ADE Computers" at two addresses in Sydney. Paragraph 7 is central to the document and to the dispute which has emerged. It pleads that the respondent, without the licence of either applicant, has "reproduced in a material form the whole or a substantial part of one or more of the Microsoft Programs". As particulars, of that reproduction, para 7 asserts that the respondent caused seven named Microsoft Programs to be reproduced on the hard disk of a computer system which it "sold to the order of Aaron Pedersen and supplied to him on 2 April 1996." In other words, as particulars of the reproduction of "one or more of the [112] Microsoft Programs", para 7 refers to a particular sale of seven named Microsoft Programs to one person on one date. As will appear later, that sale resulted from a "trap" order made by Mr Pedersen, who was described in affidavit evidence as "the Applicant's [sic] employee".

Paragraph 8, which is not sought to be amended, is as follows:

"8 The Respondent without the licence of either of the Applicants has:

(a) sold, or by way of trade, offered or exposed for sale;

(b) distributed or supplied for the purpose of trade to an extent that prejudicially affects the Applicants,

copies of one or more of the Microsoft Programs where, to its knowledge, the making of the copies of those computer programs constituted an infringement of the First Applicant's copyright.

Particulars

8.1 The Applicants repeat the particulars to paragraph 7 above.

8.2 The Respondent caused to be made copies of the programs referred to in paragraph 7 ('Programs') for the purpose of selling, offering for sale, supplying and offering to supply those copies to their customers."

(Paragraph 7 pleads infringement of a kind referred to in s 36 of the Copyright Act 1966 , and para 8 pleads infringement of a kind referred to in s 38 of that Act.)

Paragraph 9 pleads that by reason of the matters previously pleaded, the respondent has infringed the first applicant's copyright in "the Programs", that is to say, "the programs referred to in paragraph 7" (see para 8.2 set out above).

Paragraph 10 of the statement of claim asserts that "[t]he said infringement was flagrant". It will be noted that the word "infringement" in the singular number is used.

The nature of the issue which has divided the parties can be seen in three forms of evidence. First, there was a course of correspondence between the parties' solicitors. On 27 August 1996, Mallesons Stephen Jaques ("Mallesons"), the solicitors for the applicants, wrote to Michael S. Smith, the solicitor for the respondent, advising that the applicants required the respondent

"to give discovery of documents in the following categories:

1. All documents relating to the Respondent's purchase of Microsoft computer programs;

2. All documents relating to the Respondent's sale of Microsoft computer programs;

3. All documents relating to the Respondent's sale of personal computers

for the period from the date when the Respondent commenced trading to the date of commencement of proceedings in this matter."

(The applicants accept that the documents in respect of which discovery is sought in their notice of motion should be limited by reference to the period from 1 March 1993, being the date of commencement of the respondent's trading, to 24 May 1996, being the date of commencement of these proceedings.) Mr Smith replied to Mallesons' letter asserting that the applicants were not entitled to discovery so broad in scope. His letter of 29 August 1996 makes the point that there is no limitation in Mallesons' letter by reference to the alleged infringement on 2 April 1996. On 30 August 1996, Mallesons replied, inter alia, as follows:

"We do not agree with your assertions that the categories are too broad. The documents all relate to the allegations of infringement and they are necessary for our clients to discover the full extent of your client's infringement. Documents relating to the extent of the particular infringement referred to in the Statement of Claim are encompassed within the categories that we have sought. In particular, we require copies of all invoices relating to the sale and purchase of the Microsoft Programs as well as invoices relating to the sale of computers ... "

On 4 September 1996, Mr Smith advised that he did not accept that the documents sought were properly discoverable.

The second form of evidence is the respondent's request for further and better particulars and the applicants' reply. On 18 July 1996, the respondent filed a request for further and better particulars in relation to para 8 of the statement of claim. In effect, the request sought particulars of the identity of the persons to whom, and the dates on which, the applicants alleged that the respondent sold, offered for sale, exposed for sale, and distributed and supplied copies of one or more of the Microsoft Programs, and, in each case, the identity of such Programs. Other particulars were also sought.

On 22 July 1996, the applicants filed a reply which made it plain that the only particulars they could give were those already set out in the statement of claim relating to the "trap" purchase by Mr Pedersen. The reply said, however, that further particulars would be provided following discovery and interrogatories.

The third form of evidence is the respondent's request for discovery from the applicant and the applicants' list of documents filed in response. On 29 August 1996, Mr Smith wrote to Mallesons requesting discovery of, inter alia:

"2. Documents of any kind with respect to when and by what means either or both of the Applicants held the belief or suspicion that the Respondent had allegedly infringed the first Applicant's copyright.

3. All documents which are normally discoverable with respect to the allegations contained in paragraphs 7, 8, 10, 11, 13, and 16 of the Statement of Claim."

The applicants' list of documents does not list any documents relating to any particular infringement by the respondent, other than documents relating to the purchase by Mr Pedersen on 2 April 1996.

The three classes of evidence to which I have referred show that the only "hard" evidence of infringement which the applicants have at present is that associated with the sale on 2 April 1996 to Mr Pedersen, and that the respondent's contention was that the applicants are not entitled to discovery of documents other than documents related to infringements associated with that transaction.

By the present notice of motion, which was filed in Court on 6 December 1996, the applicants seek the following orders:

"1. That the Applicants be granted leave to amend the Statement of Claim filed herein in the form of the proposed amended Statement of Claim annexed and marked "C" to the affidavit of Faye Evelyn Chatillon sworn on 11 November 1996.

2. That the Respondent give verified discovery of all documents falling within the following categories:

(a) all documents relating to the Respondent's purchase of Microsoft Programs (as defined in the statement of claim);

(b) all documents relating to the Respondent's supply of Microsoft Programs; and

(c) all documents relating to the Respondent's sale of personal computers;"

by a date to be fixed by the court".

It is necessary now to refer to the form of the proposed amended statement of claim. There are two amendments of particular significance for present purposes: the first to para 7, and the second to para 10. The applicants also seek to amend para 6.

The applicants seek to amend para 7 in the ways indicated by the deletion and underlining which appear below:

"7 The Respondent from time to time in the course of carrying on its business without the licence of either of the First Applicants has:

(a) reproduced in a material form the whole or a substantial part of one or more of the Microsoft Programs;

(b) reproduced in a material form the whole or a substantial part of one or more of the Microsoft Programs on the hard disk of various computer systems supplied by it in the course of carrying on its business.

Particulars

7.1 The Respondent caused the First Applicant's computer programs known as Microsoft MS-DOS, Microsoft Windows for Workgroups, Microsoft Office Professional, Microsoft Word for Windows, Microsoft Excel, Microsoft PowerPoint, and Microsoft Access to be reproduced on the hard disk of a computer system which it sold to the order of Aaron Pedersen and supplied to him on 2 April 1996.

7.2 The Respondent caused the First Applicant's computer programs known as Microsoft MS-DOS, Microsoft Windows for Workgroups, Microsoft Office Professional, Microsoft Word for Windows, Microsoft Excel, Microsoft PowerPoint, and Microsoft Access to be reproduced on the hard disk of computer systems which it sold to the order of various other persons whose names are not presently known to the Applicants.

7.3 Further particulars as to (inter alia) the identity of such other persons, the dates upon which the computer systems were supplied to them and details of the particular Microsoft Programs reproduced on the hard disk of such computer systems will be provided after discovery and interrogatories."

The applicants seek to amend para 6 by altering the reference to the respondent's carrying on business at two named addresses, to a reference to the respondent's having "carried on the business ... from various places including [the same two addresses]." So far as para 10 is concerned, the amendment proposed is to convert the word "infringement" into the plural "infringements", and, consequentially, to substitute "were" for "was".

The applicants say that it was their intention, even by the original statement of claim, to allege a course of infringement extending back beyond the "trap" purchase of 2 April 1996. As a result of the proposed amendments, paras 7 and 10 would clearly allege repeated infringements in the course of the respondent's business, prior to the commencement of the present proceeding, and would concede that the alleged infringements relating to Mr Pedersen are the only particular instances known to the applicants at present.

I turn now to the evidence of Ms Chatillon in her affidavit sworn 11 November 1996, in support of the applicants' motion. She deposes that she is a legal administrator for the first applicant and is responsible for administering its intellectual property rights in Australia and New Zealand. She gives an account of its business. In para 4 she says that a personal computer cannot operate without an operating system program and that among the Microsoft Programs are "Microsoft MS-DOS", "Microsoft Windows for Workgroups", and "Microsoft Windows 95", which are:

"... operating system programs and are by far the most popular operating system programs for PCs in Australia and throughout the world".

In a passage objected to but admitted as evidence of her state of belief, she says that to the best of her knowledge and belief, in 1996 "approximately 80 per cent of all personal computers sold in Australia were sold with Microsoft MS-DOS and Microsoft Windows for Workgroups or with Microsoft Windows 95."

In para 5 of her affidavit, Ms Chatillon refers to four other Microsoft Programs which are included in the suite of programs known as "Microsoft Office Professional". They are "Microsoft Word", "Microsoft Excel", "Microsoft PowerPoint" and "Microsoft Access".

Ms Chatillon deposes in paras 7 and 8 as to the respondent's activities. She gives evidence of the "trap" purchase on 2 April 1996 by Mr Pedersen and annexes the invoice of that date issued by the respondent relating to that transaction. That invoice shows particulars only of hardware. However, Ms Chatillon says that on the personal computer purchased by Mr Pedersen there had been installed, in Ms Chatillon's belief without the authority of the applicants, the Microsoft Programs, "Microsoft MS-DOS", "Microsoft Windows for Workgroups" and "Microsoft Office Professional".

Paragraph 8 of Ms Chatillon's affidavit is important for present purposes. In it she says that it is her belief that:

"... traders who engage in the practice of unauthorised hard disk loading often do so over an extended period of time and cease to do so only after their activities have come to the notice of Microsoft and after Microsoft has taken appropriate action against them which will, if thought necessary, include commencing legal proceedings and obtaining court orders."

That passage was admitted subject to relevance. I think that it is relevant. Ms Chatillon is saying that her experience establishes that "traders" who do the kind of act that the respondent, a "trader", is alleged to have done on or about 2 April 1996 in connection with the sale to Mr Pedersen, commonly do so as part of a course of business conduct, rather than as an isolated "one off" event.

Ms Chatillon was cross-examined, effectively if I may say so, for the purpose of the cross examination. She frankly and readily made concessions as to the applicants' lack of information as to particulars of other infringements by the respondent. For example, the cross-examination included the following passages:

"The position as at 22 July 1996 which is, I ask you to accept, is the date of the response to the request for particulars, is that you simply had no information as to any person to whom my clients sold, offered for sale, exposed for sale, distributed or supplied, copies of the Microsoft programs, infringement of the copyright other than Mr Pederson?---Correct.

And that remains the case today?---At this point, yes.

The implication that you seek to raise in paragraph 7.3 which was sought to be added to the statement of claim is that there are other persons?---Correct.

You are also aware, are you not, in relation to discovery, the respondent sought discovery of documents of any kind with respect to when and by what means either or both of the applicants held the belief or suspicion that the respondent had allegedly infringed the first applicant's copyright?---Correct.

The only documents which Microsoft has on these matters are, in fact, the documents dealing with Mr Pederson's purchase of a computer?---Correct.

A report made consequent to that computer being purchased?--- Correct.

And the invoice relating to that purchase?---Mr Pederson's purchase?

Yes?---Yes.

And a letter from the business Software Alliance dealing with Mr Pederson's purchase?---Correct.

And the letter signed from the business Software Alliance was signed by a Mr Ron Ecksdrom?---Correct.

And he also happens to be your immediate superior at Microsoft?---Correct.

Now, the fact is that apart from Mr Pederson's purchase, which I will get to in a minute, Microsoft simply has no knowledge that my client has infringed copyright as sought to be alleged in the amended statement of claim?---Correct." (T 13.29-14.21)

"---Well, I just put it again. The reason why Microsoft seeks the discovery which it does seek is to seek whether or not it might be the case that there has been an infringement of copyright as sough [sic] to be alleged in the amended statement of claim?---Other than Mr Pederson?

Yes?---Yes.

It is the case, is it not, that Microsoft seeks to amend its statement of claim to broaden its reach so as to enhance its prospects of getting discovery?" (T 15.21-.27)

"MR YATES: Ms Chatillon, the reason why Microsoft seeks to amend the statement of claim in the way it does is to assist it in its application for discovery, that is correct, is it not?--- Correct.

That is the only reason, is it not?---Correct.

(T 17.15-.18)"

Ms Chatillon was not cross examined on the subject matter of para 8 of her affidavit to which I referred earlier.

The respondent did not lead any evidence in response to that paragraph or otherwise, apart from the reading of its solicitor's affidavit annexing his request for further and better particulars and the applicants' reply, and the tendering of his letter to Mallesons dated 29 August 1996 requesting discovery and the applicants' list of documents, all referred to earlier.

SUBMISSIONS AND REASONING

Order 13 sub-rr 2 (1) and (2) are as follows:

"2(1) Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit.

(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings."

Order 13 sub-r 3 (1) provides that:"[a] party may, without leave, amend any pleading of his once at any time before the pleadings are closed." In the present case, the pleadings were closed when the respondent filed its defence on 7 August 1996. Accordingly, leave is necessary.

Order 15 r 8 provides as follows:

"8 Where, at any stage of the proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any matter in question in the proceeding may be or may have been in the possession, custody or power of a party, the Court may order that party:

(a) to file any affidavit stating whether that document or any document of that class is or has been in his possession, custody or power and, if it has been but is not then in his possession, custody or power, when he parted with it and what has become of it; and

(b) to serve the affidavit on any other party."

Order 15 r 15 provides that:

"The Court shall not make an order under this Order for the filing or service of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made."

Detailed and helpful written submissions have been made on behalf of both parties. They have referred to authorities on the principles relating to the Court's discretion to allow amendment of pleadings and to order discovery, and also relating to abuse of process. I fear that this ex tempore judgment will not reflect the quality and detail of the submissions that have been made, but I find it sufficient for the determination of the present motion to refer to what appear to me to be certain salient features of the case.

The respondent submits that it would be an abuse of the process of the Court for the applicants to amend in the manner proposed. Shortly, they say that the applicants are "fishing" to see if there have been other infringements. The respondent submits that the applicants seek to amend because, so it is put, on their existing statement of claim, particulars and evidence, they are not entitled to discovery of any documents other than those relating to the particular sale to Mr Pedersen on 2 April 1996. As well, the respondent submits that the discovery sought is too broad.

The applicants submit that generally an amendment will be allowed if it is made bona fide. They say that they have evidence of infringement on one occasion (the respondent submits that even the sale and purchase on 2 April 1996 is not an infringement because it took place with the consent of the applicants, but this is a matter which need not be resolved at present), and that it is unrealistic to think that there have not been others.

It is common ground that the respondent has been in the business of selling computer products for a time extending well before 2 April 1996: the date 1 March 1993 has not been in issue as the date of commencement of its business as a dealer in computer systems. The evidence of Ms Chatillon is that personal computers are commonly sold by traders, such as the respondent, with operating systems installed. I accept that this evidence, and para 8 of Ms Chatillon's affidavit noted earlier, give reasonable cause to believe that the respondent has, in the course of its business, on occasions prior to the "trap" purchase, sold personal computers with Microsoft Programs installed, without the licence of the first applicant.

In dealing with the applicants' motion, it is useful to consider various courses of action potentially available to a copyright owner, in such circumstances. I accept as a premise the likelihood that once the "trap" nature of a particular purchase is revealed, as by the commencement of a proceeding, any course of infringement will come to an end.

Firstly, the copyright owner could initiate a series of pre-litigation "trap" orders. It is not clear from the respondent's submission whether, and if so when, a stage would be reached when, consistently with the submission, the copyright owner would be entitled to plead, and obtain discovery in respect of, the period prior to the first trap order. Apart from laying a basis for identification and proof of earlier infringements, it would be contrary to the interests of the copyright owner not to file process promptly following the first trap transaction. As will appear, I do not think that the copyright owner is confined to this course.

Secondly, the copyright owner might seek, ex parte, an "Anton Piller order" (cf Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 (CA)) as occurred, for example, in Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, (FCA/Wilcox J). But the circumstances in which such an order is appropriately made are closely confined. In particular, there must be evidence of a real possibility that the alleged infringer would cause evidence of infringement to be destroyed or otherwise to cease to be available, if the matter were to proceed inter partes. The underlying assumption is that in the ordinary case the copyright owner will be able to inspect, and should inspect, the evidence in the possession of the alleged infringer, after, rather than before, action. It would be an extraordinary position if a copyright owner could obtain discovery in respect of the period prior to a "trap" order where the circumstances fall into the narrow class of case in which Anton Piller relief is granted, but could not do so after action brought in order cases.

Thirdly, there is the possibility of pre-action discovery under O 15A r 6 of the Federal Court Rules. But that rule requires that an applicant for an order under it establish that

"after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain"

relief which there is reasonable cause to believe the applicant is or may be entitled to obtain from an ascertained person. The present applicants had sufficient information to enable them to commence a proceeding in the Court to obtain all the relief which they in fact seek from the respondent in their application. Order 15 r 6 was not intended to encompass a situation, such as the present one, in which the applicants have been able to decide to commence a proceeding to obtain all the relief which they seek, but need the benefit of discovery in order to establish particular earlier instances of infringement with a view, for example, to increasing the quantum of damages recoverable. In Ricegrowers Co-operative Ltd v ABC Containerline MV (1996) 138 ALR 480, Tamberlin J held that O 15 r 6 was not available after the commencement of a proceeding to enable plaintiffs to decide whether further relief should be sought, such as, for example, a remedy in restitution in addition or as an alternative to damages, as in that case. In a passage pertinent to the present case, his Honour said:

"After commencement, of course, in the ordinary process of discovery, additional facts may come to light which would provide a basis for other relief and it would then be open to the plaintiffs to seek leave to amend the pleadings so as to claim such relief." (at 484)

In the present case the applicants wish to amend, not even to seek additional relief, but to bring into the proceeding earlier, presently unidentified, instances of infringement which the existing evidence gives reason to believe occurred.

Fourthly, and as I think to be the case, the copyright owner can simply plead in general terms, and obtain discovery for the purpose of particularising and proving, earlier instances of infringement. Whatever may be the position in another case, where, as I find here, a copyright owner believes that there have been such earlier instances of infringement in the course of the respondent's business and has reasonable ground, based on the evidence, for that belief, the law does not, in my opinion, confine the copyright owner to the first, second and third courses described above.

The amendments to paras 7 and 10 should be allowed and commensurate discovery should be ordered. The respondent submits that the amendment to para 6 is proposed to be made in order to show that it is somehow carrying on business in a manner that is unscrupulous. I do not accept that the evidence establishes this to be the case. That amendment should also be allowed.

CONCLUSION

In all the circumstances, leave to amend should be granted and there should be an order for the giving of discovery in the terms sought, but with the addition of the expression "from 1 March 1993 to 24 May 1996" at the end of each of sub-paras (a), (b) and (c) of the form of order set out in para 2 of the notice of motion (as noted earlier, the proceeding was commenced on 24 May 1996). Accordingly, I make an order in terms of paras 1 and 2 of the applicants' notice of motion, filed in court on 6 December 1996, with the amendment to which I have just referred, and, as well, there will be added to para 2, after the word "discovery", "by 8 April 1997."

There will be an order that the respondent pay the applicants' costs of the motion and that the applicants pay any costs of the respondent thrown away by the making of the amendment.

I certify that this and the preceding 19 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated: 25 February 1997

Heard: 6 December 1996

Last

submission

received: 6 January 1997

Place: Sydney

Decision: 11 February 1997

Appearances: Mr J V Nicholas of counsel instructed by Mallesons Stephen Jaques, appeared for the applicants.

Mr D M Yates with Mr N Gye of counsel instructed by M S Smith appeared for the respondent.