Copyright – Chou v Metstech

In Chou v Metstech Pty Limited [2023] FCAFC 205 (Yates, Downes and Jackman JJ, 22 December 2023), a decision of the Full Court of the Federal Court of Australia, their Honours considered an appeal from a decision of a single judge of the Court.

In very broad terms it could be described as a claim by the applicants for ownership of certain literary and artistic works authored by a former employee in pursuance of his contract of employment with the applicant parties. It was pleaded initially however as a “tortious conspiracy” and not pleading the usual elements of a copyright infringement claim under the Copyright Act1968 (Cth).

After several iterations of the pleaded case in the initiating process, including at trial, some of the cardinal concepts, as their Honours identified them, were addressed. On appeal, an issue raised challenging the declaratory relief ordered by the primary judge, was the primary judge’s error claimed by the appellants in ordering declaratory relief in the absence of a Taiwanese manufacture being a party to the proceeding. The appellants claimed that the manufacture was the “designer” of the works and that its rights in relation to the works were in rem. It followed according to the appellants, that the declaratory relief ordered should be set aside.

Background

The area of industry involved in the proceeding was the designing and distributing of telecommunications systems for use in underground mines. At [6] their Honours referred to the applicants’ (Metstech, or Metstech parties), summary of the Metstech System in closing submissions at the trial:

“… the Metstech System is a system pursuant to which two-way radio (VHF and UHF) and mobile telephone (LTE) signals can be transmitted and received along underground tunnels.  It is a “leaky feeder” system, in that the signals are transmitted and received through leaky coaxial cables, such that the entire length of each cable functions as an antenna.  The cables connect to the various devices through “N-Type” connectors.  It is a “dual band” system, in that it can transmit and receive radio frequency (RF) signals in two different bands (such as VHF and LTE) simultaneously.  It is a “duplex” system in that signals can be sent and received in two directions simultaneously.”

Their Honours noted that the primary judge had identified the “central factual dispute” as being whether Metstech’s products had been designed by the first appellant (Mr Chou), who was at relevant times, Metstech’s employee: [3]. The Act provides that, subject to any exclusion or modification by agreement, “[w]here a literary, dramatic or artistic work …or a musical work, is made by the author in pursuance of the terms of his or her employment by another person under a contract of service or apprenticeship, that other person is the owner of any copyright subsisting in the work by virtue of this Part”: the Act s 35(6).

The statement of claim filed by the Metstech parties pleaded a number of causes of action but did not plead copyright infringement. In an amended summons the Metstech parties pleaded allegations of copyright subsistence and ownership but the amended summons contained no prayers for relief based on those copyright pleadings. On the third day of the trial the Metstech parties filed a further amended summons and a commercial list statement, which introduced further allegations of copyright subsistence and ownership and sought amongst other things, declaratory relief as to subsistence and ownership in relation to certain works: [19].

The Chou parties – defined in their Honours’ reasons for judgment as Mr Chou and Welldesign Electronics Pty Limited – did not admit copyright subsistence or ownership in certain works. They claimed that the final designs were carried out by manufacturers for the Metstech parties domiciled in Taiwan.

At trial, the Metstech parties alleged that the various respondents were involved in a “tortious conspiracy” to injure the Metstech parties and the thirteenth defendant, Metstech IP Pty Ltd (Metstech IP), by transferring business and assets of Metstech and Metstech IP to other entities, resulting in the Metstech parties having a lesser or no interest in the Metstech business:[2]. The various parties, both individuals and corporations, are identified in [1] of the reasons.

The declaration

In relation to copyright, the primary judge had found that Mr Chou designed the Metstech’s Products as a result of considering the conspiracy case advanced at trial, and had made consequential findings in relation to copyright subsistence and ownership: [4]. These findings and the works were reflected in the following declaration made by the primary judge:

“The Court Declares that:

1  Copyright subsists in the following works in respect of the Products and the Metstech System, and any revisions thereof, and such copyright is held by Metstech:

(a) the Metstech PCB Assemblies;

(b) concept designs;

(c) printed circuit board schematics and layouts;

(d) firmware source code (save for the source code relating to the Raspberry Pi Software);

(e) functional specifications;

(f) test results;

(g) bills of materials;

(h) data sheets; and

(i)  manufacturing files.”

Mr Park and the Martin parties each denied that Mr Chou designed certain works. They also denied subsistence in respect of one of the works claimed by Metstech and ownership of that product and other claimed Metstech works: [29].

Copyright claims – an unusual approach

Their Honours’ set out in their reasons at [33] – [40], some “cardinal concepts” in copyright. The Full Court further noted that the Metstech parties did not before the primary judge, identify and prove the existence of specific literary and artistic works and addressing Mr Chou’s authorship (if any), to those identified works by reference to the Copyright Act.

Instead, the Metstech parties called on a consulting electrical engineer, who, in his report, discussed generalities including the tasks that are typically undertaken as part of electrical design and prototype manufacturing processes; the tools and software that would be required to build the Metstech System; and the role of original component, equipment and design manufacturers. The electrical engineer’s report included a view on copyright ownership of documents which were likely to be produced in the design and manufacturing process”: [41].

The Full Court considered that plaintiffs advanced their copyright case on the incorrect basis that Mr Chou was the alleged designer of electrical components and products. The correct basis was to plead and present evidence on authorship based on Mr Chou’s alleged creation of specific works that were either original literary works or artistic works within the meaning of the Copyright Act rather than “generalised categories of possible works”: [44]. In addition, the items over which Metstech claimed copyright were unusually not before the Court: [45].

The Full Court referred also to a number of general findings on credit made by the primary judge. These included that her Honour approached the evidence of Mr Chou with some caution as it appeared to her Honour that Mr Chou had not complied with the orders for disclosure: [49].

The declaration was in issue on appeal by Grounds 1 and 2. Relevantly, on publishing her reasons for judgment, the primary judge directed the parties provide proposed orders reflecting her Honour’s reasons. The plaintiffs proposed orders included the declaration. The Chou parties, Mr Park and the Martin parties each responded to the plaintiff’s proposed orders by providing written submissions. However, those submissions failed to address the proposed declaration. The Full Court therefore understood that failure, given the primary judge’s findings and reasons, as being an acceptance by the defendants that there was no impediment to the declaration being made.

The Chou parties however contended on appeal in Grounds 1 and 2, that the primary judge erred in making the declaration because, in essence, the Chou parties submitted, the Taiwanese manufacturer referred to as “Yokao” was not notified of the proceeding or joined to the proceeding as a necessary party. Grounds 1 and 2 are reproduced at [63] of the reasons.

The submission followed from the Chou parties’ argument that as the declaration affected Yakao’s rights in rem, Yakao’s joinder to the proceeding was necessary. It followed by the failure to join Yakao, the declaration should be set aside: [64]. The Full Court did not consider the declaration was an order in rem, but rather an order affecting the interests of the immediate parties: [75].

Somewhat unremarkably, Mr Park and the Martin parties supported Mr Chou’s submission saying that if this submission was accepted on appeal, then the other orders should be set aside.

The Full Court also had to consider whether these grounds could be raised now as no such objection had been raised before the Primary Judge: [66]. In deciding not to allow the Chou parties to raise the objection on appeal, the Full Court noted at [68]:  “The Chou parties informed the primary judge that they did not ‘seek to be heard’ on this subject”, except to contend that “Mr Chou did not create or design these products nor prepare the documentation” (references to the primary judge’s reasons omitted)

The Full Court emphasized that the case before the primary judge was about the work Mr Chou in fact carried out as a Metstech employee and whether that work was pursuant to the terms of that employment: [70]. The defensive case that Mr Chou did not carry out the relevant design work (or work of original significance) was a factual case only. Metstech directed its case to the work Mr Chou did as an employee, and by reason of that, there was no possibility that Yakao’s rights could be affected: [73].

The Full Court saw no reason why the declaration could not be varied to make clear that Yakao’s rights were not affected. That variation took the form that the declaration could be prefaced by the words: “As between the plaintiffs and the defendants …”: [80]. On the final day of hearing the appeal, the Chou parties accepted that if the declaration was varied as suggested, Grounds 3-10 of the appeal fell away: [89].

The Chou parties raised similar arguments to the order for delivery up. The Full Court did not accept those arguments, on the basis that the order for delivery up had “effect according to its own terms”: [90].

Other grounds of appeal included that there was no evidentiary basis for an order for an inquiry into damages and an appeal as to costs at first instance. The Metstech parties cross appealed on grounds that the primary judge did not deal breaches of duties owed to Metstech as directors, officers and employees, however during the appeal, Metstech accepted these matters were academic if the declaration and other orders were undisturbed.

The appeal and cross-appeal were dismissed.