Saturday 16 November 2013

Clutching at Straw: counterclaim in Eva Cassidy dispute fails

Straw & Another v Jennings & Others [2013] EWHC 3290 (Ch) is a vast (369 paragraph) Chancery Division, England and Wales, ruling of Mr Justice Warren from 1 November, following 11 days of hearings, in which the claimants, the exclusive licensees of musical recordings of the late American singer Eva Cassidy, claimed £1.6 million from four defendant companies, alleging that they had failed to account for distribution profits owed due under a distribution agreement. The defendants denied the claims and counterclaimed for copyright infringement.

In short, the claimants (Bill Short and Blix Street Records) owned the worldwide distribution rights to the Eva Cassidy catalogue. They entered into an oral joint venture agreement with the four defendants (Jennings and three companies) in 1998 for the promotion and distribution of Cassidy's recordings in certain territories. By this agreement the distribution profit was to be shared equally, but there was no express agreement as to how profit would be calculated.

In the first accounting period, the defendants made deductions from profit for a "distribution fee". The claimants objected and this led to a further oral agreement (the distribution agreement) in which it was agreed that a 30 per cent distribution fee could be charged.

Following termination of the joint venture on 31 July 2006, a number of issues arose regarding whether losses, as well as profit, were to be shared equally, how the periods in respect of which distribution profit were to be ascertained, what was the correct approach to computing profit and hoe much was actually due.

Although the claimants issued the claim form on 8 April 2011, there were some limitation issues because the action only came to court on the basis of amended particulars which were issued in March 2013. In addition, the defendants counterclaimed that copyright in the "compilation and sequencing" of the Cassidy recordings into albums was jointly owned, that the claimants had infringed theircopyright by continuing to reproduce and issue copies of the relevant works without the defendants' consent.

Warren J upheld the claim and awarded the claimants £758,127, while also dismissing the counterclaim.  In his view:

* on the evidence, nothing express had been said about sharing any losses of the distribution business or about capping the distribution fee at 30 per cent. What's more, even if there had been a loss attributable to the distribution agreement, there was no suggestion that the venture as a whole would have shown a loss -- so it was unnecessary to determine whether the sharing of losses had been contemplated. It was neither obvious nor commonsense that such losses would be shared, and it was quite unnecessary to imply such a term into the agreement necessary in order to provide business efficacy [this blogger recalls that a request that the court imply a term into a contract for the sake of business efficacy is usually the last throw of the dice by a party with nothing left to rely on. However, it just occasionally comes off. See the next bullet-point].

* while the distribution agreement made no express provision for the periods over which distribution profit was to be calculated, it could not have been intended that there would be no profit distribution until the agreement terminated: to give business efficacy [told you!] to the agreement, it would be implied that the claimants would receive payment from time to time during the agreement. The court did not have to identify a reasonable period of account because the defendants had actually provided accounts twice within the agreement's duration.

* the correct methodology for calculating the distribution profit was to ascertain the income relevant to the calculation, ie the distribution fee of 30 per cent of gross receipts, and then deduct the direct costs of the distribution business. Alas, the defendants''s record-keeping was less than ideal, so another method would have to be adopted. The April 2005 accounts were a good starting point because they adopted a methodology almost identical to that which ought to apply in an ideal world of full and readily available data and because the underlying figures were reliable.

* the limitation defence largely failed on the facts.

* on the evidence, the defendants had not established that they enjoyed co-ownership rights in relation to compilation and sequencing of the albums apart from, possibly, in relation to certain track notes. The claimants controlled the process and were the ultimate decision-makers; it was their interests alone which had been responsible for commercial exploitation in other territories. The defendants' input fell short of giving rise to copyright ownership; the fact that the greatest success of the albums was in one of the defendants' territories made no difference to that conclusion.

The judge made a couple of obiter comments of interest, one on copyright, the other on contract law:

First, if joint copyright had been established, the implied licence, arising from the circumstances of the creation of copyright, for the continued use by the claimants of that copyright would not have ended with the termination of the joint venture. In any event, it was difficult to see what loss the defendants might have suffered or the quantum of the compensatory award to which they might have been entitled. In the absence of anticipation of a more than nominal favourable pecuniary result, the counterclaim appeared to be a tactical manoeuvre which bordered on an abuse of the court's process. Secondly, the various formulations used by courts in established case law concerning the implications of terms in contracts were not legislation and were not to be allowed to take on a life of their own.

No comments: