The Full Federal Court has recently handed down its decision in Campaigntrack Pty Ltd v Real Estate Tool Box Pty Ltd [2022] FCAFC 112, in which the Court, by a 2:1 majority, partially overturned the decision of the primary judge, and held that six of the seven respondents were liable for indirect copyright infringement by authorising the Third Respondent’s acts which comprised in the Appellant’s copyright in a cloud-based real estate marketing system called DreamDesk.

The primary judge found that Mr Semmens (the Third Respondent), being the developer of DreamDesk, had infringed the Appellant’s copyright in DreamDesk when developing a competing product called Real Estate Tool Box (Toolbox).  However, his Honour dismissed the proceeding against the other six respondents, namely:

• Dream Desk Pty Ltd (DDPL), who engaged Mr Semmens as an independent contractor to develop DreamDesk, and the prior copyright owner of DreamDesk before its acquisition by the Appellant;
• Mr Meissner, the sole director and shareholder of DDPL, who provided staff and other resources to support Mr Semmens’ development of Toolbox;
• Biggin & Scott (B&S), a real estate franchisor who engaged Mr Semmens to build Toolbox;
• Real Estate Tool Box Pty Ltd (RETB), a company incorporated to conduct the joint venture between B&S, Mr Semmens and others to develop Toolbox; and
• Mr Stoner and Ms Bartels, officers of B&S and RETB.

(collectively, the Represented Respondents).

On appeal, the Full Court found that:

• B&S, RETB, Mr Stoner and Ms Bartels had authorised:
  • Mr Semmens’ copying of the DreamDesk source code in developing Toolbox;
  • Mr Semmens’ copying of the DreamDesk database;
  • Toolbox users’ copying of the DreamDesk source code in using Toolbox;
  • Toolbox users’ copying of the DreamDesk database;
• RETB had authorised Mr Semmens’ communication to the public of the DreamDesk source code in developing Toolbox; and
• DDPL and Mr Meissner had authorised Mr Semmens’ copying of the DreamDesk database and PDF templates in DreamDesk.

Key takeaway

Irrespective of how trustworthy an independent contractor may appear to be, a principal must, upon receiving notice that its contractor may have infringed the copyright of a third party, take such allegations seriously and make specific enquiries to ascertain whether the contractor has infringed, or intends to infringe, the rights of that third party.  Once a claim of direct infringement has been made out, Courts are willing to infer authorisation in circumstances where the principal has been put on notice of potential infringement by its contractor, yet chooses not to investigate the allegations or take action to prevent further infringement.

Background

B&S and its franchisees were prior licensed users of the Appellant’s Campaigntrack marketing software, before transitioning to DreamDesk in May 2015.  In May 2016, Mr Semmens admitted to Mr Meissner that, when developing DreamDesk, he had, without licence, copied an earlier system called Process 55 owned by a third party.  This effectively forced the sale of DreamDesk by DDPL to the Appellant (and another party) two months later.  The Appellant also acquired Process 55 in a separate transaction.  Under the sale agreement for DreamDesk, the Appellant and its co-purchaser granted DDPL a licence to use DreamDesk for its business (Licence-Back) until 3 October 2016.

In early August 2016, B&S expressly instructed Mr Semmens to build a web-based marketing system “that does not breach any other [company’s] IP or ownership, in particular DreamDesk or Campaign Track”.  In September 2016, B&S, Mr Semmens and other partners agreed to form a joint venture for the development of Toolbox, which led to the incorporation of RETB.

In mid-September 2016, B&S wrote to the Appellant requesting a 4-week extension to the Licence-Back, ostensibly to buy time to transition to a new marketing system.  Meanwhile, the Appellant had become aware of the domain name realestatetoolbox.com.au registered by RETB.  That domain name resolved to an IP address which, when entered into a browser, resolved to a login page for DreamDesk.  The Appellant engaged a software developer to investigate the potential copying of the DreamDesk source code and the developer concluded that it was likely that DreamDesk and Toolbox were run on the same computer at that particular IP address.

On 29 September 2016, the Appellant’s lawyers wrote to DDPL citing B&S’ extension request, and noted, inter alia, that the Appellant had become aware of “improper access and duplication of code” which was owned by the Appellant, and the incorporation and involvement of RETB.  Nonetheless, the Appellant agreed to extend the Licence-Back until 10 October 2016 subject to:

1. DDPL not permitting use of, and B&S not using, DreamDesk otherwise than in the ordinary course of business; and
2. all relevant parties involved giving an undertaking that the intellectual property already obtained or duplicated would not be used for any purpose and would be immediately destroyed.

In early October 2016, the Represented Respondents provided the undertakings sought and sought a further extension from the Appellant.  However, on 7 October 2016, the Appellant, via its lawyer, advised that no extension would be granted as Mr Semmens had failed to give the undertakings.  On 10 October 2016, the Appellant removed B&S’ access to DreamDesk, and on the next day, Toolbox went live.  Importantly, from 11 October 2016, Mr Semmens was running a copy of DreamDesk that was undisclosed to the Appellant.

In November 2016, the parties agreed to appoint an independent IT expert, Mr Geri, to investigate the potential copying of the DreamDesk source code.  On 19 January 2017, Mr Geri provided a preliminary report in which he opined that there was “a high probability” that the Appellant’s intellectual property had been used in the development of Toolbox.  This led to the Appellant issuing multiple cease-and-desist letters to the Represented Respondents, but B&S and its franchisees continued using Toolbox until April 2018.

Issues in dispute

Section 36(1A) of the Copyright Act lists the following mandatory factors to consider when determining whether a person has authorised the doing of an act comprised in the copyright in a work without permission:

1. the extent (if any) of the person’s power to prevent the doing of the act concerned;
2. the nature of any relationship existing between the person and the person who did the act concerned;
3. whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.

The Appellant’s case against the Represented Respondents rested on implied authorisation of Mr Semmens’ infringing conduct.  The primary judge was not satisfied that the Appellant had established its authorisation case given his Honour’s findings that each of the Represented Respondents trusted Mr Semmens not to infringe the intellectual property rights of others.  In the case of B&S and RETB (via Mr Stoner and Ms Bartels), his Honour found that those parties expressly instructed Mr Semmens not to infringe and trusted him to comply with instructions.  In the case of DDPL (via Mr Meissner), his Honour found that Mr Meissner was “shocked” when Mr Semmens admitted to copying of Process 55 in the development of DreamDesk and it was reasonable for Mr Meissner to believe that Mr Semmens would not repeat such conduct.

The Full Court’s findings

‘Sanction, approve or countenance’ – requirement of a mental element

Justice McElwaine, with whom Greenwood J agreed, noted the interpretation of the word ‘authorise’ as ‘sanction, approve or countenance’ as set down in UNSW v Moorhouse [1975] HCA 26.  In particular, his Honour quoted the following passage by Gibbs J in Moorhouse at 12-13, which formed the basis of paragraphs 36(1A)(a) and (c) in the Copyright Act:

… A person cannot be said to authorize an infringement of copyright unless he has some power to prevent it: Adelaide Corporation v Australasian Performing Right Association Ltd (1928) 40 CLR 481.  Express or formal permission or sanction, or active conduct indicating approval, is not essential to constitute an authorization; “Inactivity or ‘indifference, exhibited by acts of commission or omission, may reach a degree from which an authorization or permission may be inferred’”: Adelaide Corporation v Australasian Performing Right Association Ltd (1928) 40 CLR 481, 504.  However, the word “authorize” connotes a mental element and it could not be inferred that a person had, by mere inactivity, authorized something to be done if he neither knew nor had reason to suspect that the act might be done.

Justice McElwaine then turned to the more recent decision of Roadshow Films Pty Ltd v iiNet Ltd [2011] FCAFC 23, in which Nicholas J (in the majority) referred to the Full Court’s unanimous decision in Australasian Performing Rights Association Ltd v Jain (1990) 26 FCR 53.  In making a finding of authorisation, the Full Court at Jain observed at 61:

… It may be that not every act which amounts to the countenancing of something is an authorisation. … But the evidence in the present case reveals, in our opinion, a studied and deliberate course of action in which [the respondent] decided to ignore the appellant’s rights and to allow a situation to develop and to continue in what he must have known that it was likely that the appellant’s music would be played without any licence from it.  It was within his power to control what was occurring [but] he did nothing at all. 

Justice Nicholas in iiNet observed at [779] that the Full Court in Jain likely had in mind some of the broader definitions of ‘countenance’  which can include ‘tolerate’ or ‘permit’.  His Honour opined that those words are useful so long as it is recognised  that the word ‘authorise’ itself “connotes a mental element involving the giving of a consent or permission of some kind or a carelessness from which such consent or permission may be inferred”. His Honour continued at [781] that

a refusal by an ISP to act on infringement allegations made by or on behalf of a copyright owner may be evidence from which authorisation may be inferred.  But that will only be so if the refusal is unreasonable.  Whether or not a refusal is unreasonable must depend upon the circumstances in which it occurs including the nature and quality of the information upon which the ISP is requested by the copyright owner.

After considering these case authorities, McElwaine J at [257] reasoned that, in order for the ‘mental element’ in an authorisation case to be made out, it was necessary for the Appellant to prove, on balance, that the Represented Respondents either had actual knowledge of Mr Semmens’ conduct, or constructive knowledge, in the sense that they had reasonable grounds to suspect, or exhibited willful blindness to such conduct.  It was unnecessary to establish knowledge that the act in question was an infringing act; all that was required was knowledge that the act was an act comprised in the copyright of a work.  

Represented Respondents had authorised Mr Semmens’ conduct

In finding that each of the Represented Respondents had constructive knowledge of Mr Semmens’ unlicensed copying of DreamDesk, McElwaine J at [330]-[333] emphasised the evidential significance of the Appellant’s letters to the Represented Respondents of 29 September 2016 and 9 October 2016, which put the parties on notice that the Appellant had grounds to assert that its copyright had been infringed, and that Mr Semmens had failed to give the undertaking sought.  

His Honour at [324] accepted the primary judge’s findings that the Represented Respondents trusted Mr Semmens not to infringe the intellectual property rights of others and opined at [327]-[328] that it was open to the primary judge to conclude that, prior to 29 September 2016, the Represented Respondents had no reason to doubt that Mr Semmens had infringed the Appellant’s copyright in developing Toolbox.     

However, the letter of 29 September 2016 marked a turning point in the events of this case, and his Honour remarked at [330] that a reasonable person in the shoes of the Represented Respondents should have been prompted by the letter to make specific enquiries of Mr Semmens, to ensure that he had not copied, and was not intending to copy, the Appellant’s intellectual property.  In his Honour’s view, it was unreasonable for the Represented Respondents to simply rely on their trust in Mr Semmens and give comprehensive undertakings to the Appellant in relation to the latter’s intellectual property in DreamDesk, without firstly making specific enquiries to ensure it was safe to give the undertakings.

Turning specifically to the mandatory factors under section 36(1) of the Copyright Act, his Honour remarked at [337] that the factors are interrelated, given the nature of any relationship between the parties dictates the extent of each Represented Respondent’s power to prevent Mr Semmens’ unlicensed copying of DreamDesk. His Honour noted that a contractual relationship existed between Mr Semmens and each Represented Respondent such that each Represented Respondent may issue instructions to Mr Semmens.  Further, in the case of B&S, Mr Stoner and Ms Bartels, Mr Semmens was also their joint venture partner. While the termination of these contractual and joint venture arrangements may not have completely prevented Mr Semmens from independently copying DreamDesk, his Honour was of the view that taking such a step would at the very least have significantly disrupted Mr Semmens’ direct infringement: [337]. Accordingly, his Honour concluded at [338] that

the relationship between Mr Semmens and the represented respondents was such that how Mr Semmens went about his task of constructing the Toolbox systemwas capable of being directly influenced by the represented respondents.  After those parties were put on specific notice of potential infringement, and the fact that Mr Semmens had failed to give the undertaking, steps ought to have been taken within the context of the relationship to “get to the bottom of the allegations” and, if found to be substantiated, to end the contractual and commercial relationship with Mr Semmens.

Given the Represented Respondents’ lack of action, it was ultimately held that the circumstances gave rise to an inference that their indifference to the Appellant’s rights constituted an implied authorisation of Mr Semmens’ infringing conduct.

You can access the full text of the Court’s decision here.