Copyright infringement—assessing additional damages in the IPEC

Copyright infringement—assessing additional damages in the IPEC
How did the Intellectual Property Enterprise Court (IPEC) deal with assessing compensatory and additional damages in a copyright infringement case relating to photographs? The IPEC’s recent ruling in Absolute Lofts v Artisan Home Improvements [2015] EWHC 2608 (IPEC) focuses on CDPA 1988, s 97(2) and how it interacts with art 13(1) of Directive 2004/48/EC, the Enforcement Directive, providing clarity on the UK’s approach to additional damages and the Enforcement Directive.

Briefly, what is the background to this dispute?

Absolute Lofts is a provider of loft conversions operating in the London area. Absolute Lofts has photographs of its completed loft conversions on its website taken by Mr Colton, the owner of the company. Artisan provided home improvements including loft conversions in the Bradford area. It used 21 images from Absolute Loft’s website on its own website.

Liability was admitted by Artisan and its owner (Mr Ludbrook), therefore the dispute centred on quantum of damages due to Absolute Lofts for infringement of the copyright in the 21 images.

What were the issues on quantum?

There were two issues which the court said needed to be resolved on quantum:

  1. the quantum of compensatory damages due to Absolute Lofts, which the parties agreed would be assessed based on the ‘user principle’
  2. whether Absolute Lofts was entitled to additional damages pursuant to the Copyright, Designs and Patents Act 1988, s 97(2) (CDPA 1988) and, if so, how much—failing that, the court would deal with Absolute Lofts’ claim for damages under Directive 2004/48/EC on the enforcement of intellectual property rights, art 13(1) (the Enforcement Directive)

What were the damages awarded?

The sum of £300 was awarded for compensatory damages under the user principle. A further sum of £6,000 was awarded for additional damages under CDPA 1988, s 97(2) and also for unfair profits under the Enforcement Directive, art 13(1) but as these awards are not cumulative the defendants were ordered to pay Absolute Lofts the sum of £6,000 in addition to the £300 owed under the user principle.

How did the court deal calculate damages under the user principle?

The court had previously set out its approach to the calculation of damages according to the user principle in the performance rights case Henderson v All Around The World Recordings Limited [2014] EWHC 3087 (IPEC), [2015] IP&T 335, at paras [18] and [19], referring to and summarising what had been said by Arnold J in Force India Formula One Team Limited v 1 Malaysia Racing Team [2012] EWHC 616 (Ch).

Applying that approach, the court:

  1. assessed what the parties would have agreed as willing licensor and willing licensee based on hypothetical negotiations
  2. rejected both side’s estimates which were based on expert evidence
  3. took as a guide on what would have been hypothetically agreed, that when faced with Absolute Lofts’ letter before action, Mr Ludbrook commissioned a local website agency to replace Absolute Lofts’ 21 photos with images sourced from Shutterstock, costing him £300

What points can be taken from the court’s assessment of damages for unfair profits?

When considering damages ‘appropriate to the actual prejudice suffered by the rightholder’ under the Enforcement Directive, art 13(1), the court stated that an assessment may not contain a punitive element. But, the court was also reluctant to limit damages to strictly compensatory ones, holding that the assessment should be made on a ‘looser’ basis and can include a restitutionary element where appropriate (though as per Henderson this can never amount to an account of profits on top of compensatory damages). The court also acknowledged that an element of deterrence is more likely to be needed where there has been knowing infringement.

In applying this to the facts, the court inferred that Absolute Lofts’ photographs made a contribution to Artisan’s profits by encouraging those who visited Artisan’s website to pay Artisan to do a loft conversion and that the contribution was more than negligible. Those profits were unfair because they were generated by a misrepresentation. This benefit to Artisan did not adversely affect Absolute Lofts, requiring compensatory damages in the strict sense. Absolute Lofts as copyright owner was entitled to be compensated for the actual prejudice it has suffered, assessed in the looser sense referred to above. The prejudice was that it had not enjoyed the unfair profit accrued to Artisan from exploiting Mr Colton’s photographs. The court also took the view that the strictly compensatory damages of £300 would lack the dissuasive element required by the Enforcement Directive, art 3(2).

The unfair profits figure was assessed at £6,000 but unfortunately the court gave no break down as to how it arrived at this figure.

How did the court deal with additional damages under CDPA 1988, s 97(2) versus unfair profits under the Enforcement Directive?

Previously, in Henderson the court had suggested that CDPA 1988, s 191J(2) (and its equivalents, such as CDPA 1988, s 97(2)) have been made redundant by the Enforcement Directive, art 13(1). Since the status of CDPA 1988, s 97(2) remained in issue the court decided to clarify its continuing applicability.

As a starting point, the court took the view that either Mr Ludbrook obtained all the images complained of from Absolute Lofts’ website himself or alternatively he was aware of their source and was indifferent about it. This was enough to trigger the flagrancy element of CDPA 1988, s 97(2) (and the Enforcement Directive, art 13(1)).

The court then looked at whether CDPA 1988, s 97(2) should still be applied in the light of the existence of the Enforcement Directive, art 13 (1), reasoning that:

  1. the regulations implementing the Enforcement Directive in the UK, the Intellectual Property (Enforcement, etc) Regulations 2006, SI 2006/1028 (the 2006 Regulations), suggest that existing national law with regard to knowing infringement is preserved unless it is inconsistent with the Enforcement Directive. This would suggest that if national law is consistent with the 2006 Regulations there would be no need to apply it and if national law is inconsistent it should not be applied
  2. on the other hand, the Enforcement Directive, art 2(1) indicates that national legislation which is more favourable to rights holders than the remedies provided for by the Enforcement Directive is preserved—suggesting that the Enforcement Directive is, in this respect, intended to provide a minimum level of Community-wide remedies
  3. therefore a successful claimant is entitled to rely on either CDPA 1988, s 97(2) or on the defendant’s unfair profits under the Enforcement Directive, art 13(1), whichever would provide for the greater damages
  4. under CDPA 1988, s 97(2)(a) the court is under a duty to take into account the flagrancy of the infringement whereas flagrancy is not a compulsory factor in the assessment under art 13(1). That would mean that in some circumstances the absence of flagrancy could serve as a barrier to the minimum remedies available under art 13(1)
  5. if flagrancy and/or the benefit accruing to the defendant by reason of the infringement are such that additional damages under CDPA 1988, s 97(2) would exceed those available under art 13(1), an award under CDPA 1988, s 97(2) would be allowed under the Enforcement Directive

Therefore the damages claims under CDPA 1988, s 97(2) and the Enforcement Directive, art 13 (1) would be dealt with alongside each other.

Does this judgment provide clarity around the issue of the interaction between CDPA 1988, s 97(2) and the Enforcement Directive, art 13(1)?

It provides some clarity—both are likely to be considered going forward although the court indicated that in this case, the end result of damages was unlikely to differ.

What messages should lawyers advise their clients to take from this ruling?

Lawyers should prepare claims, where appropriate, for damages under both CDPA 1988, s 97(2) and the Enforcement Directive, art 13(1) noting the potential for flexibility under art 13(1) for an additional sum to be awarded relating to the profit the defendant has made from the knowing infringement. An example of such profit is where the defendant’s business has expanded in volume and/or in reputation on the back of the infringements. For the claimant the loss is due to the expansion of a competing business.

In terms of proving ‘knowing’ infringement, lawyers should note that in this case the use of copyright notices on the defendant’s own website were referred to as an example of his knowledge of copyright protection in relation to material such as photographs.

The court dismissed the expert evidence taking a more common sense approach to assessing the level of compensatory damages.

Finally, when considering this area it is always worth focusing on the words of the Enforcement Directive over the words of the implementing 2006 Regulations as there are inconsistencies between the two and the Enforcement Directive does, of course, take precedence.

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