Quantum Surveying the IPEC Way

When we report cases of copyright infringement, we all too often concentrate just on the arguments and evidence which lead to the outcome at trial: the winners and losers. For obvious reasons it is rarely possible to look in detail at those cases which settle, because the agreements usually bind the parties to confidentiality, and slightly less rarely do we examine the separate hearings in which quantum is assessed and awarded. There are  two possible reasons why these hearings are less commented upon: they are intrinsically less interesting as they have little bearing on the law per se (ie they tend to be very fact specific to each case therefore hard to draw inferences from), and they also tend to be less extensively reported on Bailii and in the law reports.

However for those less conversant with litigation - and this includes the growing number of litigants in person - the process(es) by which quantum is assessed can form an important element when considering whether to fight or settle. For the layman to only consider such matters as the likely damages after liability has been established, is rather too late. And from lawyer’s point of view, occasionally a costs hearing can involve a determining of which law which should be applied.

And so it was with a recent judgment from the IPEC under His Honour Judge Hacon in the matter of Absolute Lofts Ltd v Artisan Home Improvements Ltd and Anor [2015] EWHC 2608 (IPEC). The case provides both a welcome insight into the current thinking on assessing quantum in copyright cases, and the extent to which the UK law may be at variance with the EU Enforcement Directive (2004/48 EC) (pdf) brought into force by the Intellectual Property (Enforcement etc) Regulations 2006. This is the second time that Judge Hacon has published a judgment concerning an inquiry into damages - the first being Henderson v All Around The World Recordings Ltd, which was a case about unpaid royalties and performer’s rights, reported on by Eleonora here.

Returning to the current case, it is only necessary to set out the facts in the most outline of terms, because the defendant admitted liability at trial. The claimant, Absolute Lofts, is as its name suggests, a company which specialises in loft conversions. It is based and operates in London and has its own website. The owner of the company, Mr Craig Colton takes photographs of work he has completed and posts them on his company's website. There was no dispute that he owned the copyright in these images and that he had assigned the copyright to his company.

Artisan Home Improvements Limited is a company operating in the Bradford area. In around 2009, the company's owner (and second defendant) Mr Darren Ludbrook expanded his existing small building business to include the loft conversion market. He needed images of conversions for his website in order generate interest in this new area of work. Although he blamed his website designer, the court found that he either took 21 images from the website of Absolute Lofts and included them on the Artisan website, or there were reasonable grounds for believing he knew they were infringing images. The fact that potential customers of Artisan were being misled in this way was not at issue in the proceedings, although the judge took this into account when assessing Mr Ludbrook’s integrity and general approach to business.

In something of a departure from the normal structure of a court judgment, Judge Hacon first outlined in some detail the methodology chosen to calculate the quantum, before addressing the law which governs the awarding of damages. In this case, the so-called 'user principle' was followed. This principle is based on the construction by the court of a hypothetical negotiation between claimant and defendant before the act complained of, where each party would have been acting willingly and without duress to achieve the same state of affairs (ie the use of the 21 images) in a legal way. This differs from quantum based on presumed (or provable) losses suffered by the claimant, or the presumed ( or provable) profits made by the defendant arising out of the infringement.

The first thing the court looked at were the alternatives to using Mr Colton's images: Mr Ludbrook could have commissioned his own photographer, or he could have purchased licensed images from a stock agency (which is ultimately what he did, once the letter before action was received and he was obliged to take down Mr Coltan's images). Counsel for each side provided their own estimates, supported by expert testimony, of the cost of commissioning 21 similar photographs, which ranged between £9,000 (the claimant's figure) and £700 (the defendant's lowest estimate), but the court rejected this analysis on the basis that Mr Ludbrook was seen as a man "prepared to use the cheapest images he could find that looked good enough and could pass for photos of loft conversions done by Artisan" [22]. Instead, the judge took the view that the best evidence was provided by what actually happened when Mr Ludbrook was forced to find substitute images - he obtained them from a stock agency for a total of £300. This was the level of ordinary damages the court awarded.

The claimant had also sought aggravated damages under Section 97(2) of the CDPA. This subsection says a court may award additional damages having regard to all the circumstances, but in particular to the flagrancy of the infringement and any benefit accruing to the defendant by reason of the infringement. However the judge found that he needed to consider whether s 97(2) had been made redundant by the Enforcement Directive, specifically Art. 13(1). This came about because the UK Regulations which brought the Directive into force, state in Reg 3 (2) that damages may be awarded based on taking all appropriate aspects into account (this would include those factors covered in s 97(2)), or damages based royalties or fees which would have been due if the parties had agreed beforehand (the user principle outlined above). However this strict either/or approach was not to be found to be so rigid in the Directive (Art 13 1a and 1b). In the directive, the wording for the second condition is: damages “such as at least the amount of royalties or fees …” (my added emphasis). The court decided at [48] that the Directive thus allowed the national courts to consider additional damages, such as those contemplated by s 97(2), since Art 2 of the Directive permitted national differences in the means of enforcement if they were more favourable for rightholders than those provided for in the Directive. On this basis the court felt it was appropriate to award additional damages on the basis of the indirect benefits the defendant gained from the infringement, that is to say the increased business in loft conversions following the use of the images on the website. The business accounts for Artisan over the relevant period were inadequate to show the actual profits but turnover was clearly substantial (around £500,000 in 2013 for example), and it had to be assumed that this was in part due to orders won of the strength of the website. The judge awarded an extra £6,000 in damages under this head. This figure would have been the same he concluded, whether it was calculated under the Art 13(1) process, or s 97(2) CDPA.

This is a somewhat simplified version of the judgment, which interested readers are encouraged to read  for themselves in order to gain the full nuance of the deliberations.

Postscript.   Following the hand down of this judgment, counsel for Absolute Lofts returned  to the court to ask for an amendment to the award of ordinary damages (the figure of £300). Their grounds for seeeking this were that when the court had taken the Shutterstock fees as good evidence of the real world  cost of obtaining a licence for 21 similar images of loft conversions. However the full terms of the licence had been omitted from the trial bundle. The claimant had subsequently obtained these terms  and found that amongst other things they contained the following:

    “YOU [the licensee of the images] MAY NOT”:

[...]

12. Use an Image in a manner that infringes upon any third party’s

trademark or other intellectual property, or would give rise to a claim of deceptive advertising or unfair competition.
[...]
18.  Use any Image (in whole or in part) as a trademark, service mark,  logo or other indication of origin, or as part therefore, or to otherwise endorse or imply the endorsement of any goods and/or services.’
19.  Falsely represent, expressly or by way of reasonable implication, that any Image was created by you or a person other than the copyright holder(s) of that image."

Clearly Artisan's use of the licensed images was in breach of these terms and so the licence was invalid. It follows that Shutterstock would either have charged more for the actual use, or would not have permitted such use at all. Either way the figure of £300 was the wrong basis for the award.

The judge then had to decide whether he was permitted to reconsider his judgment and award of damages without the necessity a new trial or an appeal. Fortunately earlier this year Mr Justice Birss had had cause to examine much the same issue in Vringo Infrastructure Inc v ZTE (UK) Limited [2015] EWHC 214 (Pat). Birss J  concluded that where evidence was adduced after judgment had been given, the principles set out in Ladd v Marshall [1954] 1 WLR1489 might well be applied by the trial judge since he would have a better view of the facts than an appeal court.

HHJ Hacon stressed that while these principles are not decisive they are highly relevant to the current case:

“First, it must be shown that the evidence could not have been obtained without reasonable diligence for use at the trial. Secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive. Thirdly, the evidence must be such as is presumably to be believed or, in other words, it must be apparently credible, though it need not be incontrovertible.”

Counsel for Absolute Lofts argued that this was not new evidence, and therefore the first principle did not apply, but the judge disagreed. On the basis that these additional terms could have been discovered with reasonable diligence before the trial or at least before judgment, the first principle was not met and so the application must fail.

Full details of the judgment here