Nintendo Company Ltd v. Centronics Systems Pty Ltd And Ors
(1994) 181 CLR 134(1994) 121 ALR 577
(1994) 68 ALJR 537
(1994) 28 IPR 431
(1994) AIPC 91-077
[1994] HCA 27
(Judgment by: Mason CJ; Brennan, Deane, Toohey, Gaudron and McHugh JJ)
Nintendo Company Ltd
v Centronics Systems Pty Ltd And Ors
Judges:
Mason CJ; Brennan, Deane, Toohey, Gaudron and McHugh JJDawson J
Judgment date: 16 June 1994
Judgment by:
Mason CJ; Brennan, Deane, Toohey, Gaudron and McHugh JJ
The appellant, Nintendo Company Ltd ('Nintendo'), instituted proceedings in the Federal Court of Australia against the respondents, Centronics Systems Pty Ltd ('Centronics') and the three directors of that company, claiming infringement of a variety of intellectual property rights. The parties resolved claims of trade mark and copyright infringement leaving unresolved the claim giving rise to the present appeal, namely, a claim by Nintendo for injunctive relief and damages for alleged infringement of its rights under the Circuit Layouts Act 1989 (Cth) ('the Act') in an 'original circuit layout' ('the Nintendo layout'). The Nintendo layout is a plan showing the location of the components of a complex electronic circuit which, when incorporated in a Read Only Memory chip, is used in video game machines manufactured and marketed by Nintendo.
The learned trial judge (Sweeney J.) upheld Nintendo's claim of infringement of its rights in the Nintendo layout. His Honour granted injunctive and ancillary relief, leaving the question of damages for subsequent determination. Centronics and the three directors appealed to the Full Court of the Federal Court. The Full Court (Northrop, Beaumont and Burchett JJ.) upheld the appeal, set aside the relevant orders of the trial judge and ordered that the proceedings in the Federal Court be dismissed in so far as they related to the circuit layout claim. [1] The present appeal is by Nintendo from those orders of the Full Court. For their part, Centronics and the three directors have, by notice of contention, raised additional grounds for affirming the decision of the Full Court. It is conceded by the three directors that the acts of Centronics upon which Nintendo relies were authorised by them and no distinction has been drawn between the actual or constructive knowledge of the various respondents. That being so, the appeal to this Court has been argued on the basis that it is common ground that the three directors are themselves liable for infringement if those acts of Centronics constituted infringement of Nintendo's rights under the Act. [2] In these circumstances, it is unnecessary to deal with the position or liability of the three directors separately from that of Centronics.
While the Act received the Royal Assent on 22 May 1989, its substantive provisions did not, however, commence until 1 October 1990. It was enacted in anticipation of the finalisation of the terms of the Treaty on Intellectual Property in Respect of Integrated Circuits [3] ('the International Treaty') and on the basis that it as 'consistent with the major elements' [4] of the then published draft of that Treaty.
It introduced a scheme, substantially based on overseas models, [5] for the recognition and protection of intellectual property rights, described as 'EL rights', [6] in certain 'circuit layouts'. That scheme replaced the protection, apparently seen as 'inappropriate and uncertain', [7] which was previously available in respect of circuit layouts under the general provisions of the Copyright Act 1968 (Cth) and the Designs Act 1906 (Cth). [8] For the purposes of the scheme introduced by the Act, a 'circuit layout' was defined at the time of the institution of these proceedings [9] as meaning 'a plan comprising a two-dimensional representation, fixed in any material form, of the three-dimensional location of the active and passive elements and interconnections making up an integrated circuit'. An 'integrated circuit' is defined [10] as meaning 'a circuit, whether in a final form or an intermediate form, the purpose, or one of the purposes, of which is to perform an electronic function, being a circuit in which the active and passive elements, and any of the interconnections, are integrally formed in or on a piece of material'. A 'circuit layout' is an 'eligible layout' for the purposes of the Act if it is an 'original circuit layout' which satisfies any one of a number of requirements as to the identity of its 'maker' or as to the country in which it was first commercially exploited. [11]
PtII of the Act (s16-s25 inclusive) creates and defines the EL rights of an owner of an eligible layout. S16 provides that the person who makes an eligible layout or, in certain circumstances, the employer of that person is the first owner of the EL rights in it. S17 provides that the owner of those EL rights has, during a 'protection period' of at least ten years from the day on which the layout was made, [12] exclusive rights: '(a) to copy the layout, directly or indirectly, in a material form; (b) to make an integrated circuit in accordance with the layout or a copy of the layout; (c) to exploit the layout commercially in Australia'.
By its amended statement of defence, Centronics admitted that, at material times, Nintendo had been and was 'the owner, within the meaning of s16 ..., of EL rights in an original circuit layout'. It is common ground that the layout referred to in that admission is the Nintendo layout. The admission necessarily involved an acknowledgment that the Nintendo layout was an 'eligible layout' for the purposes of the Act. Its effect was to admit that Nintendo, as owner of EL rights in the Nintendo layout, had, after the commencement of the substantive provisions of the Act on 1 October 1990 and 'during the protection period of the layout' (which has not expired), the 'exclusive rights' which s17 of the Act confers on the 'owner of the EL rights in an eligible layout'. Nintendo's claim in the present case relates to the exclusive right conferred by s17(c), namely, the exclusive right 'to exploit the layout commercially in Australia'.
S19(3) of the Act provides: 'Subject to this Act, the EL right in an eligible layout, being the right referred to in para17 (c), is infringed by a person who, during the protection period of the layout, without the licence of the owner, commercially exploits, or authorises the commercial exploitation of, the layout in Australia if the person knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so.'
That provision must be read with s8(1) and s13(c) whose combined effect is that, for the purposes of the Act, a circuit layout shall be taken to have been commercially exploited if (among a number of things) an integrated circuit made in accordance with the layout, or with a substantial part thereof, or a thing in which the integrated circuit is incorporated, is sold or offered or exposed for sale.
During the period between the commencement of the substantive provisions of the Act and the institution of the present proceedings on 5 December 1990, Centronics sold (and offered and exposed for sale) in Australia video game machines, known as Spica Entertainment Units, which contained a silicon R.O.M. chip incorporating an integrated circuit ('the Spica circuit'). The trial judge found, and it is now common ground, that the Spica circuit was made in accordance with the whole or a substantial part of the Nintendo layout. The effect of s8(1) of the Act in those circumstances is that the sale and the offering or exposing for sale of the Spica Entertainment Units containing the Spica circuit constituted commercial exploitation of Nintendo's layout in Australia by Centronics. By its amended statement of defence, Centronics admitted that it was not licensed by Nintendo. It follows that the prima facie effect of formal admissions and the substance of what is now common ground is that the sale and the offering or exposing for sale of the Spica Entertainment Units constituted infringement of Nintendo's EL rights in the Nintendo layout under s19(3) of the Act if, but only if, that subsection's requirement of actual or constructive knowledge was satisfied. Centronics contends that the question whether that requirement was satisfied has never been properly addressed in the courts below and, when properly addressed, should be answered in the negative. Centronics also contends that the effect of other provisions of the Act is to preclude infringement in the circumstances of the present case. It is also submitted on its behalf that the present action for infringement of Nintendo's EL rights in the Nintendo layout, even if otherwise well founded, is barred by s7 of the Act. Finally, Centronics calls in aid the requirement of 'just terms' which is contained in s51(xxxi) of the Constitution. The submission based on s7 of the Act was not raised before the trial judge. It emerged in the course of argument in the Full Court of the Federal Court where it was upheld by Beaumont and Burchett JJ. in their joint judgment. It is convenient to turn at once to a consideration of it.
S7 OF THE ACT
The proceedings in the present case were brought pursuant to s27(1) which is in PtIII of the Act and which states that, subject to the Act, 'the owner of EL rights may bring an action for an infringement of those rights'. Under s27(2), the relief that a court may grant in such an action 'includes an injunction ... and either damages or an account of profits'. S7 of the Act reads: 'This Act applies in relation to a circuit layout, whether made before or after the commencement of PtII, but an action does not lie under PtIII in respect of any act done before that commencement in relation to the layout, a copy of the layout, or an integrated circuit made in accordance with the layout.'
It is submitted by Centronics that the effect of the second limb of s7 is that the present action pursuant to s27(3), which is obviously an action under PtIII, does not lie in the circumstances of the present case. The basis of that submission is that, while the acts of selling (and offering or exposing for sale) the Spica Entertainment Units upon which Nintendo relies were done after the commencement of PtII on 1 October 1990, those Units had been imported by Centronics from Taiwan, for the purpose of sale in Australia, some ten months before that date.
In the Full Court of the Federal Court, Beaumont and Burchett JJ. expressed the view that the words of the second limb of s7 should be 'given a wide meaning' so that, where goods have been imported before the commencement of PtII, 'no action lies under PtIII, not only for the importation of the subject goods, but also for any other conduct connected or related to that importation'. [13] The effect of that construction was that, in a case such as the present where the pre-commencement importation of the relevant goods had been for the purpose of sale, the second limb of s7 precluded an action for infringement based on the post-commencement sale or offering or exposing for sale of the imported goods for the reason that 'there is a sufficient connection or relation between the importation of the goods and their subsequent sale'. [14] Their Honours recognised that that construction might be seen as involving a rejection of 'the literal reading of the statute'. Nonetheless, they considered that it was justified by the need to avoid what would, in their view, otherwise be 'an unjust, irrational, and inconvenient result', namely 'that goods could be lawfully imported for sale but not lawfully sold although imported for that very purpose'. [15] In support of that wide construction of the second limb of s7, Beaumont and Burchett JJ. pointed to the width of the words 'in respect of'. They called in aid comments in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [16] to the effect that an otherwise 'capricious' result can justify departure from the ordinary grammatical sense of the language used by the legislature provided that that language is not 'intractable'. [17] They also relied upon the general rule of construction that legislation is presumed not to interfere adversely with vested proprietary interests. In that regard, their Honours commented that '[i]f Nintendo's contentions are upheld, goods that were lawfully imported for sale will be sterilised in terms of trade by virtue of a statute coming into operation 10 months after their importation.' [18] There is obvious force in the considerations which Beaumont and Burchett JJ. identified. However, they do not, in our view, suffice to displace what we see as the unambiguous effect of the words which the Parliament has seen fit to use.
In defining what constitutes commercial exploitation for the purposes of the Act, s8(1) identifies three distinct categories of conduct, namely, distribution by way of trade (para(a)), offering or exposing for distribution by way of trade (para(b)) and importation for the purpose of distribution by way of trade (para(c)). The subsection reads:
For the purposes of this Act, a circuit layout shall be taken to have been commercially exploited if the layout, a copy of the layout, or an integrated circuit made in accordance with the layout (whether or not the integrated circuit is incorporated in another thing) is: (a) sold, let for hire or otherwise distributed by way of trade; (b) offered or exposed for sale or hire, or other distribution by way of trade; or (c) imported for the purpose of sale, letting for hire, or other distribution by way of trade.
As a matter of language, the clear effect of those words is that the act of selling [19] a circuit layout, a copy of a circuit layout or an integrated circuit made in accordance with a circuit layout (or something incorporating such an integrated circuit) is an independent and complete act of commercial exploitation. Of itself, it constitutes commercial exploitation of the layout regardless of whether or not there has been a prior act of importation.
The primary operation of s7 is to provide expressly that the Act applies in relation to a circuit layout whether made before or after the commencement of its substantive provisions on 1 October 1990. The qualifying or second limb of the section operates to make explicit what would otherwise be implicit, namely, that the Act does not confer rights of action in respect of things done before that date. Accordingly, in the circumstances of the present case, an action under PtIII would not lie in respect of the importation of the Spica Entertainment Units which was effected before 1 October 1990. However, Nintendo's present action is not in respect of that importation. It is an action in respect of the commercial exploitation of the Nintendo layout involved in the sale of the Spica Entertainment Units during the period between 1 October 1990 and the commencement of proceedings on 5 December 1990, that is to say, during a period commencing some ten months after their importation. In the context of s8(1)'s unambiguous identification of an act of sale as an independent and complete act of commercial exploitation regardless of whether there has or has not been a prior importation, an action for infringement based exclusively on those sales cannot, for the purposes of s7, properly be seen as an action 'in respect of' the earlier and completed acts of importation unless the words 'in respect of any act done before' are construed as meaning 'in respect of any act being part of a series of related acts which commenced before'. In our view, that is a meaning which the words used by the Parliament simply do not sustain.
Moreover, the reasons advanced for that expansive construction of the words of s7 are, upon closer analysis, far from compelling. For one thing, as has been indicated, the Act removed, as from the commencement of its substantive provisions, whatever protection the Copyright Act or the Designs Act respectively afforded a 'circuit layout' or 'an integrated circuit, or part of an integrated circuit'. [20] It is unlikely that it would have been the legislature's intent to preclude an action for infringement under PtIII of the Act in respect of subsequent conduct in relation to already imported goods regardless of whether that subsequent conduct would have founded proceedings under those other Acts. For another thing, the argument that such a forced construction of the words of s7 is necessary to avoid an unjust 'sterilisation' of property which had been lawfully imported into Australia prior to the commencement of the Act would, to be consistent, require that the words of s7 be somehow construed as precluding an action under PtIII in respect of any dealing with any goods at all which were lawfully owned at that date since there is no reason in justice or common sense why the person who lawfully imported goods should be placed in a privileged position vis-a-vis the person who lawfully acquired them locally. Such a construction of s7 would effectively involve a judicial reframing of the section. Even so, it would be ineffective to completely avoid 'sterilisation' of such goods since any subsequent purchaser of them would be unable to deal commercially with them in Australia unless he or she obtained a licence from the owner of the EL rights in the layout or came within one of the Act's other protective provisions. Finally, the fact that a period of more than sixteen months was permitted to expire between the enactment of the Act and the commencement of its substantive provisions goes a long way towards removing the consideration of practical injustice to which their Honours adverted. In that regard, the fact that the subject goods were imported more than six months after the enactment of the Act would seem to us to be as significant as the fact that they were imported some ten months before the Act's practical commencement.
It follows that the second limb of s7 of the Act did not preclude Nintendo's action for infringement of its EL rights in the Nintendo layout. It is unnecessary to consider a further argument advanced on behalf of Nintendo to the effect that Beaumont and Burchett JJ. should not have based their decision on s7 of the Act in circumstances where that section had not been relied upon before or by the learned trial judge or raised in the notice of appeal to the Full Court of the Federal Court.
S19(3) OF THE ACT
As has been seen, Nintendo's claim of infringement of its EL rights is based upon s19(3) of the Act which provides that the EL right referred to in para(c) of s17 [21] in a protected eligible layout is infringed by unauthorised commercial exploitation of the layout by a person who 'knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so'. It is common ground that Nintendo bore the onus of establishing that Centronics knew or ought reasonably to have known that it was 'not licensed by the owner of [the EL] right'. Centronics has submitted, at all stages of the proceedings, that Nintendo failed to discharge that onus.
At first instance, Sweeney J. did not expressly deal with the question whether s19(3)'s requirement of actual or constructive knowledge was satisfied. It is, however, suggested that his Honour treated that issue as resolved in favour of Nintendo by his determination of a closely related issue to which detailed reference is made below, namely, the question of actual or constructive knowledge for the purposes of s20 of the Act. If that view of Sweeney J.'s judgment is accurate, his Honour's comments about s20 arguably indicate that he thought that, once it was found that the sales of the Spica Entertainment Units constituted commercial exploitation of the Nintendo layout, all that was necessary to satisfy s19(3)'s requirement of actual or constructive knowledge was that Centronics knew or ought reasonably to have known that it was not licensed by Nintendo. That is the construction of s19(3) for which Nintendo contends. In the Full Court of the Federal Court, Northrop J. proceeded on an assumption that it was correct. In view of their conclusion about the effect of s7 of the Act, Beaumont and Burchett JJ. found it unnecessary to consider the effect of s19(3).
As a matter of mere language, the requirement that an alleged infringer 'knows or ought reasonably to know, that he or she is not licensed by the owner of [the relevant EL] right' is ambiguous. The construction for which Nintendo contends is based upon reading the words 'the owner' in the requirement as a specific designation of a particular person, that is to say, as if they were the equivalent of the name of the actual person who is ultimately identified as 'the owner'. The words 'the owner' can, however, be at least as readily understood not as a specific designation of a particular person in that sense ('the specific designation construction') but as a non-specific reference to a possessor of the attributes which constitute ownership of the relevant right. If the words are understood in that more general and innominate sense ('the non-specific construction'), the requirement of actual or constructive knowledge on the part of the alleged infringer that he or she is not licensed by 'the owner' - whoever that may be - involves, in a case where X is ultimately identified as the owner, more than actual or constructive knowledge of the mere fact that he or she is not licensed by X. The requirement will not be satisfied unless, at the time of the relevant act of commercial exploitation of the layout, the alleged infringer knows or ought reasonably to know that he or she is not licensed by any person satisfying the description of 'the owner of [the relevant EL] right'. That being so, actual or constructive knowledge that he or she is not licensed by X would satisfy the requirement only if it were accompanied by actual or constructive knowledge that X is in fact the owner of that EL right. For the reasons which follow, the non-specific construction is the preferable one.
S19(3)'s requirement of actual or constructive knowledge is confined to those cases where the alleged infringement of an EL right in an eligible layout is 'secondary' or 'indirect' in the sense that it does not involve the copying of the layout itself or the making of an integrated circuit in accordance with the layout. Cases involving 'primary' or 'direct' infringement, either by a copying of the layout or by a making of an integrated circuit in accordance with the layout, fall within either s19(1) or s19(2). The effect of those subsections is that there is infringement of the relevant EL right if the copying or making was without the licence of the owner of that right regardless of whether there was any actual or constructive knowledge of the lack of such a licence. The legislative policy underlying s19(1) and s19(2) would seem to be the understandable one that a person who, for other than a permitted purpose, [22] copies a circuit layout made by another or makes an integrated circuit in accordance with such a layout should be required to take whatever steps are necessary to identify, and obtain a licence from, the owner of relevant EL rights in the layout.
Not surprisingly, the legislative policy to be discerned in s19(3) with respect to cases involving commercial dealing with an existing original or copy layout or an existing integrated circuit is somewhat different. Under the Act, ownership of the EL rights in an eligible layout is acquired by the maker without any need to observe the requirements of a registration process. [23] A person who deals commercially with an original layout which he or she has acquired in good faith from another may neither know nor have the means of ascertaining that the person from whom he or she acquired it did not have the EL rights in it. A fortiori, a person who deals commercially with an existing copy of a protected layout [24] or an existing integrated circuit made in accordance with the layout may do so in circumstances where he or she neither knows nor has the means of ascertaining that the original layout either exists or is protected by the Act. Generally speaking, the Commonwealth intellectual property legislation in force at the time when the Act was enacted specified some significant requirement of actual or constructive knowledge as a condition of either infringement or liability in cases of alleged infringement by mere commercial dealing. [25] ; Copyright Act 1968 (Cth), s37 and s38 (but note the effectiveness of s38 of the Copyright Act is open to some question by reason of seeming errors in drafting).)
Clearly enough, it was the legislative intent that s19(3)'s requirement of actual or constructive knowledge should provide a significant degree of protection of the alleged infringer in such cases. The specific designation construction of the requirement would go a long way towards defeating that legislative intent and rendering the protection of the requirement illusory. Thus, its effect would be that, provided the alleged infringer knew or ought reasonably to have known that he or she was not licensed by X, the requirement of actual or constructive knowledge would afford no protection at all if X happened to be the owner of the EL right to exploit the relevant layout commercially in Australia notwithstanding that the alleged infringer by commercial dealing neither knew nor could reasonably be expected to have known that there was any connection at all between X and the layout.
Moreover, the specific designation construction of the requirement would give it a somewhat arbitrary and irrational character. The mere fact that an alleged infringer knows or ought reasonably to know that he or she is not licensed by a particular named person is likely to be of little or no relevance to questions either of fault or of meaningful knowledge or notice unless the alleged infringer also knows or ought reasonably to know that that particular person is the owner of the EL right to exploit the particular layout commercially in Australia. Much to be preferred is the wider and non-specific construction of the words 'the owner' which has the result that the requirement is one of actual or constructive knowledge by an alleged infringer that he or she is unauthorised to exploit the protected layout commercially in Australia in the sense that he or she has actual or constructive knowledge of the existence of the layout and of EL rights in it and of the fact that he or she is not licensed by the owner of those rights, whoever that may be.
It follows that s19(3)'s requirement of actual or constructive knowledge was not satisfied in the present case by the mere fact that, (as was conceded) Centronics knew, at the time of the acts of alleged infringement, that it was not licensed by Nintendo to exploit the Nintendo layout commercially in Australia. It was necessary that it also be established that Centronics also knew or ought reasonably to have known, at that time, that the Nintendo layout existed and that Nintendo was the owner of the exclusive EL rights in it. The learned trial judge's findings in relation to s20 disclose that his Honour was satisfied that Centronics did, in fact, have such constructive knowledge. His Honour's satisfaction in that regard was justified by the material in evidence before him, particularly by the content of correspondence from Nintendo's solicitors to Centronics. Indeed, it would seem to have effectively been conceded by Centronics at the trial that, at the time of the alleged acts of infringement, it had at least constructive knowledge of the admitted existence of Nintendo's EL rights in the Nintendo layout.
Ultimately, Centronics' argument that s19(3)'s requirement of actual or constructive knowledge was not satisfied in the present case rests upon a contention that the requirement cannot be satisfied unless an alleged infringer knows or ought reasonably to know that his or her conduct involves commercial exploitation of the relevant eligible layout. If that contention were accepted, the result would be that it did not suffice that the sale by Centronics of the Spica Entertainment Units constituted unauthorised commercial exploitation of the Nintendo layout during the protection period and that Centronics, at relevant times, knew or ought reasonably to have known of the existence of the Nintendo layout, of Nintendo's EL rights in it and of the absence of any licence from Nintendo. It would also be necessary that Centronics knew or ought reasonably to have known that its sale of the Spica Entertainment Units actually constituted commercial exploitation of the Nintendo layout. The simple answer to that contention and the argument based upon it is that the contention derives no support at all from the words of s19(3).
As has been seen, s19(3) contains a basic provision to the effect that unlicensed commercial exploitation of an eligible layout during the protection period constitutes infringement of the EL right to exploit the layout commercially in Australia. That basic provision is qualified by an express requirement of actual or constructive knowledge on the part of the alleged infringer of a particular identified matter, namely, 'that he or she is not licensed by the owner' of that EL right. There is no room for the implication within that express requirement of a further requirement that the alleged infringer knows or ought reasonably to know that his or her conduct does in fact involve commercial exploitation of the protected layout. The existence of the express requirement of actual or constructive knowledge strongly militates against the implication of such a further requirement in the basic provision. In any event, the words in which the basic provision is expressed, like the words of the express requirement, simply leave no room for the implication of such a further requirement. Nor is there any compelling consideration of either context or discernible legislative policy which dictates that such a further requirement be satisfied before any infringement by commercial exploitation can be established. To the contrary, there are some categories of relevant commercial exploitation in relation to which it is difficult to see any convincing reason for such a further requirement. For example, there is no convincing reason why a person who has actual or constructive knowledge of the existence of an eligible layout and of EL rights in it, of the identity of the owner of those rights and of the fact that he or she is not licensed by that owner should not be required to exercise whatever diligence is necessary to ensure that the immediate object of his or her commercial dealing in Australia is not that very layout.
It is true that s19(3)'s requirement, being directed generally to cases of commercial exploitation of a protected layout, does not address the more particular question of what, if any, further and special requirement of knowledge is necessary in those cases where the commercial exploitation of the layout is by some dealing with an integrated circuit made in accordance with it. That more particular question is addressed by the current s20 of the Act which was substituted for the original s20 by the Law and Justice Legislation Amendment Act 1990 (Cth) which became operative on 21 December 1990, that is to say, some two weeks after the institution of the present proceedings. As will be seen, there is much to be said for the view that, prior to the introduction of the new s20, the Act failed adequately to address that more particular question. That failure does not, however, provide an adequate basis for attributing to the general provisions of s19 an operation which the words of that section do not support.
In the result, Centronics has failed to make good its argument that it was entitled to succeed in the courts below on the ground that s19(3)'s requirement of actual or constructive knowledge was not satisfied.
S20 OF THE ACT
S20 of the Act excludes what is described) [26]
as 'Innocent commercial exploitation' from conduct which might otherwise constitute infringement of EL rights. In its present form ('the current s20'), the section is expressly confined to the commercial exploitation of an integrated circuit made in accordance with an eligible layout in which EL rights subsist. It reads:
(1) The EL rights in an eligible layout are not infringed by a person who commercially exploits, or authorises the commercial exploitation of, an unauthorised integrated circuit in Australia, being a circuit made in accordance with the layout, if, at the time when the person acquired the circuit, the person did not know, and could not reasonably be expected to have known, that the circuit was unauthorised. (2) Where a person referred to in subs(1) becomes aware, or could reasonably be expected to have become aware, that the integrated circuit is unauthorised, that subsection ceases to apply to any subsequent commercial exploitation of the circuit, unless the person pays to the owner or exclusive licensee of the EL rights in the layout such equitable remuneration as is agreed, or as is determined by a method agreed, between the person and the owner or exclusive licensee or, in default of agreement, as is determined by the Federal Court of Australia on application made by either of them. (3) In this section: 'unauthorised', in relation to an integrated circuit made in accordance with an eligible layout, means made without the licence of the owner of the EL rights in the layout.
The legislative policy underlying the current s20 of the Act is not difficult to discern. It was to make special provision for circumstances in which it would be unjust to impose liability for infringement on a person who innocently acquires and subsequently deals with an unauthorised integrated circuit. One can readily envisage circumstances in which an ordinary person who innocently acquires, and subsequently commercially deals with, an item of electronic equipment would have no means of knowing or ascertaining that some concealed integrated circuit in the article was an unauthorised copy of an eligible circuit layout in which EL rights subsist. An innocent retail purchaser of one of the Spica Entertainment Units involved in the present case who resold the unit a few days before the institution of the present proceedings would provide an obvious example. Even if such a purchaser had dismantled the unit and managed to identify the R.O.M. chip incorporating the Spica integrated circuit, careful examination of the chip with the strongest of magnifying glasses would have disclosed nothing which suggested that the integrated circuit was made in accordance with the Nintendo layout. In that regard, it is relevant to note that the possible need to make special provision to cover the case of innocent commercial dealing with an unauthorised integrated circuit was recognised by Art. 6(4) of the International Treaty which, after referring to an earlier paragraph of the Treaty (Art. 6(1)(a)(ii) relating to commercial dealing), provided: 'no Contracting Party shall be obliged to consider unlawful the performance of any of the acts referred to in that paragraph in respect of an integrated circuit incorporating an unlawfully reproduced layout-design (topography) where the person performing or ordering such acts did not know and had no reasonable ground to know, when acquiring the said integrated circuit, that it incorporates an unlawfully reproduced layout-design (topography)'.
If s20 in its current form had been applicable to the present case, there would be an unresolved issue of fact which would need to be resolved before it could be determined whether the section provided a defence to Nintendo's claim that Centronics had infringed its EL rights in the Nintendo layout. At the time Centronics acquired the Spica Entertainment Units, the substantive provisions of the Act had not come into operation. This means that, at that time, there was no owner of 'the EL rights in an eligible layout'. Obviously, Centronics did not know and could not reasonably be expected to have known, at that time, that the Units contained an integrated circuit 'made in accordance with an eligible layout ... without the licence of the owner of [that right]'. [27] The case accordingly would come within subs(1) of the current s20 unless subs(2)'s requirement of actual or constructive knowledge had become satisfied by the time of the alleged acts of infringement with the consequence that, in the words of subs(2), subs(1) had 'cease[d] to apply'. In circumstances where the expert evidence led by Centronics at the trial supported a negative answer to the question whether the Spica integrated circuit had been made in accordance with the Nintendo layout, it may well be arguable that Centronics neither became aware nor could reasonably be expected to have become aware that the integrated circuit in the Spica Entertainment Unit was 'unauthorised' until some time after the institution of the proceedings. It is true that Sweeney J., at first instance, found that Centronics 'could reasonably be expected to have known that the circuit was unauthorised from the date on which the Act came into operation, 1 October 1990'. That finding was, however, flawed by an apparent failure to appreciate that actual or constructive knowledge that the Spica circuit was 'unauthorised' involved more than actual or constructive knowledge that Nintendo was the owner of the EL rights in the Nintendo layout and that Centronics was not licensed by Nintendo. It also involved actual or constructive knowledge of a further matter, namely, that the Spica circuit had been made in accordance with Nintendo's layout. Careful reading of Sweeney J.'s judgment indicates that his Honour did not address the question whether, at the time of the alleged acts of infringement, Centronics had actual or constructive knowledge of that further matter.
However, as has been mentioned, s20 was not enacted in its current form until after the institution of the present proceedings. The significance of the substantial difference between the original and current forms of the section was overlooked before Sweeney J. where the case was conducted and decided on the basis that the question of infringement fell to be determined by reference to the section in its current form. The members of the Full Court were conscious of the fact that the current s20 had not been introduced until after the alleged acts of infringement and the commencement of the proceedings. They concluded that regard should be had to the section in its original form. That conclusion was clearly correct since it is to be presumed that it was not the legislative intent that the substitution of the new s20 should extinguish rights of action for infringement which had already accrued under the Act in its earlier form. [28]
In the Full Court, Beaumont and Burchett JJ.'s conclusion about the effect of s7 of the Act made it unnecessary to address the question whether Centronics had a good defence under the original s20. The third member of the Full Court, Northrop J., did address that question and decided that it should be answered in favour of Centronics. His Honour's decision in that regard was, however, based to a significant extent upon a view that the effect of the pleadings was that Nintendo was precluded from relying on s20(2) to take the case out of s20(1). Before this Court, Centronics has expressly conceded that the case had been fought on the common basis that the applicability and effect of s20(2) were squarely in issue and that, that being so, Nintendo is entitled to rely upon s20(2) in this Court.
In its original form ('the original s20'), s20 provided as follows:
'(1) The EL rights in an eligible layout are not infringed by a person who commercially exploits, or authorises the commercial exploitation of, the layout in Australia if, at the time when the person acquired the layout, the copy of the layout or the integrated circuit made in accordance with the layout, as the case may be, the person did not know, and could not reasonably be expected to have known, that EL rights subsisted in the layout. (2) Where a person referred to in subs(1) becomes aware, or could reasonably be expected to have become aware, that EL rights subsist in the layout, that subsection ceases to apply to any subsequent commercial exploitation of the layout, unless the person pays to the owner or exclusive licensee of those rights such equitable remuneration as is agreed, or as is determined by a method agreed, between the person and the owner or exclusive licensee or, in default of agreement, as is determined by the Federal Court of Australia on application made by either of them.'
As can be seen, the original s20 was not a special provision directed to the particular case of alleged infringement of the EL rights in an eligible layout by commercial dealing with an integrated circuit made in accordance with the layout. It was directed generally to commercial exploitation of an eligible layout by any relevant commercial dealing whether it be with the layout or a copy of the layout or an unauthorised integrated circuit. More important for present purposes, the original s20 contained no mention of actual or constructive knowledge that an integrated circuit was 'unauthorised'. Its focus was solely on actual or constructive knowledge 'that EL rights subsisted [subsist in subs(2)] in the layout'. Examination of the context provided by the whole of the section makes it quite clear that the reference to 'the layout' in that phrase in both subsections was to the protected layout. That means that, in a case such as the present where the alleged infringement is by commercial dealing with an integrated circuit made in accordance with a particular protected layout, the original s20's requirement of actual or constructive knowledge was satisfied if the alleged infringer knew or ought reasonably to have known that EL rights existed in that layout. In such a case, the plain effect of the words of the original s20 was that it mattered not, for the purposes of the section, that the alleged infringer neither knew nor could reasonably be expected to know that the integrated circuit was in fact made in accordance with the layout and was therefore 'unauthorised'.
An argument was advanced on behalf of Centronics to the effect that the present case did not come within the original s20(2) unless, at the time of the acts of alleged infringement, Centronics had actual or constructive knowledge 'of the existence of EL rights [of Nintendo] in the [Spica] integrated circuit'. That argument must, however, be rejected. As has been seen, all that the words of the original s20(2) required was actual or constructive knowledge that EL rights subsisted in the protected layout which had allegedly been infringed. That is to say, in the present case, that EL rights subsisted in the Nintendo layout. Nor is it possible to read into the original s20(2) an implied further requirement of actual or constructive knowledge that an integrated circuit is unauthorised. Once it is appreciated that the original s20 applied indifferently to all cases of alleged infringement by commercial exploitation, the above-mentioned reasons for rejecting the implication of such a further requirement of actual or constructive knowledge in s19(3) are equally applicable to preclude its implication in the original s20(2). It is true that the result is that, during the period from its commencement until the substitution of the current s20, the Act imposed liability for infringement in some hard cases, being cases in respect of which the current s20 provides complete or limited protection. [29] That consideration does not, however, justify a reframing of the original s20 by the courts to produce the result that it encompassed all the cases to which the current section is applicable.
When one turns to apply the original s20 to the facts of the present case, the differences between the requirements of actual or constructive knowledge in the original and the current forms of the section are not of critical significance in so far as the first (or s20(1)) stage is concerned. As has been said, the Spica Entertainment Units were acquired by Centronics before the commencement of the Act. That being so, Centronics could not, at that time, have known or been reasonably expected to know that EL rights subsisted in the Nintendo layout. It follows that the case prima facie falls within subs(1) of the original s20. It is when one comes to the second (or s20(2)) stage that the differences between the original form and the current form of s20 assume critical significance for the purposes of the present case. As has been seen, it remains undetermined whether, at the time of the alleged acts of infringement, Centronics had acquired the actual or constructive knowledge which would be necessary to bring the current s20(2) into operation, namely, actual or constructive knowledge that the Spica integrated circuit was 'unauthorised'. In contrast, as has also been seen when considering the operation of s19(3), the learned trial judge was justifiably satisfied that Centronics had, at that time, the actual or constructive knowledge necessary to satisfy the requirement of the original s20(2), namely, actual or constructive knowledge that EL rights subsisted in the Nintendo layout. It follows that, at the time of the acts of alleged infringement in the present case, the original subs(2) of s20 had been activated. The result of that was that s20(1) 'cease[d] to apply to ... commercial exploitation of the layout' unless Centronics had paid to Nintendo the 'equitable remuneration' referred to in s20(2).
It was argued on behalf of Centronics that, even if the case fell within s20(2) at the time of the alleged acts of infringement, the effect of that subsection was merely to render Centronics liable to pay the relevant 'equitable remuneration'. The overall effect of s20 (in both its original and current form) was and is, according to the argument, to create a licensing scheme under which innocently acquired infringing articles could be dealt with commercially subject only to the obligation, once actual or constructive knowledge was acquired, to pay the applicable licence fee. Accordingly, Centronics' acts of commercial dealing with the Spica Entertainment Units after it had obtained the relevant actual or constructive knowledge did not constitute infringement of Nintendo's EL rights notwithstanding that it had neither paid nor offered to pay any licence fee pursuant to s20(2). Yet again, the answer to the argument is that the words which the Parliament has used do not support it.
Like the current section, the original s20(2) provided, in unambiguous terms, that, where the relevant actual or constructive knowledge existed, subs(1) 'ceases to apply to any subsequent commercial exploitation ... unless the person pays' the relevant remuneration. The plain effect of that was that s20(1) did not apply to any acts of commercial exploitation between the acquisition of the relevant actual or constructive knowledge and the payment of the relevant remuneration. That can only mean that, during that period, s20 did not apply to prevent the commercial exploitation of an innocently acquired but unauthorised integrated circuit from constituting infringement of the EL rights in the eligible layout in accordance with which the integrated circuit was made.
In the present case, the acts of alleged infringement upon which Nintendo relies all occurred after Centronics possessed the actual or constructive knowledge referred to in the original s20(2). At the time of those acts, Centronics had neither paid nor acknowledged any liability to pay the 'equitable remuneration' referred to in the subsection. It still has not done so. It follows that s20(1) had, at that time, ceased to apply to those acts of alleged infringement and that Centronics' defence based on s20 fails.
CONSTITUTION, s51(xxxi)
As a defence of last resort, Centronics invoked the implied guarantee of just terms contained in s51(xxxi) of the Constitution. It was submitted on its behalf that, to the extent that the Act operated to confer, upon Nintendo, the exclusive right of commercial exploitation of the Spica circuits contained in the Entertainment Units which were already owned by Centronics at the commencement of the Act, the Act purported to effect an 'acquisition of property' on other than the 'just terms' which s51(xxxi) guarantees. Accordingly, the Act was, at least to that extent, beyond the legislative powers of the Commonwealth. There are two short answers to that submission. The first arises from the nature of the constitutional grant of legislative power pursuant to which the Act was enacted. The second arises from the nature of the Act itself.
It is well settled that s51(xxxi)'s indirect operation to reduce the content of other grants of legislative power is through the medium of a rule of construction, namely, that 'it is in accordance with the soundest principles of interpretation to treat' the conferral of 'an express power, subject to a safeguard, restriction or qualification, to legislate on a particular subject or to a particular effect' as inconsistent with 'any construction of other powers conferred in the context which would mean that they included the same subject or produced the same effect and so authorized the same kind of legislation but without the safeguard, restriction or qualification'. [30] That operation of s51(xxxi) to confine the content of other grants of legislative power, being indirect through a rule of construction, is subject to a contrary intention either expressed or made manifest in those other grants. In particular, some of the other grants of legislative power clearly encompass the making of laws providing for the acquisition of property unaccompanied by any quid pro quo of just terms. Where that is so, the other grant of legislative power manifests a contrary intention which precludes the abstraction from it of the legislative power to make such a law. [31] The grant of Commonwealth legislative power which sustains the Act is that contained in s51(xviii) of the Constitution with respect to 'Copyrights, patents of inventions and designs, and trade marks'. [32]
It is of the essence of that grant of legislative power that it authorises the making of laws which create, confer, and provide for the enforcement of, intellectual property rights in original compositions, inventions, designs, trade marks and other products of intellectual effort. It is of the nature of such laws that they confer such rights on authors, inventors and designers, other originators and assignees and that they conversely limit and detract from the proprietary rights which would otherwise be enjoyed by the owners of affected property. Inevitably, such laws may, at their commencement, impact upon existing proprietary rights. To the extent that such laws involve an acquisition of property from those adversely affected by the intellectual property rights which they create and confer, the grant of legislative power contained in s51(xviii) manifests a contrary intention which precludes the operation of s51(xxxi).
The cases also establish that a law which is not directed towards the acquisition of property as such but which is concerned with the adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity is unlikely to be susceptible of legitimate characterisation as a law with respect to the acquisition of property for the purposes of s51 of the Constitution. [33] The Act is a law of that nature. It cannot properly, either in whole or in part, be characterised as a law with respect to the acquisition of property for the purposes of that section. Its relevant character is that of a law for the adjustment and regulation of the competing claims, rights and liabilities of the designers or first makers of original circuit layouts and those who take advantage of, or benefit from, their work. Consequently, it is beyond the reach of s51(xxxi)'s guarantee of just terms.
CONCLUSION AND ORDERS
It follows that the sale and offering for sale by Centronics of the Spica Entertainment Units in the period between 1 October 1990 and 5 December 1990 constituted infringement of Nintendo's EL rights in the Nintendo layout and that the appeal must succeed. Before turning to a consideration of the orders which should be made to dispose of the appeal, it is necessary to refer to one additional matter.
In the closing minutes of argument in this Court, senior counsel for Centronics stated that a document produced by Nintendo in the Full Court of the Federal Court, but apparently not introduced into evidence, indicated that Centronics' express admission in the pleadings that Nintendo had, at relevant times, been the owner of EL rights in the Nintendo layout was mistaken and that those EL rights had in fact been held by some associated company and not been transferred to Nintendo until some days after the institution of the proceedings. It was, however, as senior counsel recognised, far too late for Centronics to withdraw the formal admission on the basis of which the case had been fought and determined in the courts below. Quite apart from the question of the authority of this Court to receive fresh evidence, [34] the point, if soundly based (which is not conceded by Nintendo) and raised at an appropriate time, might well have been overcome by amendment of pleadings and addition or joinder of the associated company as a party. In that regard, it is relevant to note that it is common ground that the evidence at first instance established 'that the layout was created for, and on the instructions of, Nintendo'. It is unnecessary to determine whether, as senior counsel suggested, it would have been permissible for Centronics to rely on the point and lead evidence about it if we had been of the view that the case should be remitted to the Federal Court for further consideration in relation to the questions of actual or constructive knowledge under s19(3) or s20(2). However, since the matter has been raised, it may be arguable that account should be taken of it in the framing of any order for damages or an account of profits to eliminate any possibility that Centronics might be required to make a double payment in the event that proceedings are initiated by the associated company in respect of the relevant acts of infringement of the EL rights in the Nintendo layout.
The orders made by the learned trial judge against Centronics and its three directors in relation to the infringement of the EL rights in the Nintendo layout were as follows:
1. The respondents and each of them be restrained from: (a) selling, letting for hire or distributing by way of trade; (b) offering or exposing for sale, hire or other distribution by way of trade; or (c) importing for the purpose of sale, letting for hire or other distribution by way of trade; whether as part of Spica video game consoles or otherwise, PPU chips in the form of the UMC PPU chip a photographic representation of the integrated circuit of which is Exhibit TR-1 herein or otherwise howsoever infringing the applicant's EL rights in the circuit layout a photographic representation of which is Exhibit TR-2 herein. 2. The respondents within seven days of the date hereof: (a) deliver up to the applicant each of the UMC PPU chips referred to in para1 hereof; (b) make file and serve an affidavit verifying that all such UMC PPU chips have been delivered up as aforesaid. 3. There be an inquiry as to damages or at the applicant's option an account of profits made by the respondents and each of them by infringement of the applicant's said EL rights and payment of the sum found due. 4.(a) The respondents within fourteen days of the date hereof make file and serve an affidavit setting out details of all sales made of Spica video games units containing the UMC PPU chip referred to in para1 hereof; (b) within fourteen days thereafter, the applicant make its election referred to in para3 hereof and communicate the same to the respondents; (c) the applicant have liberty to apply thereafter as to the conduct of the said enquiry or account (as the case may be). ... 7. The respondents pay the applicant's costs of the proceeding including any reserved costs.
The propriety of those particular orders was not discussed in the course of argument. Clearly, they give rise to some questions. One such question is whether O.1 and O.2 should be adjusted to allow for the possibility of determination and payment (by Centronics) of equitable remuneration pursuant to s20(2) in respect of the Spica Entertainment Units which remain in Centronics' possession. Another question is whether Nintendo is entitled (at its option) to an order for an inquiry as to damages at this stage in circumstances where s27(3) of the Act precludes such an order if it is 'established ... that, at the time of the infringement, [Centronics] was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement'. To date, there has been no specific finding on the question whether that has or has not been 'established'.
There remains for consideration the question of costs. The order for costs in Nintendo's favour which was made by Sweeney J. should be restored and Centronics and the three respondent directors should also pay Nintendo's costs of the appeal to the Full Court of the Federal Court. The position is, however, somewhat different in relation to the costs of the appeal to this Court. On the application for special leave to appeal, it became apparent that the monetary amount involved in the case is small and that the issues on an appeal to this Court would turn largely upon questions of construction which were important to the industry of which Nintendo is a prominent member but which were of little significance to Centronics and the respondent directors except to the extent that they govern liability in the present proceedings. The Court made clear to senior counsel for Nintendo that special leave to appeal was granted on the basis that, if Nintendo was ultimately successful, the ordinary order for costs might not be made. Having regard to all the circumstances, there should be no order in respect of the costs of the appeal to this Court.
The appropriate course at this stage is to make orders allowing the appeal and refusing an application by Centronics for leave to cross-appeal relating to costs. Otherwise, the matter should be stood over so that the parties will have an opportunity either to agree on the form of any further orders or to make written submissions in relation thereto. If Nintendo seeks, and Centronics resists, an order for damages (as distinct from an order for an account of profits), it would seem necessary that the further orders provide that the matter be remitted to the Federal Court for the resolution of the above-mentioned issue under s27(3). In that event, it will be for the Federal Court to decide whether, for the purposes only of that issue, Centronics should be permitted to withdraw its admission and lead evidence about the ownership of EL rights in the Nintendo layout at the time when the proceedings were instituted. It will also be a matter for the Federal Court to determine the question of the costs of any such further proceedings before it.