Calculating damages: every box has a silver lining ...

Redcrier Publications Ltd & Another v Redrup Publications Ltd (t/a Complete Care Training) &John Redrup [2013] EWHC 3481 (IPEC) is a decision of Alastair Wilson QC, sitting as an Enterprise Judge in the Intellectual Property Enterprise Court, England and Wales.

Redcrier produced training manuals and conducted online examinations for care home staff.  These manuals were supplied to subscribing care homes in a cabinet labelled with the words "the silver box" -- this was important to Redcrier because its publicity material included a photograph of a silver box. The business had been founded by John Redrup, the second defendant, who sold it to Redcrier in 2007 but continued to be involved in the business till he left in 2011, somewhat inconveniently taking half of Redcrier's staff with him.  Redrup then set up a competing business (Redrup Publications, the first defendant), copying Redcrier's manuals and updating them. Redrup Publications distributed fliers containing photos of the silver box to Redcrier's customers which offered them : these fliers offered a "seamless transfer" to their upgrade service, while making allegations of a not particularly flattering nature about the manner in which Redcrier ran its business.

At this point Redcrier's patience came to an end. The company sued the defendants for copyright infringement and libel (for which a separate trial was to take place).  Redrup Publications helpfully admitted infringing copyright in the manuals, while Redrup himself denied all liability.

The issue before the IP Enterprise Court was Redcrier's claim for damages based upon (i) infringement of copyright in the silver box photograph which had been so prominently displayed on the first defendant's flier; (ii) damages for loss of upgrade business and (iii) damages from the sale of infringing materials to new customers. The claimants also indicated that they would like an interim payment ahead of a full assessment of the quantum.  The defendants ungenerously offered £50 damages for the use of the photograph.

Alastair Wilson QC sided with Redcrier and ordered an interim payment of a total of £37,450 on the following basis:

* The natural reading of the Civil Procedure Rules, CPR r.25.7(4), was that an amount awarded by way of interim payment should not exceed the amount that was likely to be awarded at the hearing. There was provision in r.25.8(2) for repayment by the claimant in the event of an overpayment -- but the amount of an award should be calculated in a way that made a repayment unlikely to occur.

* In this dispute Redrup Publications had not yet opted between an enquiry as to damages or an account of profits. The authorities demonstrated that a party who was suing on alternative claims was entitled to invoke the r.25.7 jurisdiction if the court was satisfied that one way or another the claimant would recover a substantial sum [this blogger continues to speculate as to whether a claimant should be forced to opt for either an account of profits or an enquiry into damages: the IP Enforcement Directive doesn't require this].

* The silver box photo was intrinsically a fairly trivial one, for which in the ordinary way no willing buyer would pay a very large licence fee. However, it represented a significant feature of Redrup Publications' goodwill and the defendants must have wanted to use it on their fliers in order to capture for themselves some of the benefit of that goodwill.

* What's more, Redrup Publications would never in reality have granted a licence, but the court had to proceed [somewhat meaninglessly] on the basis that the parties were hypothetically willing to negotiate a licence agreement. The offer of £50 was far less than was likely to be awarded in due course, particularly given the fact that the photograph was to be used as part of a campaign to persuade Redrup Publications' customers to change their allegiance and take their business to the defendants. On this basis the likely amount to be awarded when damages were finally assessed would not be less than £750. That sum was ordered to be paid as an interim award.

* There was evidence that Redrup Publications had supplied infringing manuals to customers until mid-January 2013, or maybe even longer. On a conservative basis the infringement lasted for one year. That company did not dispute that it took some update business from Redcrier and, on the current state of the evidence, an appropriately conservative figure for lost customers during the period of infringement was 30, at £150 lost profit per customer per annum.  Each lost customer represented a loss of profits extending over more than one year and it was unlikely that Redcrier would have lost less than an average two years' upgrade business per lost customer. Redcrier had therefore lost £9,000.

* On Redrup Publications' own figures it had made 11.5 sales of infringing material per month to new customers (ie 138 new customers over the period of infringement). Redcrier would probably not have made all of those sales itself, though, since it had just five per cent of the relevant market and it could be taken to have acquired 5% of Redrup Publications' new customers. It had therefore lost seven new customers at £1,150 per customer, totalling £8,050.

* In respect of the remaining 131 customers, Redcrier was entitled to a notional royalty on each infringing manual sold. This royalty would have been quite high because Redrup Publications needed a set of manuals in order to enter the market. The relevant royalties were unlikely to be assessed at less than £150 per customer, leading to a further £19,650 of damages.

It's not often that we see judgments in which the courts go into such detail when dealing with monetary issues, so this judgment is very much welcomed.

Collecting Societies Again

The press office of the Bundesgerichtshof (BGH) informs us that the copyright senate of the BGH has issued a judgment on the calculation of collecting society tariffs (BGH, 27 October 2011 - I ZR 25/10, press release available here).

In respect of indoor events, it is the established practice of German music collecting society GEMA to calculate the royalties it collects based on the size of the room where the music is played. To GEMA at least, it seemed logical enough to apply the same to outdoor events such as street fairs and Christmas markets. Accordingly, it took the size of the entire venue as reference point, from the first to the last stall or from the first to the last wall enclosing the space where the event took place (it's Friday, time to rhyme...).

As such things go, the organisers of a number of such outdoor events disagreed with GEMA's calculation methods. In their view, only the space where the sound from the stage can actually be heard should be taken into account. From that space, one should deduct the areas where visitors could not go, i.e. the stalls, the areas where they could not stay for more than a fleeting amount of time, i.e. public transport areas, and the areas where the music from the stage was overlaid with other music, i.e. music played at individual stalls.

Both the court at first instance and the court of appeal decided that the GEMA was entitled to determine royalties according to the size of the entire venue. The BGH confirmed these decisions. It pointed out that it is typical for outdoor events such as street fairs and Christmas markets that the audience in front of or in good listening distance to the stage constantly changes and new listeners replace the old. Consequently, the overall number of people listening to the music is substantially larger than the number of people the space where the music can be heard clearly could hold at any one time. The court added that the music played on stage usually characterises the entire event and that it would be unreasonable to ask GEMA to attend every single outdoor event in the country and measure the space where the music from the stage is clearly audible, and the space within that range where the audience cannot or must not stay or where other music overlays the music emanating from the stage. For reasons of practicality, then, GEMA's method of calculation was deemed appropriate.

I can't help remarking that a constantly changing audience - whether on a market or in a club - means that many people listen to little bit of music, whereas a constant audience - whether at an indoor or an open air concert - means that fewer people listen to more music. If 1,000 people listen to 10% of the music, isn't the end result the same as if 100 people listened to 100% of the music?

Also, I'm not exactly a science whiz, but shouldn't the laws of physics enable you to calculate the area where the music is audible if the organiser lets you know how loud he's going to play it? Throw in a plan of the site - which must exist because German authorities would not allow the organisers to put up stalls willy-nilly - and you can calculate the area covered by stalls as well as any areas where visitors cannot or must not go. Which leaves the musical overlay issue. While personally I find involuntarily listening to random mash-ups of songs that weren't so great in the first place deeply annoying, it appears to be something the organisers of such events seem to encourage for some reason. Otherwise surely they could just play music on the big stage and make putting up a stall conditional upon not playing your own music. So in my view, there is no good reason for deducting the areas of overlay.

We shall all have to wait for the written judgment to be released in order to find out why the BGH thinks the solution I just came up with is less than brilliant. In the meantime, I look forward to any comments or alternative approaches.