Abuse of process in the IPEC—£1bn claim valued by the court at £83

What is in store for a claimant who values his claim at £1bn when the Intellectual Property Enterprise Court (IPEC) takes firm hold of an application for strike out for abuse of process?

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In Lilley v DMG Events Ltd [2014] EWHC 610 (IPEC)[2014] All ER (D) 123 (Mar) the IPEC decided that Mr Lilley’s particulars of claim in a claim for copyright infringement and negligent misstatement would be struck out as a whole.

What was the factual background to this case?

A litigant in person, Mr Lilley, brought the legal action. The applications were by the defendant (DMG). DMG is a publisher of technical journals. Mr Lilley had supplied articles that appeared in DMG’s publications, in the period 1996 to 2004. After this time, DMG authorised two third parties to publish Mr Lilley’s works. This authorisation was withdrawn in late 2006. There was a clear limitation issue with Mr Lilley’s claim.

What were the legal and procedural issues raised in these applications?

The claim was issued in the High Court. The main action turned on what appears to be a simple copyright infringement claim—however, the particulars of claim ran to 166 pages and contained other allegations. On allocation, the case was transferred to the Patents County Court (PCC), now the IPEC. Mr Lilley resisted the transfer to the PCC.

The first application was a request to strike out the parts of the pleadings that related to a claim of ‘unlawfully resisting the copyright infringement claim’. Since this was a claim not recognised by English law, this was a fairly open and shut application. The second application was a request to strike out the claimant’s statements of case in their entirety on the grounds that they were an abuse of the court’s process.

How did the abuse of process arguments play out?

The judge was clear that the potential value of a claim to a claimant, who succeeds in an action, could be too meagre to justify committing court resources to it and also that:

‘…the court is concerned to ensure that judicial and court resources are appropriately and proportionately used in accordance with the requirements of justice.’ (citing Jameel v Dow Jones & Co Inc [2005] EWCA Civ 75[2005] All ER (D) 43 (Feb))

The authorisations, the basis of Mr Lilley’s claim for infringement of copyright, stopped by December 2006 so an injunction was not an appropriate remedy. In weighing up whether the court’s resources should be committed to Mr Lilley’s claim, the court was required to assess the upper limit of damages that Mr Lilley would be entitled to if he was successful at trial.

Damages were assessed in accordance with General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd[1975] 2 All ER 173. The court considered three approaches.

Approach 1

Where the IP right owner makes a profit from the sale of the protected goods or services, the loss caused by the infringement is the redirection of sales from those made by the owner to sales by the infringer. Damages are therefore calculated by assessing the loss of profit to the proprietor caused by the redirected sales.

Approach 2

Where the IP right owner exploits his IP right by granting licences and receiving royalties. The damages due are then the royalty payments that the infringer would have paid to the proprietor had the infringer acted lawfully and taken a licence of the type generally granted.

Approach 3

Where the IP right owner does not exploit the IP right by either of the two approaches outlined above, the court will objectively assess what would have been paid by way of a royalty on the hypothesis that the proprietor had been a willing licensor and the infringer a willing licensee.

DMG argued approach 3 applied. It based its calculation on what it paid to the two third parties it authorised to publish Mr Lilley’s works on the basis that it would not have paid Mr Lilley more that it would have received from the third parties—this figure was £83.

Mr Lilley argued approach 2 applied and, taking a world-wide approach to royalties, calculated a staggering total figure, for all articles in all magazines and on websites (for the whole world), of £798,728,820 for the damages claimed from DMG. Mr Lilley’s other claims in this action pushed the upper limit of his claim to £1bn, in total.

The court rejected Mr Lilley’s approach 2 calculations stating that in an inquiry as to damages, the court would investigate what DMG would have paid Mr Lilley on the hypothesis of a willing licensor and willing licensee.

What can lawyers take from this case?

This is an IPEC case and is therefore not a binding precedent. However, IPEC cases offer an insight into procedural and evidential issues and the way judges deal with them.

It is hard not to feel a little sorry for the defendant, DMG, in this case. Apparently, the case had trundled on for years with the threat of proceedings hanging over them. DMG was a sitting target having to fund its side in Mr Lilley’s perhaps unrealistic and inflated claim. And this was no small matter since Mr Lilley was prolific throughout the dispute (particulars of claim running to 166 pages and his application pleadings ran to 9 files) resulting, no doubt, in a great deal of additional work and cost for DMG.

You can only imagine the futility of any settlement discussions, with the sides so far apart. It was only when Mr Lilley issued proceedings that DMG could begin to take control of the situation. Once the proceedings were in play, the High Court transferred the case to the IPEC. The judge indicated that had it stayed there it would have been case managed (including an order that the particulars of claim be reduced and have a maximum length).

Lawyers and their clients who find themselves in DMG’s position may only be able to take comfort that the limitation period is ticking away throughout the years of posturing pre issue, but once the claim is served on them they should quickly get it into the correct court, such as the IPEC, and track (small?) and case managed as soon as possible.

In terms of calculating arguable damages using approach 2, lawyers should also take note that as per General Tirefor a ‘going rate’ of royalty to be taken. The circumstances in which the going rate was paid must be comparable with those in which the parties are assumed to strike their bargain. The court is unlikely to accept extrapolated royalty terms of a limited licence. In this application, the judge drew attention to the fact that Mr Lilley would have to have produced at least one example of a granted licence for the publication of one of his articles on the internet that satisfied all component parts of his calculations.

In terms of the 'use of court resources’ arguments for the strike out application, the court guessed the trial of the action would last two days and that as the case needed a 'significant’ amount of case management, a day should be allocated just to that. Since the case was struck out based on the arguable damages assessment and the time the court assessed it would use to take care of the action, these are potentially useful take home points for lawyers to use as guidance in future cases

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