Judge Street’s findings in favour of Microsoft in an IP case overturned … Blistering appeal judgment from the Federal Court … Judgment in complex case given ex tempore by FCC judge … Speculative inferences … Liability for claims that were not made … The missing pathway … Go back, start again … Janek Drevikovsky reports
The case was between Microsoft Corporation and two computer resellers, whose alleged IP breaches resulted in a $2.6 million award of damages by Judge Street.
But when the resellers appealed, Justice David O’Callaghan of the Federal Court found the judge’s reasons so “unsatisfactory” that a new hearing has been ordered.
It unfolded in February, but there’s been little to no reporting of the story, so here we are catching-up.
Street held the resellers liable for claims that had never been made against them; had failed to analyse competing evidence; had drawn inferences as a matter of mere speculation; and had failed to explain his ultimate conclusions.
Microsoft, by then the respondent, caved on day two of the appeal hearing, with its senior counsel conceding the original trial had to be scrapped.
The offending judgment was handed down in mid-2018, after three days of evidence. As is his habit, Judge Street gave ex tempore reasons, immediately after the close of oral submissions.
As O’Callaghan later found, this was not a case in which His Honour should have contemplated doing so. It was a complex matter, with four respondents (later the appellants) – CPL Notting Hill, which builds and sells computers; its sole director Ms Wei Li; CPL Distribution, which sells parts and software to Ms Wei Li’s company; and finally the sole director of CPL Distribution, Mr Jin Wang.
The parties agreed, at first instance, that CPL Notting Hill and CPL Distribution were entirely separate entities with Microsoft making different claims against both companies and their respective directors.
It was argued Ms Li and CPL Notting Hill had breached a resellers’ agreement by pre-installing Microsoft software on 39 computers.
Microsoft also alleged that CPL Distribution had acquired 1,617 ‘Microsoft Certificates of Authority’ to which it was not entitled.
The certificates were meant to be attached to computers containing Microsoft software, but since CPL Distribution was not authorised to use the certificates, doing so would amount to a copyright breach.
Wang was complicit, Microsoft argued, because he sold the 1,617 labels to CPL Notting Hill, amounting to authorisation of the copyright infringement.
For Judge Street, confusion reigned.
He found CPL Notting Hill and Wei Li liable for 1,617 breaches of Microsoft’s copyright. But that was not Microsoft’s case. It was CPL Distribution and Jin Wang who allegedly breached copyright on 1,617 occasions.
His Honour decided “by way of inference” that Ms Li had authorised the infringements – a finding outside Microsoft’s case and impermissible, according to O’Callaghan J.
Judge Street also found CPL Notting Hill and Ms Li liable for breaching the resellers’ agreement. In doing so, he apparently skimmed over the fact that Microsoft Corporation (the sole applicant) was not even a party to that document.
Yet in the final version of its case, Microsoft pleaded no copyright infringements, and according to Justice O’Callaghan the finding was unsupported by evidence.
Judge Street then turned to CPL Distribution, which he found had acquired the 1,617 certificates from a “fraudster”, LDS International. O’Callaghan held, this finding was not open, being outside the scope of Microsoft’s case.
Then it was Mr Wang’s turn. During the trial, Wang refused to give evidence and from his silence, Judge Street drew a number of “inferences” – that Mr Wang was aware of the copyright infringements, that he knew the certificates had been acquired for cash, he knew about the destruction of records, was aware the computers had been sold in breach of a licence, and so on.
Of all this, Justice O’Callaghan took a dim view:
“It was simply not permissible for the primary judge to draw those inferences by reason of Mr Wang’s failure to give evidence.”
The whole thing was a misapplication of the rule in Jones v Dunkel.
According to the appeal judge, Microsoft had never argued that Wang was involved in or knew about the acquisition of the 1,617 certificates. There was no evidence for Wang to contradict, and so Judge Street’s negative inferences could not be drawn.
Next, Judge Street awarded substantial damages for copyright breaches against both Ms Li and Wang personally – $525,658 each. But Microsoft only sought such damages against CPL Notting Hill and CPL Distribution.
For an alleged trademark infringement by CPL Distribution, His Honour awarded $100,000, even though Microsoft had claimed only a nominal award.
There was also a general finding that all four respondents (later appellants) had engaged in misleading or deceptive conduct under the ACL. Yet, as Justice O’Callaghan found, the judge gave no reasons.
The Federal Court held that the initial judgment did not “reveal a path of reasoning”. Conclusions were asserted, not explained, and the evidence was not set out in detail.
Justice O’Callaghan concluded the decision was “wholly unsatisfactory” and that it had to be tried again: Mifsud v Campbell (1991) 21 NSWLR 725 at 728-9.
The matter was remitted to the Circus Court, to be retried by someone other than Judge Sandy Street.