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Analysis: TechLawJournal
Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (with Corrigendum dated 22 September 2005) [2005] FCA 1242 (5 September 2005)Last Updated: 30 September 2005 FEDERAL COURT OF AUSTRALIA SUMMARY UNIVERSAL MUSIC AUSTRALIA PTY LTD & ORS v SHARMAN LICENSE HOLDINGS LTD & ORS SUMMARY In accordance with the practice of the Federal Court in certain cases of public interest, the Court has prepared a summary to accompany the judgment that is to be delivered today. However, it must be emphasised that the summary forms no part of the judgment. The only authoritative statement of the Court’s reasons is the judgment itself. Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 I am about to deliver judgment in a case that has attracted widespread interest. Extensive evidence was presented at the trial. Much of it was of a technical nature. The facts of the case and the relevant law are both complex. My reasons for judgment are, therefore, necessarily lengthy. Because of those factors, I have prepared this statement in which I will attempt briefly to explain the nature of the case and my major conclusions. This statement is not intended comprehensively to set out my findings of fact, conclusions about the law or reasons for making the orders I will shortly announce. Those interested in obtaining full information about those matters should refer to the Court’s website (www.fedcourt.gov.au), upon which my full Reasons for Decision will shortly be published. The case concerns the operation of the Kazaa Internet peer-to-peer file-sharing system. This system operates world wide. Since early 2002, it has been controlled by Sharman Networks Ltd, one of the present respondents, out of premises in Sydney. Four of the other respondents are directly associated with Sharman Networks. The Kazaa system is available to users free of charge. It enables one user to share with other users any material the first user wishes to share, whether or not that material is subject to copyright, simply by placing that material in a file called ‘My Shared Folder’. A user who is interested in obtaining a copy of a particular work, such as a musical item, can instantaneously search the ‘My Shared Folder’ files of other users, worldwide. If the file is located, the title will be displayed against a blue icon on the first user’s computer as a ‘blue file’. The work can then be downloaded onto the first user’s computer. The technology used to carry out those operations is called FastTrack. Shortly after Sharman Networks took control of Kazaa, the system was expanded so as to add a second type of search. This was done by arrangement with Altnet Inc, a United States company which is also a respondent in this case. Four other respondents are associated with Altnet. Altnet controlled technology called TopSearch, which enables the provision to Kazaa users of licensed works; that is, works made available to users pursuant to arrangements made with the owners of the copyright in those works. Search results for these works are displayed on a user’s computer against a gold icon; they have been called ‘gold files’. There are 30 applicants in this case. They include companies associated with the world’s major distributors of sound recordings, mostly in the form of compact discs. The applicants claim the sharing of blue files between users constitutes an infringement of their copyright. They do not contend the sharing of gold files directly infringes their copyright. However, they have joined the Altnet parties because, they say, the arrangements made between the Sharman parties and the Altnet parties constitute a joint enterprise; so all the respondents are involved in the relevant infringements of copyright. Also, they say, Altnet personnel assisted Sharman personnel in constructing the Kazaa website, which contains material encouraging users to infringe copyright in blue file works. The Kazaa system is extremely popular. Documents produced by the respondents contain claims that, at any particular time, several million people are using the system to share files. At the beginning of 2004, the Kazaa website said over 317 million people, worldwide, had downloaded Kazaa onto their computers, thereby enabling them to share files. A banner on the Kazaa website, at the time of the commencement of this proceeding, claimed Kazaa was ‘[t]he world’s most downloaded software application’. A document produced by the respondents stated that Kazaa was used for 79% of worldwide peer-to-peer file-sharing activities. It is clear that a major proportion of Kazaa’s shared blue files are works (mostly musical works) that are subject to copyright. The files are shared without the approval of the relevant copyright owner. It follows that both the user who makes the file available and the user who downloads a copy infringes the owner’s copyright. In this case, the applicants made claims of copyright infringement, contravention of the Trade Practices Act and conspiracy. It is convenient to say immediately that the evidence does not support either the Trade Practices Act or conspiracy claims. Those claims will be rejected. The more arguable claim is infringement of the applicants’ copyright. Before I indicate my conclusions about that claim, I wish to identify two matters that this case is not about. First, many people (including the respondents) argue that the Internet is here to stay, it is being used by an ever increasing number of people and peer-to-peer file-sharing is one of its most valuable potential uses. They say that copyright owners, such as the present applicants, could eliminate (or at least substantially reduce) infringement of their copyrights if they were willing to make copyright works available on a licensed basis for a fee, in the way in which Altnet offers gold files. Second, it was suggested at one stage of this case that it would have been possible for the applicants to have made their compact discs less vulnerable to being ‘ripped’ into a computer program by issuing them in a digital rights managed, rather than open, format. Neither of these matters fall for decision in this case. I understand the argument in favour of more widespread licensing of copyright works. No doubt that course would have commercial implications for sound recording distributors. Whether or not they should take it is a matter to be determined by them. Unless and until they do decide to take that course, they are entitled to invoke such protective rights as the law affords them. Similarly in regard to making compact discs less susceptible to ripping; although, in regard to that matter, I add the evidence is insufficient for me to reach any conclusion about the feasibility of doing this. I return to the true issue in the case: the applicants’ copyright claim. Here again, the applicants overstated their case. It cannot be concluded, as the applicants claimed in their pleadings, that the respondents themselves engaged in communicating the applicants’ copyright works. They did not do so. The more realistic claim is that the respondents authorised users to infringe the applicants’ copyright in their sound recordings. Section 101 of the Australian Copyright Act provides that copyright is infringed by a person who, not being the owner of the copyright and without the licence of the copyright owner, authorises another person to do in Australia an infringing act. I have concluded that this more limited claim is established against six of the ten respondents. My reasons may be summarised in this way: (i) despite the fact that the Kazaa website contains warnings against the sharing of copyright files, and an end user licence agreement under which users are made to agree not to infringe copyright, it has long been obvious that those measures are ineffective to prevent, or even substantially to curtail, copyright infringements by users. The respondents have long known that the Kazaa system is widely used for the sharing of copyright files; A question arose as to the form of relief that might be made against the six respondents that I hold to have authorised infringement of the applicants’ copyright. The applicants are entitled to declarations as to past violations of their rights and the threat of future violations. They are also entitled to an order restraining future violations. However, I have had to bear in mind the possibility that, even with the best will in the world, the respondents probably cannot totally prevent copyright infringement by users. I am anxious not to make an order which the respondents are not able to obey, except at the unacceptable cost of preventing the sharing even of files which do not infringe the applicants’ copyright. There needs to be an opportunity for the relevant respondents to modify the Kazaa system in a targeted way, so as to protect the applicants’ copyright interests (as far as possible) but without unnecessarily intruding on others’ freedom of speech and communication. The evidence about keyword filtering and gold file flood filtering, indicates how this might be done. It should be provided that the injunctive order will be satisfied if the respondents take either of these steps. The steps, in my judgment, are available to the respondents and likely significantly, though perhaps not totally, to protect the applicants’ copyrights. The formal orders that I make are as follows: 1. Leave be granted to Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc to intervene in this proceeding to the extent necessary for them to put submissions that do not depend on material not already in evidence. 2. It be declared that each of the six respondents named below (‘the infringing respondents’) have infringed the copyright in each of the sound recordings whose title appears in column 2 of the attached Schedule, being a copyright of the applicant (‘the relevant applicant’) whose name is set out opposite the title of that sound recording in column 4 of that Schedule by: (i) authorising the doing in Australia by Kazaa users of the following acts (‘the infringing acts’) in relation to the said sound recording: (b) communicating the recording to the public; in each case, without the licence of the relevant applicant; and The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister. (i) authorising the doing in Australia by Kazaa users of the infringing acts; in each case, without the licence of the applicant who is the relevant copyright owner; and 4. The infringing respondents be restrained, by themselves, their servants or agents, from authorising Kazaa users to do in Australia any of the infringing acts, in relation to any sound recording of which any of the applicants is the copyright owner, without the licence of the relevant copyright owner. 5. Continuation of the Kazaa Internet file-sharing system (including the provision of software programs to new users) shall not be regarded as a contravention of order 4 if that system is first modified pursuant to a protocol, to be agreed between the infringing respondents and the applicants or to be approved by the Court, that ensures either of the following situations: (i): that: (a) the software program received by all new users of the Kazaa file-sharing system contains non-optional key-word filter technology that excludes from the displayed blue file search results all works identified (by titles, composers’ or performers’ names or otherwise) in such lists of their copyright works as may be provided, and periodically updated, by any of the applicants; and (ii) that the TopSearch component of the Kazaa system will provide, in answer to a request for a work identified in any such list, search results that are limited to licensed works and warnings against copyright infringement and that will exclude provision of a copy of any such identified work. 6. The operation of order 4 be stayed for a period of two months from today’s date, or for such extended period as a judge may, on application, allow. 7. The applicants’ claims for pecuniary relief against the infringing respondents be reserved for determination at a hearing to be fixed on application for that purpose. 8. There be liberty to all parties to apply, on seven days notice: (a) within a period of one month from today’s date, in respect of the form of order 4 or 5; 9. The applicants’ claims under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and in respect of the tort of conspiracy all be dismissed. 10. The infringing respondents pay 90% of the costs incurred by the applicants to date in relation to this proceeding. 11. The proceeding be wholly dismissed as against the following four respondents (‘the dismissed respondents’): Sharman License Holdings Ltd, Philip Morle, Brilliant Digital Entertainment Pty Ltd and Anthony Rose. 12. The applicants pay the costs incurred in relation to this proceeding by each of the dismissed respondents, provided that, in the case of those dismissed respondents who were represented at the trial jointly with infringing respondents, such costs shall be limited to costs other than those that would have been incurred, in any event, in connection with representation of the relevant infringing respondents. Wilcox J FEDERAL COURT OF AUSTRALIA
DNEY
1. Leave be granted to Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc to intervene in this proceeding to the extent necessary for them to put submissions that do not depend on material not already in evidence. 2. It be declared that each of the six respondents named below (‘the infringing respondents’) have infringed the copyright in each of the sound recordings whose title appears in column 2 of the attached Schedule, being a copyright of the applicant (‘the relevant applicant’) whose name is set out in the same row as the title of that sound recording in column 4 of that Schedule by: (i) authorising the doing in Australia by Kazaa users of the following acts (‘the infringing acts’) in relation to the said sound recording: (a) making a copy of the sound recording; (b) communicating the recording to the public; The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister. (i) authorising the doing in Australia by Kazaa users of the infringing acts; in each case, without the licence of the applicant who is the relevant copyright owner; and 4. The infringing respondents be restrained, by themselves, their servants or agents, from authorising Kazaa users to do in Australia any of the infringing acts, in relation to any sound recording of which any of the applicants is the copyright owner, without the licence of the relevant copyright owner. 5. Continuation of the Kazaa Internet file-sharing system (including the provision of software programs to new users) shall not be regarded as a contravention of order 4 if that system is first modified pursuant to a protocol, to be agreed between the infringing respondents and the applicants, or to be approved by the Court, that ensures either of the following situations: (i): that: (a) the software program received by all new users of the Kazaa file-sharing system contains non-optional key word filter technology that excludes from the displayed blue file search results all works identified (by titles, composers’ or performers’ names or otherwise) in such lists of their copyright works as may be provided, and periodically updated, by any of the applicants; and (ii) that the TopSearch component of the Kazaa system will provide, in answer to a request for a work identified in any such list, search results that are limited to licensed works and warnings against copyright infringement and that will exclude provision of a copy of any such identified work. 6. The operation of order 4 be stayed for a period of two months from today’s date, or for such extended period as a judge may, on application, allow. 7. The applicants’ claims for pecuniary relief against the infringing respondents be reserved for determination at a hearing to be fixed on application for that purpose. 8. There be liberty to all parties to apply, on seven days notice: (a) within a period of one month from today’s date, in respect of the form of order 4 or 5; 9. The applicants’ claims under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and in respect of the tort of conspiracy all be dismissed. 10. The infringing respondents pay 90% of the costs incurred by the applicants to date in relation to this proceeding. 11. The proceeding be wholly dismissed as against the following four respondents (‘the dismissed respondents’): Sharman License Holdings Ltd, Philip Morle, Brilliant Digital Entertainment Pty Ltd and Anthony Rose. 13. The applicants pay the costs incurred in relation to this proceeding by each of the dismissed respondents, provided that, in the case of those dismissed respondents who were represented at the trial jointly with infringing respondents, such costs shall be limited to costs other than those that would have been incurred, in any event, in connection with representation of the relevant infringing respondents.
REASONS FOR JUDGMENT WILCOX J: 1 This proceeding raises important issues about Internet file-sharing. 2 My reasons are structured as follows: I THE LITIGATION (iii) A user’s perspective (v) The technical experts’ agreed propositions para 129 (vi) The relationship between gold and blue
(i) Knowledge and intention (a) Documentary evidence paras 136 to 162 (b) Mr Morle’s evidence paras 163 to 180 (c) Conclusions about knowledge (ii) Technological controls (a) Direct control through a central server paras 195 to 235 (iii) Non-technological controls (vii) The application of s 101 to Mr Morle paras 448 to 451 (viii) The application of s 101 to Mr Bermeister paras 474 to 479 (i) Misleading conduct paras 491 to 502 VII THE CONSPIRACY CLAIMS paras 510 to 516 3 There are 30 applicants in the proceeding. The first to sixth applicants commenced the proceeding. Those applicants are all Australian companies, although most (if not all) of them are substantially owned and controlled by overseas parent companies. Those six applicants distribute sound recordings in Australia. They claim copyright in their respective sound recordings pursuant to the Copyright Act 1968 (Cth) (‘the Act’). I will refer to these six applicants as ‘the original applicants’. 4 The 7th to 30th applicants were added by amendment of the Application. Most of these applicants are companies incorporated outside Australia, although two are Australian companies and one is a natural person. These 24 applicants also claim copyright in sound recordings. 5 There are ten respondents. The first five respondents were original parties. The second five respondents were added as parties following the execution of Anton Pillar orders made by me on the day the proceeding was commenced. 6 It is convenient to divide the ten respondents into four groups, reflecting their representation at the trial. 7 The first group (the first to fourth respondents) consists of three companies, Sharman License Holdings Ltd (‘Sharman Holdings’), Sharman Networks Ltd (‘Sharman’), LEF Interactive Pty Ltd (‘LEF’) and one natural person, Nicole Anne Hemming (‘Ms Hemming’). Sharman Holdings and Sharman (‘the Sharman companies’) were both incorporated in Vanuatu. LEF is an Australian company. The sole director and shareholder of LEF is Ms Hemming. She is also the Chief Executive Officer (‘CEO’) of Sharman. Ms Hemming is not a director of that company or of Sharman Holdings. Consistently with the course taken at trial, I will refer to the three companies and Ms Hemming, collectively, as ‘the Sharman respondents’. 8 The fifth respondent, Philip Morle, was at material times Director of Technology of LEF. His services were made available to Sharman, apparently on a full-time basis. His responsibilities at Sharman were consistent with him having been Director of Technology of Sharman itself. I will regard him as having filled that position. 9 The first to fifth respondents have sometimes collectively been called the ‘Sharman parties’. They have also been referred to as the ‘Kazaa parties’, on account of the fact that, with the possible exception of Sharman Holdings, they are all concerned with the operation of the Kazaa computer software system which lies at the heart of this case. 10 The third group (the sixth to ninth respondents) also consists of three companies and one natural person. The three companies are Altnet Inc (‘Altnet’) and Brilliant Digital Entertainment Inc (‘BDE’), both American companies, and Brilliant Digital Entertainment Pty Ltd (‘BDE Pty Ltd’), an Australian company. I will call these three companies ‘the Altnet companies’. The natural person is Kevin Glen Bermeister (‘Mr Bermeister’), a person who has a significant role in the affairs of all the Altnet companies. I will refer to the Altnet companies and Mr Bermeister, collectively, as ‘the Altnet respondents’. 11 The tenth respondent is Anthony Rose, a person who is said to be Chief Technical Officer of BDE. I will refer to the Altnet respondents and Mr Rose, collectively, as the ‘Altnet parties’. (ii) The proceeding 12 The proceeding was commenced on 5 February 2004. On that day, I made Anton Pillar orders authorising representatives of the applicants and their solicitors, not more than two identified ‘forensic experts’ and one identified ‘independent solicitor’, to enter and search various premises apparently occupied by one or more of the Kazaa parties. I also made orders authorising such people to enter and search the premises of three identified universities. These universities were referred to as ‘supernode parties’, on account of an allegation that each of their computers was being used as a ‘supernode’ in Internet file sharing. The applicants did not claim the universities were knowingly involved in wrongdoing and did not join them as respondents in the proceeding. 13 The orders made on 5 February 2004 were executed. They were subsequently amended. It is unnecessary to refer to the detail of either the execution or the amendments. It is sufficient to say that, as a result of execution of the orders, the applicants took possession of a quantity of electronic data, most of which was provided in computer disc (‘CD’) form. 14 Between the institution of the proceeding and the commencement of the trial, on 29 November 2004, numerous interlocutory applications were made. I need not mention them all. However, I note three important interlocutory orders. 15 On 23 March 2004, I directed that ‘[a]ll issues of the quantum of pecuniary relief be determined separately from and after all other issues’ and, unless otherwise ordered, interlocutory steps be confined to the other issues; that is, interlocutory steps were not to be taken in relation to the issue of the quantum of pecuniary relief (damages or an account of profits). It was on that day that I granted leave to the applicants to serve an Amended Application adding the Altnet parties to the proceeding. 16 On 14 September 2004, as a result of argument in connection with one interlocutory application, the applicants obtained leave to add the 7th to 30th applicants. They also obtained leave to amend their Statement of Claim so as to confine their claims of past infringement of copyright to 98 specified sound recordings (‘Defined Recordings’) that were subsequently listed in Schedules A to F of the Amended Statement of Claim filed on 15 October 2004 (‘the S of C’). The Schedules identify each claimed copyright owner. 17 There is uncontested evidence that each of the Defined Recordings has been able to be downloaded, and has been downloaded, through the file-sharing facility of the Kazaa system. 18 In limiting their claims to the Defined Recordings, the applicants did not concede the copyright infringements that had been allegedly committed by the respondents were confined to those recordings. The applicants’ decision to limit their claims arose out of their logistical difficulty in establishing the copyright chain of title for each of the many sound recordings whose copyright the respondents are alleged to have infringed. 19 On 1 November 2004, I heard argument, pursuant to a notice of motion filed on 26 October 2004, concerning an application by three organisations for leave to intervene in the proceeding. The applicants for leave were Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc. and New South Wales Council for Civil Liberties Inc. (‘the Amici’). The Amici expressed concern that the decision in this case might unduly constrain freedom of speech. 20 The application for intervention was opposed by the applicants in the principal proceeding but supported by all the respondents. On 1 November 2004, I did not finally dispose of the application for intervention. I considered it would be preferable to defer a decision on the application until consideration of final submissions and having regard to the content of the submissions offered by the Amici. I indicated I would not be prepared to allow intervention to prolong the hearing of the matter or to increase significantly the costs burden of other parties; however, I would be prepared to receive and consider a submission at the end of the case that was relevant, and not repetitive of points made by other parties. 21 In due course, counsel for the Amici provided a written submission. The submission presents a number of difficulties, as counsel for the applicants have pointed out. In particular, the submission seeks to have the Court consider documentary material that is not in evidence. This course is not open to me. On the other hand, the submission makes some useful comments about the proper interpretation of the Act. I will grant leave to the Amici to intervene to the extent necessary for them to put submissions that do not depend on material not already in evidence. I have given consideration to their submissions and will refer to them later. (iii) The trial 22 Sixty-one affidavits, many lengthy, made by 34 witnesses, were read at the trial. Seventeen of those witnesses also gave oral evidence. The taking of evidence was substantially completed on 17 December 2004. There remained some problems about documents. Those problems were addressed on 17 and 31 January 2005, following which counsel for all parties supplied written submissions that were discussed at a hearing on 22-23 March 2005. At the conclusion of that hearing, I reserved my decision. 23 An enormous quantity of evidence was tendered at the trial. Little of it was the subject of objection by other parties; probably correctly, as most of the material was not irrelevant to the wide issues raised by the pleadings and was not otherwise inadmissible. However, much of the material was unnecessary. There was considerable repetition, and over-elaboration, of evidence, even in relation to matters not seriously in dispute. Much of the material concerned peripheral matters that were never likely to be important. 24 Voluminous though it was, the evidence was also notable for what it lacked: direct evidence from those responsible for establishing and operating the Kazaa system, with its adjunct Altnet technology. Between them all, the respondents called only one witness who was directly involved in the operation of either the Kazaa or Altnet technology. That witness was Mr Morle. As Sharman’s Director of Technology, he might have been expected to have a comprehensive knowledge of both the Kazaa and Altnet technology. However, he made a disappointing contribution to my knowledge of those matters. He claimed ignorance of many matters about which I would have expected him to be informed. 25 A further notable omission from the evidence was direct and definite identification of the Kazaa source code. Some expert witnesses examined what they thought to be a copy of the source code. Mr Morle gave evidence, under cross-examination by counsel for the Sharman parties, that he had instructed another person to send a library copy of what was thought to be the source code to Professor Keith Ross, one of the Sharman respondents’ expert witnesses. However, neither Mr Morle nor anyone else confirmed the identity of the code perused by Professor Ross. Uncertainty about the content of Kazaa’s source code complicated the hearing. 26 The principal parties relied heavily on evidence from so-called ‘independent experts’. Much of this evidence was helpful, some of it extremely valuable. Some of this evidence was not helpful, either because it related to a peripheral, even irrelevant, matter or because I was compelled to form an adverse view about the objectivity or intellectual integrity of the witness. I mention, in this context, particularly Dr Roger Clarke, whose evidence on behalf of the Altnet parties was little more than a partisan polemic, and, to a lesser extent, Professor Ross. 27 As my task is to decide a lawsuit, rather than to write a book about the trial, I do not propose to summarise, or even mention, all the evidence. During the course of the trial, I paid close attention to all the evidence that was tendered, whether documentary, affidavit or oral. I have revisited most of that evidence in considering my decision and in formulating these reasons. However, I propose to refer only to those portions of the evidence that bear on the issues I need to decide, being guided in my selection by counsel’s submissions. 28 These submissions were generally helpful. However, they are lengthy. Excluding supplementary material, they total 649 pages. Although I have read and reread them all, I will not attempt to respond to every point they raise. 29 From time to time, before and during the trial of this proceeding, reference was made to a proceeding then making its way through the United States courts. On 25 April 2003, the Federal District Court in Los Angeles summarily dismissed an action brought by various copyright holders against corporations allegedly associated with two United States-based peer-to-peer file-sharing systems, ‘Grokster’ and ‘StreamCast’. The Court of Appeals for the Ninth Circuit affirmed that decision. However, after I had reserved judgment in this case, the United States Supreme Court unanimously reversed the lower courts and allowed the suit to go to trial. On 27 June 2005, the judgment was delivered: see Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd 125 S.Ct 2764; 73 USLW 4675 (‘Grokster’). 30 It had always been obvious that there were similarities between the Kazaa system and the Grokster and StreamCast systems. There were also differences in the conduct of the systems’ respective operators. Moreover, much of the Australian statutory law had no counterpart in United States law. So there was a question in my mind as to whether the Supreme Court’s decision provided any guidance to the resolution of this case. On 30 June 2005, I invited the parties to comment about that matter. They all did so. Their comments confirmed my impression that the differences, both factual and legal, are such as to render Grokster of little assistance to me. II THE PARTIES’ POSITIONS 31 Paragraphs 17 to 46 of the S of C relate to the subsistence and ownership of copyright. It is alleged that each of the original applicants controls a catalogue of ‘sound recordings’, within the meaning of the Act, which catalogue includes the sound recordings listed in a particular Schedule – that is, one of Schedules A to F – to the S of C. The S of C goes on to allege that the particular original applicant ‘is exclusively licensed to make copies and authorise the making of copies in Australia’ of those sound recordings in the relevant catalogue of which it is not the copyright owner. 32 Paragraphs 47 to 84 of the S of C make copyright claims against the Sharman companies. A cumulative and alternative claim is made against each company that it has, ‘by itself or through or by its agents, developed, marketed and supplied to members of the public, including in Australia, certain computer software applications known as Kazaa Media Desktop [‘KMD’] and Kazaa Plus’ (collectively, ‘the Kazaa Software’). 33 By para 50 of the S of C, the applicants allege that each of the Sharman companies has, by itself or through or by its agents: ‘(a) marketed the Kazaa Software to members of the public in Australia; (b) offered the Kazaa Software for download by members of the public in Australia; 34 Paragraph 51 of the S of C alleges that Kazaa Software has the following features and capabilities: ‘(a) features that permit users of the Kazaa Software to search for, identify, locate and download MPEG-1 Audio Layer-3 (MP3) and other digital music files from other users of the Kazaa Software over the Internet; (b) features that permit users of the Kazaa Software to make available MP3 and other digital music files for searching, identification, location and downloading by other users of the Kazaa Software over the Internet; (c) the ability to designate the computers of certain users of the Kazaa Software as supernodes; (d) features that permit the easy handling of MP3 and other digital music files by users of the Kazaa Software, including music specific searches, playlists and an inbuilt music player; (e) features designed to encourage end users of the Kazaa Software to make available files and reward to them according to the number of files made available by them relative to the number of files downloaded by them from other users of the Kazaa Software, including the "Participation Level"; (f) features that permit users of the Kazaa Software to search for, identify and download digitally rights managed files, including music files, from or via Altnet or through or by its agents; (g) the features and capabilities of the Altnet Technology pleaded in paragraph 97 below.’ 35 The S of C goes on, in para 52, to claim that users of the Kazaa Software (‘Kazaa Users’) have, by means of that software: ‘(a) made available for download by other users of the Kazaa Software; (b) searched for and located, on the computers of other users of the Kazaa Software; MP3 or other digital music files constituting copies of the whole or a substantial part of’ the recordings over which the applicants claim rights as owners or licensees of the copyright. 36 Para 54 of the S of C contains an allegation that each of the Sharman companies did the acts complained of ‘knowing and intending that, or being recklessly indifferent as to whether ... Kazaa Users would do the acts pleaded in’ para 52 of the S of C. 37 The S of C proceeds to claim five different types of infringement: (i) infringement by communication; that is, making available online, or electronically transmitting, to the public MP3, or other digital music file, constituting copies of the whole or a substantial part of the relevant sound recordings; (v) infringement as joint tortfeasors with Kazaa users. 38 The applicants pleaded that the file-sharing actions of Kazaa users were done without the licence of the relevant applicant. They alleged common design between each of the Sharman companies and Kazaa users and that the acts of the Sharman companies were done without the licence of the relevant applicant. 39 By paras 85 to 92 of the S of C, the applicants allege that Ms Hemming and Mr Morle authorised the acts of each of the Sharman companies and entered into a common design with them in respect of those acts. 40 Paragraphs 93 to 120 of the S of C make copyright claims against the Altnet companies. It is pleaded that each company, by itself or through or by its agents, ‘developed, marketed and supplied for use in the Kazaa Software certain computer software technology (the Altnet Technology)’. Paragraph 96 alleges that each of the Altnet companies developed and designed the Altnet Technology ‘in such a manner as to work in a complementary way with and form part of the Kazaa Software’, and licensed that technology to Sharman and supplied it (and maintained it as part of the Kazaa Software) to members of the public in Australia. In particular, it is said each Altnet company ‘established, operated and maintained infrastructure’ that included ‘computer servers from which Gold files are supplied to members of the public using the Kazaa Software’. Features and capabilities of the Altnet Technology are pleaded in para 97 of the S of C. 41 Paragraph 98 alleges that the infringing acts of Kazaa users ‘were enabled or facilitated’ by the Altnet Technology and the pleaded acts of the Altnet companies. 42 The S of C goes to make infringement claims of the same five types as were earlier made against each of the Sharman respondents. 43 It is convenient immediately to note that, although the parties put some submissions about infringement types (i), (iv) and (v), the only types of infringement that are seriously arguable, having regard to the evidence, are (ii) and (iii). Realistically speaking, the applicants’ copyright infringement claim depends entirely on the question whether the respondents, individually and/or jointly, authorised Kazaa users to infringe the applicant’s copyright. 44 Paragraphs 121 to 128 of the S of C make claims against each of Mr Bermeister and Mr Rose that correspond, in relation to the Altnet companies, to those made against Ms Hemming and Mr Morle in relation to the Sharman companies. 45 Paragraphs 129 and 130 of the S of C contain allegations of accessorial liability (both authorisation and common design) each way, as between each Sharman party and each Altnet party. 46 Paragraphs 131 to 138 of the S of C contain allegations relevant to relief, including claims of flagrancy, knowledge and reckless disregard of copyright. These allegations were apparently intended to enliven s 115(4) of the Act. 47 Paragraphs 139 to 144 of the S of C claim that each of the Sharman companies made representations that were false and that constituted misleading or deceptive conduct, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the TP Act’) and s 42 of the Fair Trading Act 1987 (NSW) (‘the FT Act’). Ms Hemming, Mr Morle and Mr Bermeister are said to have aided and abetted, or been knowingly concerned, in the contraventions. 48 The particular false representations claimed by the applicants against each of the Sharman companies are: ‘(a) that it is not possible for them [the Sharman companies] to exercise control over the nature, quality or content of files that can be made available for download or downloaded by users via the Kazaa Software; (c) that a significant or substantial portion of the revenue generated via the Kazaa Software comes from payment for distribution of rights managed content; 49 The applicants also pleaded claims of unconscionable conduct (paras 145 to 148 of the S of C) and conspiracy (paras 151 to 158 of the S of C). 50 The applicants’ Second Further Amended Application, filed on 15 October 2004, sets out the relief claimed by them at the trial. The applicants claim declarations of infringement of copyright by each of the respondents; a permanent injunction against each respondent in relation to each sound recording in each particular applicant’s catalogue, including each of the 98 Defined Recordings; damages (including damages pursuant to s 115(4) of the Act and for conversion pursuant to s 116(1)) or , at the option of the applicants, an account of profits; and delivery up of infringing copies and devices. The permanent injunction is proposed to be one restraining the particular respondent, personally or by servants or agents from:
Declarations, injunctions and damages are also sought in relation to the alleged false representations, misleading conduct, unconscionable conduct and conspiracy. 51 In view of the direction for separate trial made on 23 March 2004 (para 15 above), the parties have not tendered evidence, or made submissions, concerning the quantum of pecuniary relief. However, they (rightly) devoted attention at trial, and in their submissions, to the question whether the Court ought to grant declaratory and/or injunctive relief and, if so, in what form. (ii) The Sharman respondents 52 In their Closing Submissions, counsel for the Sharman respondents expressed their clients’ position in this way: The principal issue in the proceeding is whether by distributing the bundle of software known as [KMD], the Sharman Respondents "authorise" infringements of copyright which may take place if users of the KMD make available in Australia infringing sound recordings (by placing them in their My Shared Folder and permitting them to be shared) or download in Australia digital files of such recordings using that software. (a) the KMD includes a Graphical User Interface (GUI) which permits access to the peer-to-peer (or P2P) network known as FastTrack. By doing so it enables users with the software to search for and download files in a digital format from other users of FastTrack; (b) the KMD is capable of being used, and is used, to make available and download files which do not involve any infringement of the Applicants' or any one else's copyright; (c) the software is content neutral and the Sharman Respondents do not and are unable to control either the files (whether video, music, text or otherwise) which users might make available by placing them in their My Shared Folder or the content which they search for and choose to download using the software; It is the Sharman Respondents' case that whilst, by distributing the KMD, they confer on users of the software the ability to make available for download by other users any files in digital format, they do not authorise any infringing acts in circumstances where it is conceded that the KMD software is capable of being used to communicate or download non-infringing material and the evidence establishes that they have no control over the user's use of the distributed software. 53 After noting the principal copyright claims made against their clients by the applicants, counsel said their clients’ position was: ‘(a) they have not communicated any infringing sound recordings to the public by reason of the fact that users of the KMD have either made those recordings available online or electronically transmitted them; (iii) Mr Morle 54 In Closing Submissions, counsel for Mr Morle noted that the infringement allegations against him ‘are effectively the same as those of the Sharman companies’. Counsel went on: ‘It is important to keep clearly in mind the claims actually made against Mr Morle because the applicants’ written outline ... habitually makes submissions addressed to the conduct of the respondents’ collectively. This has the consequences that: (a) in particular respects an impression is created that broader claims are asserted against Mr Morle than are pleaded; and (b) all of the conduct of all of the respondents is treated as relevant to a determination of the claims against Mr Morle as though it was all his conduct. All the claims made against Mr Morle rest on the fact that since January 2002 he has been an employee of the third respondent ("LEF") which has provided his services on a contract basis to the second respondent ("Sharman Networks"). Further they are all of an accessorial nature, save for the conspiracy claim. (iv) The Altnet respondents 55 The Closing Submissions of counsel for the Altnet respondents commence with this statement in relation to the applicants’ copyright claims: ‘Irrespective of the Court’s findings on issues of primary infringement by users and authorisation by Sharman, the principal case mounted against the [Altnet] respondents ... fails on the facts because the applicants have not shown that the Altnet Technology enables or facilitates any infringing conduct by users of [KMD]. To the contrary, the evidence points squarely to the conclusion that the Altnet Technology does not enable or facilitate any infringing acts, but instead is wholly directed to the provision of Gold Files. That finding, which is especially conspicuous by the contrary not being put by the applicants in their [Closing Submissions] is determinative of all copyright allegations made against the [Altnet] respondents.’ 56 Counsel put particular submissions concerning the other causes of action, to which I will return. (v) Mr Rose 57 Counsel for Mr Rose adopted the submissions put by other respondents’ counsel. They asserted these points ‘apply with even greater force to Rose given his position in relation to the various corporate entities, and the fact that ... Rose is not a significant figure in the scheme of things’ (original emphasis). III THE KAZAA SYSTEM 58 Before going to the Kazaa system itself, it may be useful for me to set out a slightly-edited general statement about electronic copying of sound recordings that was made at paras 131-136 of the Closing Submissions of counsel for the applicants. I believe this statement accords with the evidence and is uncontroversial. ‘By the use of a computer installed with appropriate copying software, it is possible to create a high-quality "digital copy" of a sound recording embedded in a CD. This process is often referred to as "ripping" a CD. Such a process results in the production of a digital file or computer file. The digital file can be "played" on the computer which created the digital file using software which recognises such a file and uses it to generate audible sound. It can be transferred to a recordable CD and played in other equipment which recognises such files. It can be transferred to equipment which recognises and plays such files. It can be transferred over the Internet to other computers. Using appropriate software, the file can be converted to an audio file, transferred to a CD and played in an ordinary audio CD system. (ii) Description of the Kazaa system 59 The Closing Submissions of the Altnet respondents include a useful overview of the Kazaa system. The acronym ‘KMD’ refers to Kazaa Media Desktop, the free option of the program made available to users. The overview reads: ‘(a) The KMD is a graphical user interface ("GUI") which permits access to two separate networks of computers connected to the internet: FastTrack and Joltid PeerEnabler, via means of which digital files including audio files may be transferred. i. Make available to other users files in their "My Shared Folder"; (c) The Joltid PeerEnabler network is quite different. First, Altnet controls all of the files which may be transferred on channels licensed by it – a user cannot choose to make available his or her own file (whether obtained lawfully or unlawfully) unless Altnet causes it to happen. Secondly, there is a list of files available on the PeerEnabler network resident on every participant’s computer, from which it follows that there is no need to communicate with any supernode in order to respond to a search request. Thirdly, it is no part of the applicants’ case that any of their copyright is infringed by the gold files distributed by Altnet through Joltid PeerEnabler.’ 60 The respondents claim the Kazaa system is an example of ‘peer-to-peer’ or ‘P2P’ technology. In their Closing Submissions, counsel for the applicants explained what that means: ‘The name describes the capability of the software to enable the direct transfer of computer files between "peers" or individual computer users in a "network" in contradistinction to: • a system in which computer files are supplied from a single central computer to multiple individual computer users (eg, client/server), or • a system where even if files are not stored centrally, indexes are so stored...’ 61 Counsel for the applicants did not accept that Kazaa is truly a P2P system. They said that, ‘while the software has P2P characteristics, it is now clear that it has many features in common with client/server and centrally indexed systems.’ 62 At paras 178-201 of their Closing Submissions, counsel for the applicants set out a description of the Kazaa system. Their description was supported by numerous references to the evidence given in this case. Whether or not the Kazaa system is truly P2P, most of this description is uncontroversial. Consequently, although it is lengthy, I will set it out, with only minor excisions, mostly to remove controversial comments. Footnote references have been omitted. Counsel said: ‘The Kazaa system consists of millions of individual Kazaa users each having the Kazaa software installed on their own computers. Each such computer is referred to as a "node". A feature of the Kazaa system is that a small percentage of those computers (but still a large number in total) must function as "supernodes". A supernode computer must be a powerful computer with a fast Internet connection. There is an option available to a Kazaa user within the Kazaa software to ensure that his computer does not function as a supernode. It is to be inferred that ordinary users interfacing with the software at the basic operational level would not explore advanced functionality of that kind. Generally speaking, the software itself identifies potential supernode computers and causes them to function as supernodes. A Kazaa user is not told if his computer is being used as a supernode. However, as appears below, Sharman is able to force a computer to become a supernode. 63 It will be noted, from the overview of the Kazaa system quoted at para 59 above, that it is the FastTrack technology that enables the file-sharing described in this extract. 64 There is evidence that the Kazaa blue files routinely include a high proportion of the most currently popular sound recordings. Anthony Ellis Johnsen, an employee of the Australian Recording Industry Association (‘ARIA’), accessed KMD v2.7 one to three times per week in each of the weeks from 14 June 2004 to 13 September 2004. By reference to the artists’ names and the titles of the recordings, he searched for files of the songs that appeared on ARIA’s latest weekly lists of the top 50 or 100 singles recordings. Where he was able to do so, Mr Johnsen downloaded these files onto the hard drive of his computer and copied them onto DVD. 65 Mr Johnsen exhibited to his affidavit, dated 29 September 2004, documents setting out the results of two searches. On 14 June 2004, he found 34 of the Aria Top 50 singles in Kazaa blue files. On 21 June 2004, he found 85 of the Aria Top 100 singles. He was able to download all but a few of them. 66 Mr Johnsen’s evidence was not challenged. He was not required to attend for cross-examination. It was not suggested his search results were atypical. (iii) A user’s perspective 67 Any person with access to the Internet can become a Kazaa user. A person obtains access to the computer program through the Kazaa website (http:/www.kazaa.com). The website offers a choice of two programs: KMD, which is free to the user but contains advertisements; and Kazaa Plus, which requires payment of a once-only subscription of $US29.95 but is advertisement free. 68 At the commencement of this proceeding, the relevant versions of both these programs were numbered ‘2.6’. At that time, the Kazaa website prominently featured two banners. One was headed ‘Kazaa v2.6’, above the words: ‘Free – Ad Supported - Search for and download files The other banner promoted Kazaa Plus v2.6, with a message ending ‘Get it Now!’. Underneath the two banners were the words: ‘The world’s most downloaded software application! Over 2.4 million downloaded last week.’ 69 The website also contained the following words, in smaller lettering: ‘Kazaa is the World’s Number 1 file sharing software application and it’s available for free! Download it now to access the world of P2P (peer-to-peer). Search for and download music, documents, images, playlists, software, and videos. Play/View/music, image, software and video files. Distribute your original content with Kreate. Read more about Kazaa v2.6. Read The Guide. Learn about peer-to-peer (P2P). How is Kazaa free? Read more ... Sharman Networks Find out about the company that develops Kazaa software.’ The underlined words provided click-on links to other webpages that provided additional information or guides to further action. 70 At the foot of each webpage, there appeared the following words in small print: ‘Copyright: Sharman Networks Ltd does not condone activities and actions that breach the rights of copyright owners. As a Kazaa user you have agreed to abide by the End User License Agreement and it is your responsibility to obey all laws governing copyright in each country.’ I will refer later to the terms of the End User Licence Agreement (‘EULA’). 71 The procedure, at that time, was that a person who wished to install either of the two programs had to enter a username and country and click ‘Kazaa v2.6’. The user was then taken to a page that required a choice between ‘Kazaa Plus v2.6’ and ‘Kazaa v2.6’. Under a heading ‘What You Install With Kazaa v2.6 (free version)’, the following material appeared: ‘[diamond] Kazaa Media Desktop (KMD) – this is the main application that lets you search for, download and share files. (b) KMD v2.6 72 A person who selected the free program, KMD, was taken to a site, remote from the Kazaa website, called ‘Kazaa Media Desktop 2.6 popular’. Amongst the items of information on this webpage, at the date of commencement of the proceeding, were the following: ‘Downloads: 317,552,315 73 The webpage also contained a ‘Publisher’s Description’ that read: ‘Kazaa Media Desktop is the world’s No. 1, free, peer-to-peer, file-sharing software application. Features include improved privacy protection; the ability to search for and download music, playlists, software, video files, documents, and images; the ability to set up and manage music and video playlists; and the ability to perform multiple simultaneous searches, including up to five Search Mores, which deliver up to 1,000 results per search term.’ 74 The KMD Installer comprised a six-step process. Each of the different steps were displayed on the user’s screen on a progressive basis. The first step contained this note: ‘Welcome • Search for and download audio/music, documents, images, playlists, software, and video files. 75 Step two required the user to click a box reading: ‘I agree to the Kazaa Media Desktop End User License Agreement and Altnet Peer Points Manager Package End User License Agreements.’ Once again, the underlined material linked to other webpages. 76 Step four of the installer offered some options. There was a ‘family filter, designed to block key adult and offensive terms’. The filter operated unless it was specifically discarded by the user. There was also an option to permit other users directly to browse the user’s ‘My Shared Folder’ file, as distinct from searching the user’s ‘My Shared Folder’ for an identified file. Permission depended upon the user making a deliberate choice to that effect. 77 Step five of the installer stated that installation of KMD enabled peer-to-peer (‘P2P’) networking and access to the Altnet system. Step six explained that P2P was ‘connecting directly to other users via the Internet in order to communicate or share files’. The window contained this exhortation: ‘Sharing. Responsible sharing is the cornerstone of a useful peer-to-peer experience. In order for everyone to benefit from the collaboration, users need to share appropriate files. Read more.’ 78 A ‘P2P Networking’ box stated: ‘P2P Networking is a free component from Joltid Ltd and is part of Joltid(tm) PeerEnabler(tm) 79 A website page headed ‘Got a Favorite Tune?’ explained the difference between gold and blue files. It said this: ‘About Premium and Other Content 80 A webpage explained P2P: ‘Kazaa uses peer-to-peer technology. This means that individual users connect to each other directly, without need for a central point of management. • Search and download content that is shared by premium content providers (files marked with Gold Icons) or by other Kazaa users. The P2P searches occur through users with fast connections, called Supernodes. Once located, the file is sourced for downloading directly from the user who has it.’ 81 The Kazaa v2.6 website provided a link to a site headed ‘Join the Revolution’. It opened with these words: ‘About the Revolution 82 The site went on to extol the advantages of peer-to-peer distribution of data and to argue it was good for ‘consumers, artists, producers and developers, labels production companies, libraries and owners and peer-to-peer companies.’ 83 Under the heading ‘Who’s Trying to Stop It and Why?’, these statements appeared: ‘Kazaa and other peer-to-peer applications have been under attack from the major Record and Movie companies and their industry bodies, the Recording Industry Association of America and Motion Picture Association of America. The Record and Movie companies are suing peer-to-peer software developers and the RIAA are suing peer-to-peer users. • These companies own the copyright to material that they sell. Some of them are afraid that peer-to-peer means everything is always available for free. Record and Movie Companies • These companies make money out of developing copyrighted material, distributing it, promoting it and selling it. 84 The site went on to describe a method of licensed file-sharing, and concluded with exhortations to viewers to lobby politicians and the media for change. (c) Kazaa Plus v2.6 85 It is not necessary to describe the installation steps for Kazaa Plus v2.6. The procedure was similar to that for KMD v2.6, but with use of a different licence agreement. (d) KMD v3.0 and Kazaa Plus v3.0 86 Kazaa v3.0 and Kazaa Plus v3.0 were made available to users about one week before trial of this proceeding commenced. A website page contained this suggestion: ‘Search for and download music, movies, software, images and documents’. The webpage stated: ‘Having Kazaa is 100% Legal’. On another website page, under the heading ‘Responsible sharing with Kazaa’, the following material appeared: ‘You will have access to millions of peers around the world. You can publish your self-authored content. Just place public domain content and/or your photos, book, articles, art work or independent films in your "My Shared Folder" and users worldwide will be able to find and download them. 87 It is not necessary for me to describe the detail of the Kazaa v3.0 website material. It was similar to that on the Kazaa v2.6 website. The Kazaa v3.0 website contained a form of licence agreement governing sharing of works over which the user might hold copyright. (e) The End User Licence Agreement 88 There is little difference between the KMD v2.6 and KMD v3.0 EULAs. Where there is a difference in the quoted material, I will show the difference in parenthesis. 89 The purported effect of both forms of agreement was that acceptance would create a licence agreement between Sharman and the user ‘for the use of the Kazaa Media Desktop [Software], including any and all versions or variations’ of that software and ‘any future fixes, updates and upgrades provided to the user’. Clause 1.1 of the agreement contained a grant to the user by Sharman of ‘a limited, non-exclusive, personal, non-sublicensable, non-assignable licence to install and use [the software] on a computer’. Clause 4.4 contained a note about the ‘My Shared Folder’ file: ‘By saving a file in My Shared Folder, you understand that it will be available for any other user of Kazaa [Media Desktop] and compatible programs. These users may find your files and subsequently download them from you. By doing so your Internet connection is being used.’ The subclause went on to explain how to disable sharing. 90 Clause 4.5 referred to the possibility of the user’s computer serving as a supernode. The subclause explained: ‘Your copy of the Software may serve as a SuperNode. The selection process is automated. When your computer is a SuperNode other peers will upload an index of files they are sharing to your computer and they will send search queries to your computer. Your computer will reply to these requests and also forward the request to other SuperNodes.’ The subclause instructed the user what to do if he or she did not wish to serve as a supernode. 91 Clause 6 dealt with copyright infringement. It stated: ‘6.1 Sharman respects copyright and other laws. Sharman requires all Kazaa [Media Desktop] users to comply with copyright and other laws. Sharman does not by the supply of the Software authorise you to infringe the copyright or other rights of third parties. (f) The ‘Sharman team’ 92 Both the Kazaa v2.6 website and the Kazaa v3.0 website contained information about Sharman. Under the heading ‘Who are we anyway?’, both websites stated: ‘Kazaa.com, Kazaa Media Desktop and Kazaa Plus are products of Sharman Networks. Sharman Networks is a proactive, virtual, global technology and publishing company, focused on delivering peer-to-peer software.’ 93 Under a heading ‘Meet the Sharman Networks Team’, there were photographs of Ms Hemming (described as ‘CEO’) and Mr Morle (described as ‘Director of Technology’). There was also a photograph of Alan Morris, who was described as ‘Vice President’. (iv) Sharman and the Kazaa system 94 Sharman was incorporated, in the Republic of Vanuatu, on 15 January 2002. Sharman Holdings was incorporated, also in Vanuatu, on 6 June 2003. There is no evidence before the Court as to why it was decided to incorporate those companies in that country. The evidence does not reveal any other connection between Vanuatu and any of the present parties or their activities. Perhaps the reason was that s 125 of the Vanuatuan International Companies Act makes it an offence, punishable by a fine of up to $100,000 or imprisonment for up to five years, for anybody to reveal, or to induce a person to reveal, information about the controllers of a Vanuatuan international company. 95 Notwithstanding this, answers to interrogatories made by Ms Hemming, and tendered by the applicants, reveal that both the Sharman companies are owned by Vanuatu International Trust Company Limited (‘VITCO’), that the sole director of each of them is Worldwide Nominees Limited and that they are controlled by Geoff Gee (a director of Worldwide Nominees Limited) and Lindsay Barrett, a director of VITCO. Mr Gee and Mr Barrett are apparently Vanuatu accountants. They are probably acting on behalf of others. In the result, and despite the best endeavours of the applicants’ legal representatives to penetrate the veil of secrecy, the identity of the ultimate owners of the Sharman companies remains a mystery. Counsel for the applicants suggested that the owner, or one of the owners, was Mr Bermeister. There is no evidence supportive of that conclusion. 96 It was common ground at the trial that Mr Bermeister introduced Ms Hemming to Kazaa BV. The detail of the introduction was recounted in an Answer to Interrogatories made by Ms Hemming, which, of course, was only admissible against her. 97 I will set out para 4 of the Notice to Answer Interrogatories served upon Ms Hemming and her response. In doing so, I mention that Ms Hemming had stated, in answer to interrogatory 3(i), that she had said in an interview ‘that Kevin Bermeister introduced me to the opportunity’ of acquiring the business of Kazaa BV. Paragraph 4 reads: ‘4. If the answer to interrogatory 3(i) is yes: (i) state whether Mr Bermeister put the opportunity to Ms Hemming orally or in writing; (ii) if Mr Bermeister put the opportunity to Ms Hemming orally, state: A. the substance of any conversations; If Mr Bermeister put the opportunity to Ms Hemming in writing; A. identify all Documents containing the said writing;
(ii) A. Kevin talked about the fact that Kazaa BV was looking to sell its assets. He explained the nature of the software which Kazaa BV owned and which Kazaa BV was looking to sell. He explained the manner in which the software and Peer to Peer worked. He suggested that my background in publishing consumer products and my experience and history of building new businesses meant that this was potentially a good opportunity for me. He explained that Altnet had an existing relationship in place with Kazaa BV which provided for the Altnet technology to be bundled alongside Kazaa and that Altnet would provide a marketing and secure distribution mechanism for copyright owners using DRM solutions. He offered to introduce me if I was interested in buying any assets. In a subsequent conversation I asked him to introduce me to Kazaa BV. There were no other persons present during the conversations. (ii)(C) Sydney Kazaa BV was a Netherlands corporation, previously known as Consumer Empowerment BV. 98 Ms Hemming went on to say ‘there were no investors’. That statement suggests Ms Hemming is herself the owner of the Kazaa business (perhaps in conjunction with others). Presumably somebody put money into Sharman to enable it to purchase the business from Kazaa BV and to commence its own operations. 99 Whether or not Ms Hemming is an owner, she appears not to be a director of either Sharman or Sharman Holdings. Neither does she appear to be an employee of either company. As mentioned above, she is the sole director of, and shareholder in, LEF. This company was registered on 21 February 2002, about one month after the incorporation of Sharman, presumably with the intention that it would be the vehicle by which Ms Hemming made her services available to Sharman. Apparently that happened. Ms Hemming’s services seem to be made available (apparently to Sharman, not Sharman Holdings) pursuant to an agreement between Sharman and LEF. (b) The Sharman-Kazaa agreements 100 Shortly after its incorporation, Sharman entered into two agreements with Kazaa BV. One agreement was for the purchase by Sharman of a business conducted by Kazaa BV. The business was described as being ‘the Vendor’s business and trade of the provision of peer to peer Internet enabled software (which includes advertisement space which can be used to display advertising to users) directly via the Website to end users world-wide to enable searching for and downloading files from other users of the software’. The Sharman respondents put in evidence a technical document which suggests the earliest ‘Kazaa.exe’ file is dated 16 October 2000. Neither the origin nor accuracy of this document was established. 101 By cl 2.1 of the other agreement, Kazaa BV granted to Sharman a non-terminable (except under cl 6 of the agreement) world-wide licence of ‘the Technology and Improvements’. The word ‘Technology’ was defined in cl 1.1 to refer to the ‘Fasttrack’ peer-to-peer stack software, the KMD software and other software programs. Clause 6 provided that the licence should be for a minimum period of one year, and to continue thereafter but with each party having certain termination rights. (c) The Sharman - Joltid agreements 102 At about the same time, Sharman made an agreement with a Virgin Islands company, then known as Blastoise Limited and later as Joltid Limited (‘Joltid’). By cl 1 of this agreement, Joltid granted to Sharman ‘a non-exclusive, perpetual, irrevocable, transferable, worldwide license to use, and sublicense to SHARMAN’s end users’, Joltid’s peer-to-peer technology. 103 A later agreement between Joltid and Sharman, apparently made in October or November 2002, but backdated to commence on 18 January 2002, superseded the earlier software licence agreement. In this agreement (‘the Joltid Licence Agreement’), Joltid was described as being ‘the proprietor or licensee of certain peer to peer file sharing technology’, defined to include software currently known as ‘Kazaa Lib’ or ‘FastTrack P2P Stack’, including updates thereof. Clause 3.1 of this agreement co |