Sega Enterprises Ltd v Galaxy Electronics Pty Ltd & Anor [1998] FCA 40 (6 February 1998)

FEDERAL COURT OF AUSTRALIA

COPYRIGHT - subject matter of an exclusive licence - divisibility of a right of copyright - effect of a reservation to the owner of a part of the rights dealt with in an exclusive licence -assignment - licensee as party to action for infringement.

PRACTICE AND PROCEDURE - application to strike out claim of licensee on ground that licence was not exclusive - principles.

Copyright Act 1968 , ss 10, 30, 31, 36, 37, 86, 101, 117, 119, 196

General Steel Industries Inc. v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, applied

Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, applied

Lonrho plc v Fayed [1992] 1 AC 448, applied

Australian Building Industries Pty Limited v Stramit Corporation Limited (Northrop, Lindgren and Lehane JJ, unreported, 1 December 1997), applied

Avel Proprietary Limited v Multicoin Amusements Proprietary Limited [1990] HCA 58; (1990) 171 CLR 88, referred to

P.M. Sulcs & Associates Pty Ltd v Detroit Diesel-Allison Australia Pty Ltd (Lehane J, unreported, 31 October 1997), followed

Young v Odeon Music House Pty Ltd (1976) 10 ALR 153, followed

SEGA ENTERPRISES LIMITED v GALAXY ELECTRONICS PTY LIMITED & ANOR

NG 902 of 1994

NG 001 of 1995

Burchett J

Sydney

6 February 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 902 of 1994

BETWEEN:	SEGA ENTERPRISES LIMITED First Applicant AVEL PTY LIMITED Second Applicant
AND:	GALAXY ELECTRONICS PTY LIMITED Respondent

JUDGE:	BURCHETT J
DATE:	6 february 1998
PLACE:	SYDNEY

THE COURT ORDERS THAT:

The motion be dismissed.

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	NG 001 of 1995

BETWEEN:

SEGA ENTERPRISES PTY LIMITED First Applicant avel pty limited Second Applicant gottlieb electronics pty limited Respondent

JUDGE:	BURCHETT J
DATE:	6 february 1998
PLACE:	SYDNEY

THE COURT ORDERS THAT:

The motion be dismissed.

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	NG 902 of 1994
	NG 001 of 1995

BETWEEN:	SEGA ENTERPRISES LIMITED First Applicant AVEL PTY LIMITED Second applicant
AND: AND BETWEEN:	GALAXY ELECTRONICS PTY LIMITED Respondent SEGA ENTERPRISES PTY LIMITED First Applicant avel pty limited Second Applicant gottlieb electronics pty limited Respondent

JUDGE:	BURCHETT J
DATE:	6 february 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

BURCHETT J

In each of these matters, the Court has previously determined (see Sega Enterprises Limited v Galaxy Electronics Pty Ltd (1996) 69 FCR 268; Galaxy Electronics Pty Ltd v Sega Enterprises Ltd (1997) 145 ALR 21), as a separate question, whether the video games the subject of the proceedings, involving computer-generated images, are cinematograph films as defined in s 10 of the Copyright Act 1968 . Following the determination of that issue adversely to the respondents, they brought a motion on notice in each case seeking orders "[t]hat the Second Applicant, Avel Pty Limited, be removed as a party to these proceedings", and, in the alternative, that the proceedings be summarily dismissed so far as they relate to any claim made by that applicant. At the hearing of the motions, I allowed the applications and statements of claim to be amended, on the footing that the motions would be taken to relate to the applications as amended, but so that the amendments would not affect adversely any rights the respondents might have in respect of the costs of their motions.

The second applicant (which I shall call Avel) claims for breach of copyright in respect of the respondents' actions in causing the relevant cinematograph films to be seen and heard in public (see ss 86 and 101 of the Copyright Act 1964 ), and in reproducing in a material form the artistic work displayed on the cabinets of each of the games (see ss 31, 36 and 37). These motions do not challenge the claim of Sega Enterprises Limited to own the copyrights in question, nor are they concerned with the alleged breaches of those copyrights by the respondents. What they are concerned with is the joinder of Avel as an applicant together with Sega Enterprises Limited, and Avel's claim to be an exclusive licensee.

The relief sought by the motions is summary in nature, and it is accepted that the principles stated by Barwick CJ in General Steel Industries Inc. v Commissioner for Railways (NSW) () [1964] HCA 69; 112 CLR 125 apply. Those principles are well settled, as Dixon J remarked in Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91, and the various statements of them which are to be found in the authorities do not involve any significant difference of meaning. A recent formulation is that adopted by Lord Bridge of Harwich, speaking for the House of Lords, in Lonrho Plc v Fayed [1992] 1 AC 448 at 469, when his Lordship said that the summary procedure for striking out proceedings "is only to be used in plain and obvious cases", cases where the claims could be described "as unarguable or almost incontestably bad". Still more recently, a joint judgment of a full court of the Federal Court in Australian Building Industries Pty Limited v Stramit Corporation Limited (Northrop, Lindgren and Lehane JJ, unreported, 1 December 1997) affirmed the consistency of Lonrho with the law as stated in the decisions of the High Court of Australia, and declared:

"A proceeding should not be dismissed summarily merely on the ground that it appears at the early stage of the hearing of the motion brought for that purpose to advance a highly implausible claim which will very probably fail."

The documents claimed by the applicants to involve exclusive licences, in these two cases, are closely similar. Each was entered into after a course of dealing had become established between the parties. It is sufficient to refer to the terms of one of these documents, an agreement made on 25 August 1994 between Sega Enterprises Limited and Avel, which is headed "Exclusive Distributorship Agreement". This agreement refers to "Products", being video game machines of one of the varieties described in the decision on the separate question, and to "kits for the Products containing computer boards, other components, etc. developed, manufactured and supplied by Sega". It relates to a territory being Australia and New Zealand. Article 2 provides:

"1. Sega shall grant to Avel an exclusive right to sell and distribute the Products and the Kits in the Territory during the life of this Agreement. In furtherance of this Agreement, Sega will first offer to Avel the Products and the Kits.

2. Sega shall grant to Avel an exclusive license to manufacture the Products by using the Kits supplied by Sega to Avel, in the Territory during the life of this Agreement.

3. Sega shall grant to Avel an exclusive license to lease and/or use the Products for the operation of arcade game spots and a sublicense to grant a third party such license, in the Territory during the life of this Agreement."

Article 2 is qualified by Article 3, which is headed "Exclusivity", paragraph 1 of which provides:

"1. As far as Avel attains the minimum quantities specified in Article 5, Sega shall not sell the Products and the Kits and shall not grant a license to manufacture the Products by using the Kits and to lease and/or use the Products for the operation of arcade game spots, to any person, firm or company other than Avel in the Territory, during the life of this Agreement, and Sega agrees to refer any inquiry for the Products and the Kits from any person, firm or company in the Territory and to provide copies of such inquiry if it should be in writing. Provided, however, that Sega has the right to sell the Products to its subsidiaries and its affiliated companies who are directly or indirectly managing or operating arcade game center [scilicet centers] in the Territory."

Having regard to the terms of this agreement, it was argued in support of the motions that Avel was not an exclusive licensee of any right of copyright, either in the cinematograph film involved, or in the artistic work depicted on the cabinet. Counsel pointed out that exclusive rights of distribution do not necessarily involve any right of copyright: Avel Proprietary Limited v Multicoin Amusements Proprietary Limited [1990] HCA 58; (1990) 171 CLR 88 at 93-94.

It is convenient to turn first to the question whether Avel is an exclusive licensee in respect of the copyright in the cinematograph film. Avel's contention is that Article 2(3) necessarily involves a grant of an exclusive licence to show the film in arcade game spots in Australia. The real question is whether Article 3(1) so derogates from the grant of this right as to deny it the quality of an exclusive licence. In argument, the parties were agreed that the first part of Article 3(1) does not have this effect, since there was no suggestion that Avel had failed to obtain the minimum quantities referred to in the Article. But the proviso, according to the respondents, was fatal: since Sega Enterprises Limited had the right to sell to its own "subsidiaries and its affiliated companies who are directly or indirectly managing or operating arcade game center[s] in the Territory", Avel's licence in the same territory, it was said, could not be exclusive.

In answer to this argument, Avel drew attention to what it said was the divisibility of the rights comprised in Sega Enterprises Limited's copyright. The exclusive licensee who is given the right to sue by virtue of s 119 is the holder of an exclusive licence as defined in s 10. That definition refers to "a licence in writing ... authorizing the licensee, to the exclusion of all other persons, to do an act that, by virtue of this Act, the owner of the copyright would, but for the licence, have the exclusive right to do". The reference to "an act" is certainly consistent with the idea of the divisibility of the copyright. Then, it is to be noticed that s 119 confers the right of action on the exclusive licensee by conferring "the same rights of action as he or she would have ... if the licence had been an assignment." That expression, "if the licence had been an assignment", is defined in s 117 to mean "if, instead of the licence, there had been granted (subject to conditions corresponding as nearly as practicable with those subject to which the licence was granted) an assignment of the copyright in respect of its application to the doing, at the places and times authorized by the licence, of the acts so authorized". This seems to emphasize that the licence relates to particular acts to be done at particular places and times, and possibly subject to conditions.

On behalf of Avel, it was also pointed out that s 196 provides for the transmissibility of copyright by assignment, including partial assignment. Sub-s (2) of that section is in the following terms:

"An assignment of copyright may be limited in any way, including any one or more of the following ways:

(a) so as to apply to one or more of the classes of acts that, by virtue of this Act, the owner of the copyright has the exclusive right to do (including a class of acts that is not separately specified in this Act as being comprised in the copyright but falls within a class of acts that is so specified);

(b) so as to apply to a place in or part of Australia;

(c) so as to apply to part of the period for which the copyright is to subsist."

The argument was that, in the context of a statute permitting limitation of assignments "in any way", the definition in s 10 of an exclusive licence, expressed as a licence "to do an act", should be understood as embracing an exclusive licence to do something falling within part only of a category of things the copyright owner might himself have done. It would be odd if the Act permitted an assignment of some "slice" of the rights of the copyright owner, but did not permit the assignee, the new owner of that slice, to grant an exclusive licence of it which, if it could be granted, would be treated by s 119 as conferring the rights of an assignee. Indeed, there would be some difficulty in reconciling that position with the terms of s 30, which provides that where, as a result of an assignment, different persons are the owners of a copyright in respect of its application to the doing of different acts, "the owner of the copyright, for any purpose of this Act, shall be deemed to be the person who is the owner of the copyright in respect of its application to the doing of the particular act or class of acts ... that is relevant to that purpose" (emphasis added). The question may be asked, why would not "any purpose of this Act" include the purpose of the grant of an exclusive licence?

In P.M. Sulcs & Associates Pty Ltd v Detroit Diesel-Allison Australia Pty Ltd (unreported, 31 October 1997), Lehane J held (at 8) that it was not possible, on motions similar to those before me, "to conclude that a claim that [a] right to use and license ... incorporates an exclusive right to reproduce .. copyright works in [a] territory, in certain circumstances or for certain purposes, has no serious prospect of success". His Honour also said (at 9):

"In written submissions lodged by the second respondent, and adopted by the other respondents, it was conceded that an owner of copyright might assign or license part only of a right, for example by an exclusive licence to reproduce for a limited purpose only: this would nevertheless constitute an exclusive licence for the purposes of the Copyright Act. In oral submissions, counsel for the first, third and fourth respondents submitted that a licence is an exclusive licence for the purpose of the Copyright Act only if it grants to the licensee the right, exclusive of all other persons including the copyright owner, to do one or more of the categories of acts listed in s 31(1): thus, in the case of a licence to reproduce a work, an exclusive licence must cover all reproductions, not merely reproductions made in limited circumstances or for limited purposes. I was referred to no authority specifically on the point, and I know of none, but it is by no means clear that the argument is correct: the passage in Lahore, Copyright and Designs paras 22,010 and 22,015 (to which counsel referred) suggests, as I read it, the contrary. The definition of `exclusive licence' in s 10(1) of the Copyright Act refers to `a licence ... to do an act that ... the owner of the copyright would, but for the licence, have the exclusive right to do', words which are more apt to refer to a particular act or particular acts than to categories of acts."

There is also authority that the reservation to the owner of the copyright of "a carefully restricted right of supply" is not necessarily inconsistent with the grant of an exclusive licence within the meaning of the Copyright Act: Young v Odeon Music House Pty Ltd (1976) 10 ALR 153 at 162.

In my opinion, it cannot be said to be unarguable that the effect of the provisions of Articles 2 and 3 set out above is to confer a valid exclusive licence on Avel to show the film at arcade game spots in Australia other than those managed or operated directly or indirectly by subsidiaries or affiliated companies of the copyright owner. It follows that the motions must fail.

It is unnecessary to reach a conclusion on two other matters which were debated at the hearing of the motions. These are the question whether, under each amended application and statement of claim, Avel was also entitled to resist the attempt to strike it out of the proceedings on the basis of an exclusive licence relating to an artistic work reproduced on the games' cabinets, and the question whether, in any case, if only a non-exclusive licensee, Avel would have been entitled to remain a party to claims in which it was joined with the owner of the copyright. Had it been necessary to rely on these matters, I would have held that they too raised arguable contentions which Avel should not be summarily prevented from maintaining. The second matter, indeed, is the subject of a considered dictum of Bowen CJ in Eq. (as he then was) in Young v Odeon Music House Pty Ltd at 161, where, referring to Halsbury, his Honour said:

"I do not see why a non-exclusive licensee is not a proper plaintiff in proceedings for breach of copyright provided he joins the owner of the copyright".

The passage cited from Halsbury is to be found in the fourth edition, volume 9, at paragraph 880:

"A licensee, unless he is an exclusive licensee, cannot sue for infringement of copyright unless he joins the copyright proprietor as co-plaintiff in the action".

I do not see how, in the face of Sir Nigel Bowen's dictum and the statement in Halsbury, a decision to strike Avel out of the proceedings before me could be reconciled with the principles which General Steel Industries requires me to apply.

For these reasons, the motions will be dismissed, but, in view of the late amendment of the applications and statements of claim, I shall make no order as to costs until counsel have had an opportunity of considering the matter further and presenting any submissions on that issue which they may think appropriate.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Burchett

Associate:

Dated: 6 February 1998

Counsel for the Applicants:	D Catterns QC with R Webb
Solicitor for the Applicants:	Kemp Strang & Chippindall
Counsel for the Respondents:	J Burnside QC with J Baird
Solicitor for the Respondents:	Corrs Chambers Westgarth
Date of Hearing:	3 June 1997
Date of Judgment:	6 February 1998