Intellectual Property Update - Shepparton Partners Collective Operations Pty Ltd v QAD Inc [2021] FCAFC 206

This was an appeal arising from a judgment of Thawley J (QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615). Software company QAD Inc (“QAD”) had alleged that the respondent (“SPC”) infringed the copyright in its enterprise resource planning software by continuing to use it after purchasing a business from Coca Cola Amatil without securing a transfer of the software licence agreement. QAD had sought payment of a fee to transfer the licence and SPC had refused to pay that fee, asserting that it had an implied licence to use the software.

At first instance, Thawley J found that, while QAD had granted an implied licence by virtue of the fact that it knew SPC needed the software for the business to function, that licence was conditional on SPC paying the transfer fee or upgrading the software. Once SPC signalled its refusal to pay the fee, the implied licence ended and SPC’s continued use of the software constituted copyright infringement. The Court therefore awarded QAD AU$662,428.80 (including GST) for loss stemming from the infringement (being the cost of the transfer fee and a year’s maintenance fee). The Court also awarded AU$500,000 in additional damages given the flagrancy of SPC’s conduct.

SPC appealed against the award of damages contending that the primary judge erred in assessing compensatory damages on the basis that the maintenance fee of AU$177,816 (excluding GST) was not a reasonably foreseeable component of QAD’s loss and should not have been included as part of QAD’s loss. SPC also contended that the amount of AU$177,816 (excluding GST) represented a gross sum when, consistent with principle, compensatory damages are awarded on a net profit basis only (that is, direct and indirect costs of QAD in providing the maintenance service had to be proved by QAD and reduced from its claim).

SPC’s appeal was dismissed. The Full Court stated that SPC’s challenge to the inclusion of the full amount of AU$177,816 (excluding GST) should not be permitted to be raised on appeal, observing that SPC had submitted to Thawley J that the “proper counter-factual” was not SPC accepting QAD’s list price of AU$984,000, but SPC accepting an offer by QAD of 21 June 2019, being for a total of AU$662,428.80 (which sum included the maintenance fee). The Full Court found that it was not now open to SPC on appeal to contend that the Primary Judge had erred in accepting SPC’s case, stating:

“In a case involving an evaluative assessment such as an award of damages, a party cannot be permitted in an appeal to assert error on the part of the primary judge who has accepted that party’s case. To do so involves an impermissible form of approbation and reprobation, inconsistent with the fundamental principle of the finality of litigation including that a party is bound by its conduct of a case at first instance.”