Hear see and speak no infringement The danger of indifference

What you need to know

• If you are on notice of or suspect infringement of a third party's intellectual property rights, it is not sufficient to rely on representations of non-infringement made by a trusted colleague.  Further investigations should be conducted. 
• A party which suspects that its copyright is being infringed should put all other parties involved on notice as soon as there is a proper basis to do so.  This notice may increase the prospects of success in infringement proceedings.

What you need to do

• Where there are concerns, suspicion or knowledge of potentially infringing conduct, professional advice should be sought without delay.
• If you receive a letter identifying potential intellectual property infringement, act promptly to investigate thoroughly and ensure appropriate actions are taken to mitigate the risk of a finding of authorising infringement. 
• If you suspect a third party has or is infringing your intellectual property rights collect all the available evidence and obtain legal advice regarding the appropriate time to put the third party on notice of the suspected infringement.

First Instance Decision

Mr Semmens was a software developer who created a software program called "DreamDesk".  DreamDesk was subsequently bought by (or came to be owned by) Campaigntrack.  

Mr Semmens was then engaged by a real estate agency, Biggin & Scott (B&S), to develop a software system with similar functionality to DreamDesk.  B&S, through its directors, had allegedly made clear to Mr Semmens that he was not permitted to, and should not, copy any DreamDesk source code, or copyright materials in creating the new system (referred to as Toolbox).  A new company named Real Estate Tool Box Pty Ltd was set up to commercialise the new Toolbox software.

Campaigntrack commenced proceedings against Mr Semmens, Real Estate Tool Box, B&S and two directors of Real Estate Tool Box and B&S (Ms Bartels and Mr Stoner) for infringement of copyright in the DreamDesk software and authorising infringement of copyright.  

At first instance, Justice Thawley found that Mr Semmens had infringed Campaigntrack's copyright in DreamDesk and had also authorised infringing acts by both developers and users.  However, the remaining respondents (the B&S Respondents) were found not to have infringed copyright directly and not to have authorised any infringement.  

Justice Thawley  concluded that:

• Mr Stoner trusted Mr Semmens not to infringe the rights of Campaigntrack, and it was Mr Stoner's understanding that Mr Semmens could build a new system that did not infringe Campaigntrack's copyright;
• Mr Stoner and Ms Bartels left the development to Mr Semmens;
• The instructions given to Mr Semmens by B&S were to build a computer system that did not infringe intellectual property rights, but was functionally equivalent to DreamDesk; and
• It was reasonable for the B&S Respondents to rely on Mr Semmens' representations that he had not infringed Campaigntrack's copyright and it was not necessary to conduct any audit or verification that the system ultimately developed was non-infringing.

The appeal

Campaigntrack appealed, arguing that Justice Thawley was wrong to conclude that the B&S Respondents had not authorised the copyright infringement.

The Full Federal Court was split, with Justices Greenwood and McElwaine in agreement, and Justice Cheeseman dissenting. 

Justices Greenwood and McElwaine found that by adopting a position of indifference, the B&S Respondents authorised infringements of the copyright in the DreamDesk works by the users of Toolbox.  Justice Cheeseman disagreed with this finding concluding that no error was made by the primary judge, Justice Thawley and that it was open to him to conclude that there was no authorisation by indifference.

The majority agreed with Justice Thawley that, prior to 29 September 2016, the B&S Respondents had not authorised Mr Semmens' infringing conduct.  However, the majority found that there was a critical turning point on 29 September when Campaigntrack's lawyers sent a letter to the B&S Respondents advising them that there appeared to have been improper access and duplication of code owned by Campaigntrack.

In these circumstances, the majority concluded that the B&S Respondents were on notice of the potential infringing conduct.  It was not sufficient to continue to trust Mr Semmens' representations in this context.  They could have: 

• investigated the contentions put by Campaigntrack;
• stopped Toolbox going live until Campaigntrack's concerns had properly been addressed;
• enabled access to the sources, files and repositories for forensic examination; and
• responded to the legal correspondence by providing assistance to Campaigntrack rather than maintaining unreasonable positions. 

However, the B&S Respondents did not take any of these steps.  

The majority stated that although knowledge of the authorised acts is a relevant requirement for authorisation, "inactivity, indifference, or wilful blindness may be of such character and degree as to infer knowledge and conclude authorisation".

Implications

This decision makes clear that, once on notice of potentially infringing conduct, it is imperative to act with diligence so as to avoid authorising that conduct.  

When faced with third party concerns, it is not sufficient to rely on warranties or representations as to non-infringement.  Investigations should be undertaken and legal advice should be sought expeditiously.

While authorisation typically requires knowledge of the conduct that amounts to infringement (that is, it is not necessary to be aware that the conduct is infringing, it is enough if the conduct is known), there may be a finding of indifference or wilful blindness if, once put on notice, no action is taken to test the veracity of the third party claims. 

For intellectual property rights owners, this decision highlights the importance of putting potentially infringing parties on early notice of concerns about their actions, provided that there is a sufficient basis to do so.  By adopting this approach, it may be possible to obtain a finding of authorisation of infringement against additional respondents that were otherwise unaware of the infringing conduct.  

Authors: Nina Fitzgerald, Partner and Ben Parry, Lawyer