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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

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242

CORRIGENDUM

UNIVERSAL MUSIC AUSTRALIA PTY LTD, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED, UMG RECORDS, INC., SHADY RECORDS, INC./INTERSCOPE RECORDS, AFTERMATH RECORDS, REAL HORRORSHOW PTY LTD, THE LIVING END PTY LTD, VIRGIN RECORDS AMERICA, INC, EMI RECORDS LTD, CAPITOL RECORDS, INC, ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.), CIRCA RECORDS LTD, CHRYSALIS RECORDS LTD, SONY MUSIC (AUSTRALIA) PTY LTD, SONY MUSIC ENTERTAINMENT (CANADA) INC., SONY BMG MUSIC ENTERTAINMENT, MAYER MUSIC LLC, TIMOTHY JAMES FREEDMAN, WARNER BROS. RECORDS, INC., ATLANTIC RECORDING CORPORATION, WARNER MUSIC UK LTD, J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS, ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION), BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT), BMG UK & IRELAND LTD, LAFACE RECORDS v SHARMAN LICENSE HOLDINGS LTD, SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, PHILIP MORLE, ALTNET INC, BRILLIANT DIGITAL ENTERTAINMENT INC, BRILLIANT DIGITAL ENTERTAINMENT PTY LTD, KEVIN GLEN BERMEISTER, ANTHONY ROSE

NSD 110 of 2004


WILCOX J
5 SEPTEMBER 2005 (CORRIGENDUM 22 SEPTEMBER 2005)
SYDNEY

CORRIGENDUM

1. At page 143, paragraph 449 in the Reasons for Judgment of the Honourable Justice Wilcox delivered on 5 September 2005, delete the last sentence which reads:

‘There is no material that rebuts, and I see reason to reject, this evidence.’

And replace with:
‘There is no material that rebuts, and I see no reason to reject, this evidence.’

Associate
22 September 2005

FEDERAL COURT OF AUSTRALIA

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd

[2005] FCA 1242

SUMMARY

UNIVERSAL MUSIC AUSTRALIA PTY LTD & ORS v SHARMAN LICENSE HOLDINGS LTD & ORS
NSD 110 OF 2004










WILCOX J
SYDNEY
5 SEPTEMBER 2005

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.

This summary is intended to assist in understanding the principal conclusions reached by the Court, but it is necessarily incomplete. The published reasons for judgment and this summary will be available on the internet www.fedcourt.gov.au.

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;
(ii) there are technical measures (keyword filtering and gold file flood filtering) that would enable the respondents to curtail – although probably not totally to prevent – the sharing of copyright files. The respondents have not taken any action to implement those measures. It would be against their financial interest to do so. It is in the respondents’ financial interest to maximise, not to minimise, music file-sharing. Advertising provides the bulk of the revenue earned by the Kazaa system, which revenue is shared between Sharman Networks and Altnet.
(iii) far from taking steps that are likely effectively to curtail copyright file-sharing, Sharman Networks and Altnet have included on the Kazaa website exhortations to users to increase their file-sharing and a webpage headed ‘Join the Revolution’ that criticises record companies for opposing peer-to-peer file-sharing. They also sponsored a ‘Kazaa Revolution’ campaign attacking the record companies. The revolutionary material does not expressly advocate the sharing of copyright files. However, to a young audience, and it seems that Kazaa users are predominantly young people, the effect of this webpage would be to encourage visitors to think it ‘cool’ to defy the record companies by ignoring copyright constraints.

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:
(a) making a copy of the sound recording;

(b) communicating the recording to the public;

in each case, without the licence of the relevant applicant; and
(ii) entering into a common design, with each of the other infringing respondents, to carry out, procure or direct the said authorisation;

The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister.

3. It be declared that each of the infringing respondents threatens to infringe the copyright of the applicants in other sound recordings by:

(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
(ii) entering into a common design with each of the other infringing respondents, to carry out, procure or direct the said authorisation.

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
(b) all future versions of the Kazaa file-sharing system contain the said non-optional key-word filter technology; and
(c) maximum pressure is placed on existing users, by the use of dialogue boxes on the Kazaa website, to upgrade their existing Kazaa software program to a new version of the program containing the said non-optional key-word filter technology; or

(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;
(b) generally, in respect of any Court approval required for the purposes of order 5, or any order required for purposes related to order 6 or order 7.

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
Sydney
5 September 2005

FEDERAL COURT OF AUSTRALIA

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242

COPYRIGHT – Authorisation – Internet file-sharing – Suit by owners of copyright in sound recordings against parties involved with Kazaa peer-to-peer file sharing system – Whether respondents authorised infringements of copyright by Kazaa users – Issues as to respondents’ knowledge of, and intentions concerning, users’ activities – Extent of respondents’ control of those activities – Whether Kazaa system includes a central server – Termination, filtering and other technological controls – Non-technological controls – Whether the respondents merely provided the facilities used by Kazaa users – Application of s 101 of Copyright Act to each respondent.


TRADE PRACTICES – Alleged misleading and deceptive conduct.

CONSPIRACY – Alleged combination – Whether sole or dominant purpose to injure applicants – Whether agreement to use unlawful means to injure applicants.

Copyright Act 1968 (Cth) ss 10, 13(2), 22(6), 85, 101, 112E
Trade Practices Act 1974 (Cth) ss 52, 52A



WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274 considered
University of New South Wales v Moorhouse [1975] HCA 26; (1975) 133 CLR 1 considered and applied
CBS Songs Ltd v Amstrad Consumer Electronics PLC [1988] 1 AC 1013 distinguished
Australian Tape Manufacturers Association Ltd v Commonwealth of Australia [1993] HCA 10; (1993) 176 CLR 480 considered
Australasian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 61 IPR 575 followed
Australasian Performing Right Association Ltd v Jain (1990) 26 FCR 53 applied
King v Milpurrurra (1996) 66 FCR 474 considered
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 followed
Root Quality Pty Ltd v Root Control Technologies Pty Ltd 177 ALR 231 applied



UNIVERSAL MUSIC AUSTRALIA PTY LTD, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED, UMG RECORDS, INC., SHADY RECORDS, INC./INTERSCOPE RECORDS, AFTERMATH RECORDS, REAL HORRORSHOW PTY LTD, THE LIVING END PTY LTD, VIRGIN RECORDS AMERICA, INC, EMI RECORDS LTD, CAPITOL RECORDS, INC, ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.), CIRCA RECORDS LTD, CHRYSALIS RECORDS LTD, SONY MUSIC (AUSTRALIA) PTY LTD, SONY MUSIC ENTERTAINMENT (CANADA) INC., SONY BMG MUSIC ENTERTAINMENT, MAYER MUSIC LLC, TIMOTHY JAMES FREEDMAN, WARNER BROS. RECORDS, INC., ATLANTIC RECORDING CORPORATION, WARNER MUSIC UK LTD, J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS, ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION), BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT), BMG UK & IRELAND LTD, LAFACE RECORDS v SHARMAN LICENSE HOLDINGS LTD, SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, PHILIP MORLE, ALTNET INC, BRILLIANT DIGITAL ENTERTAINMENT INC, BRILLIANT DIGITAL ENTERTAINMENT PTY LTD, KEVIN GLEN BERMEISTER, ANTHONY ROSE

NSD 110 of 2004





























WILCOX J
5 SEPTEMBER 2005
SYDNEY

THE COURT ORDERS THAT:

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;
in each case, without the licence of the relevant applicant; and
(ii) entering into a common design, with each of the other infringing respondents, to carry out, procure or direct the said authorisation;

The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister.

3. It be declared that each of the infringing respondents threatens to infringe the copyright of the applicants in other sound recordings by:

(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
(ii) entering into a common design with each of the other infringing respondents, to carry out, procure or direct the said authorisation.

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
(d) all future versions of the Kazaa file-sharing system contain the said non-optional key word filter technology; and
(e) maximum pressure is placed on existing users, by the use of dialogue boxes on the Kazaa website, to upgrade their existing Kazaa software program to a new version of the program containing the said non-optional key word filter technology; or

(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;
(b) generally, in respect of any Court approval required for the purposes of order 5, or any order required for purposes related to order 6 or order 7.

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.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

SCHEDULE

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
(i) The parties paras 3 to 11
(ii) The proceeding paras 12 to 21
(iii) The trial paras 22 to 30

II THE PARTIES’ POSITIONS
(i) The applicants’ claims paras 31 to 51
(ii) The Sharman respondents paras 52 to 53
(iii) Mr Morle paras 54
(iv) The Altnet respondents paras 55 to 56
(v) Mr Rose paras 57

III THE KAZAA SYSTEM
(i) Electronic sound recordings paras 58
(ii) Description of Kazaa system paras 59 to 66

(iii) A user’s perspective
(a) The Kazaa website paras 67 to 71
(b) KMD v2.6 paras 72 to 84
(c) Kazaa Plus v2.6 para 85
(d) KMD of v3.0 and Kazaa Plus v3.0 paras 86 to 87
(e) The End User Licence Agreement paras 88 to 91
(f) The ‘Sharman team’ paras 92 to 93
(iv) Sharman and the Kazaa System
(a) Control of Sharman paras 94 to 99
(b) The Sharman-Kazaa agreements paras 100 to 101
(c) The Sharman-Joltid agreements paras 102 to 106
(d) The Sharman-Altnet relationship paras 107 to 128

(v) The technical experts’ agreed propositions para 129

(vi) The relationship between gold and blue
files paras 130 to 135

IV MAJOR FACTUAL ISSUES IN THE CASE

(i) Knowledge and intention

(a) Documentary evidence paras 136 to 162

(b) Mr Morle’s evidence paras 163 to 180

(c) Conclusions about knowledge
and intention paras 181 to 194

(ii) Technological controls

(a) Direct control through a

central server paras 195 to 235
(b) The range of indirect controls paras 236
(c) Monitoring of Kazaa users’ files paras 237 to 244
(d) User identification system paras 245 to 249
(e) Termination paras 250 to 253
(f) Keyword filtering paras 254 to 294
(g) ‘Persuaded’ upgrades paras 295 to 309
(h) Gold file flood filter paras 310 to 330

(iii) Non-technological controls
(a) Warnings paras 331 to 340
(b) Enforcement by legal action paras 341 to 351

V THE AUTHORISATION ISSUE
(i) The statutory provisions paras 352 to 362
(ii) Submissions of counsel paras 363 to 394
(iii) The application of s 112E paras 395 to 399
(iv) The application of s 101 to Sharman
and Sharman Holdings paras 400 to 420
(v) The application of s 101 to LEF and
Ms Hemming paras 421 to 447

(vii) The application of s 101 to Mr Morle paras 448 to 451
(viii) The application of s 101 to the Altnet
companies paras 452 to 473

(viii) The application of s 101 to Mr Bermeister paras 474 to 479
(ix) The application of s 101 to Mr Rose paras 480 to 488
(x) Conclusions on authorisation paras 489 to 490

VI THE TRADE PRACTICES CLAIMS

(i) Misleading conduct paras 491 to 502
(ii) Unconscionable conduct paras 503 to 509

VII THE CONSPIRACY CLAIMS paras 510 to 516
VIII DISPOSITION paras 517 to 526
I THE LITIGATION
(i) The parties

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 7^th to 30^th 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 7^th to 30^th 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
(i) The applicants’ claims

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;
(c) supplied the Kazaa Software to members of the public in Australia;
(d) developed and maintained and maintained [sic] the Kazaa Software;
(e) developed, maintained and made available technical features, resources and information required for the effective operation of the Kazaa Software, including the provision of indexes of supernodes;
(f) established, operated and maintained infrastructure used in the operation of the Kazaa Software or by users of the Kazaa Software, including multiple websites resolving to the URL www.kazaa.com;
(g) established, operated and maintained websites and services relating to the Kazaa Software located at the URLs www.kazaa.com, www.kazaaplus.com and www.sharmannetworks.com.’

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;
(c) downloaded from other users of the Kazaa Software; and
(d) thereby made copies of,

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;
(ii) infringement by authorisation; that is, authorising Kazaa users to make available online, or electronically transmit, to the public MP3 or other digital music files constituting copies of the whole or a substantial part of the relevant sound recordings;
(iii) infringement by authorisation of the acts of each other Sharman company;
(iv) infringement by exhibition or distribution; that is, each of the file-shared sound recordings is an infringing copy of the relevant applicant’s sound recording that is distributed by one or more of the Sharman companies; common design between those companies being alleged; and

(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;

(b) that it is not possible to exercise central 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;

(d) that all files containing rights management information appear as gold icons in version 2.6 of the Kazaa Software;

(e) that the performance of a personal computer will not be, or is unlikely to be, noticeably affected by its functioning as a supernode for the purposes of the Kazaa Software;

(f) that functioning as a supernode for the purposes of the Kazaa Software will not, or is unlikely to, increase the cost of operating a personal computer;

(g) that a user of the Kazaa Software may avoid liability by altering the file data or metadata relating to infringing files;

(h) that a significant or substantial portion of files made available for download or downloaded by users via the Kazaa Software are non-infringing files.’

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:

(a)	making, or authorising the making of, a copy of any of the Defined Recordings;
(b)	communicating or authorising the communication of the whole or a substantial part of any of the said sound recordings to the public; or
(c)	distributing articles embodying the said sound recordings.

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.

The Sharman Respondents' position in relation to that issue, broadly stated, is as follows –

(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;

(d) in the context of "authorisation" there is a critical distinction between giving a person the power to do an infringing act and purporting to grant a person the right to do that act.

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.

It is not to the point that the Sharman Respondents distribute the KMD in circumstances where they are aware that it is being used to engage in copyright infringing activity. ... Nor is it to the point that the Sharman Respondents receive revenue as a result of the distribution of the KMD.’

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;

(b) an MP3 or other digital music file is not an "article" to which s.103 applies and they have not, by distributing the KMD, distributed "articles" within the meaning of s.103 of the Act;

(c) they have not authorised any infringements of copyright by users of the KMD by reason of those users doing in Australia acts comprised in the copyright (by either making recordings available online or electronically transmitting them); and

(d) they are not joint tortfeasors and have not conspired to injure the Appellants' or to do so by "unlawful means".

(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.

There is no principle (an inverse of the employer’s vicarious liability for an employee’s wrongs) which operates to make an employee responsible for the wrongs of his or her employer. Yet the unspoken assumption in the applicants’ outline is that Mr Morle is to be treated as thus liable for any breaches of the Sharman companies, and by reason of their relationship with the Altnet companies, any breaches of the latter as well. No attention is given to specifically identifying facts from which it might be found that Mr Morle was an accessory of the companies in any instance.’

(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
(i) Electronic sound recordings

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.

Different copying software produces computer files in different "formats". For example, a readil