Copyright: MEI Fields Designs Ltd v Saffron Cards and Gifts Ltd

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Jane Lambert

Intellectual Property Enterprise Court (Mr David Stone) MEI Fields Designs Ltd v Saffron Cards and Gifts Ltd and another [2018] EWHC 1332 (IPEC) (6 June 2018)

This was an action for the infringement of copyright with a counterclaim for a declaration of non-infringement.  The copyrights in question subsisted in artwork for greetings cards that had been created by Mel Fields ("Mrs Fields"). The  main issue in this case was over who owned those copyrights rather than whether they had been infringed. Indeed, Mr David Stone, the deputy judge who tried the action and counterclaim remarked at para [19] of his judgment:  "unusually for a copyright case, I was never actually taken to the allegedly infringing cards at issue in these proceedings."

The Facts
Mrs Fields worked as design director of a company called Metropolis Worldwide Ltd ("Metropolis"). The company distributed cards that had been produced by third parties including a bespoke postcard range for a Japanese distributor. It also produced greeting cards, posters and t-shirts for the “Walking with Dinosaurs” series under a licence from the BBC.  Shortly after Metropolis was incorporated Mrs Fields began to design greetings cards in her spare time.  She arranged for Metropolis to make and sell them.  Each card bore the words "Designed by Mel Fields" and "Published by Metropolis". Metropolis sold the cards to John Lewis, Paperchase, Selfridges, Liberty, Fortnum & Mason, Waitrose and other retailers.

Metropolis fell into financial difficulties and entered a creditors' voluntary arrangement ("CVA") with its creditors in 2011 but continued to trade.  In 2012 Mrs Fields and her husband formed the claimant company, MEI Fields Designs Ltd ("MFD"),  to own and exploit the copyright in her designs.  She purported to assign the copyrights in her works to the  company.  Shortly afterwards MFD granted licences to Metropolis and one other company.

In 2013 Metropolis went into administration.  The administrators sold Metropolis's assets to the defendant company, Saffron Cards and Gifts Ltd. ("Saffron"), for £20,000.  Saffron moved into Metropolis's premises and took over its business which included the manufacture and sale of cards that had been designed by Mrs Fields for which MFD granted a new licence.

Relations between MFD and Saffron soon deteriorated.  MFD discovered that Saffron was marketing a competing range of cards. MFD alleged that those cards infringed its copyrights.  The allegedly infringing cards appear in the left hand column of an appendix to Mr Stone's judgment and the originals in the column to the right.   There were also disagreements over royalties.  In 2016 MFD terminated the licence that it had granted to Saffron.  Saffron continued to make and sell cards that had been designed by Mrs Fields to the same retailers notwithstanding the termination of its licence.

The Proceedings
MFD issued proceedings against Saffron and its director Paul Steele ("Mr Steele") on 5 July 2017 It alleged infringement by continuing to make and sell cards after the licence had been terminated  and by making and selling the cards in the left hand column of the judgment. Saffron and Mr Steele denied that MFD owners the copyrights relied upon or that that they had infringed those copyrights even if MFD did.  They counterclaimed for declarations of non-infringement of  those copyrights and publication and dissemination of the court's decision.   The action and counterclaim and came on for trial on 25 and 26 April and judgment in favour of MFD was delivered on 6 June 2018.

The Issues
At the case management conference, His Honour Judge Hacon ordered the following issues to be tried:

"1) Whether MFD is the sole owner of the copyright in the Works or whether they are owned jointly or individually by Metropolis.
2) Whether the Works were created within the scope of Mrs Fields’ employment relationship with Metropolis.
3) Whether Metropolis is the beneficial owner of the Works due to Mrs Fields’ position as a director of Metropolis.
4) Whether the 10 April 2012 Document amounts at law to an assignment of any copyright.
5) Whether the Defendants have infringed the copyright in the Works pursuant to sections 17, 18, 22 and/or 23 of the Copyright, Designs and Patents Act 1988 (the “CPDA”).
6) Whether the Licence Agreement is voidable due to MFD’s and Mrs Fields’ representations that they were the owner of the Works, in particular whether MFD breached 11.1(a) and 11.1(b) of the License Agreement.
7) Whether the Defendants have breached Clauses 8.2, 8.3, 29 and 19.1(c) of the Licence Agreement.
8) Whether the acts complained of have been committed pursuant to a common design and/or whether the Defendants are jointly and severally liable with each other in respect of all the acts complained of."

The parties resolved the 7th issue before trial and agreed to stand the 6th over to an inquiry.

Infringement

The issue of infringement appears to have been decided largely on documentary evidence and with little argument from counsel.  There was not much doubt that continuing to make and sell the cards after MFD's licence had come to an end would have infringed MFD copyrights subject only to the question of ownership.  As for the cards in the first column of the appendix, Mr Stone found that Saffron had access to MFD's designs and that there had been some copying.  He then considered whether what had been copied was sufficient to constitute copyright infringement. At para [110] he compared similarities and differences between the original and alleged copy. He found that the cards labelled "COU002" and "COU004" infringed but the rest did not.

Copyright Ownership
Mr Stone summarized Saffron and Mr Steele's defence at para [3]:

"The Defendants say that when Mrs Fields designed the cards, she was employed by Metropolis Worldwide Limited (“Metropolis”) and that Metropolis therefore solely owned the copyright in the cards. Alternatively the Defendants say that, as a director of Metropolis, Mrs Fields only holds any copyright on trust for Metropolis. In the further alternative, the Defendants say that Mrs Fields created the cards together with various employees of Metropolis, and so any copyright is jointly owned with Metropolis. In any event, the Defendants say that Metropolis sold its intellectual property to Saffron in 2014 and that therefore MFD no longer holds any enforceable rights in such property."

Whether Mrs Fields owned the Copyrights
Saffron and Mr Steele argued that Metropolis owned the copyright in any cards that she designed while she was that company's design director because s.11 (2) of the CDPA provides that the copyright in an artistic work that is made by the author in the course of his or her employment belongs the author's employer subject to any agreement to the contrary.

Mr Stone found that there was no single test for whether a work was made in the course of the author's employment.  He directed himself as follows at para [42]:

"Rather it seems to me that the question of whether or not given acts were carried out in the course of employment for the purposes of Section 11 of the CPDA is a multifactorial assessment, to be based on all the circumstances of the case. In most situations where an employment relationship has been conceded, there will be some factors which point to the copyright work being created in the course of that employment and some factors which point otherwise. The relevant factors may include:
(a) The terms of the contract of employment;
(b) Where the work was created;
(c) Whether the work was created during normal office hours;
(d) Who provided the materials for the work to be created;
(e) The level of direction provided to the author;
(f) Whether the author can refuse to create the work/s; and
(g) Whether the work is 'integral@ to the business.
No single factor is likely to be determinative and this list is not closed. It is a matter for the tribunal to assess the relevant factors, and determine, having balanced any competing factors, whether the work was created in the course of employment."

Citing Ultraframe UK Limited v Fielding [2003] RPC 435 and and Case C-5/08  Infopaq International A/S v Danske Dagblades Forening  [2009] EUECJ C-5/08, EU:C:2009:465, ECLI:EU:C:2009:465, [2010] FSR 20, [2009] ECR I-6569, [2012] Bus LR 102, [2009] ECDR 16 the deputy judge reminded himself of the purpose of s.11 which was that copyright should vest in the entity for whom the work was created and who paid for it and that “the expression of the intellectual creation of the author of the work” was what copyright protects.

Taking account of Mrs Fields's job description, that she did much of the work at home, she she was not supervised, she could have stopped designing cards at any time, if she had Metropolis would have commissioned work from other designers and her work was accessory rather than integral to the company's business, Mr Stone concluded that the work was done outside the course of the author's employment. Alternatively, the deputy judge found on the same facts that there was an oral agreement between Mrs Fields and the company that she should retain the copyrights and that Mrs Fields did not hold the copyrights on trust for the company.  Finally, he found that the copyrights belonged to Mrs Fields and not owned jointly by Mrs Fields and Metropolis.

The deputy judge held at para [90] that had the copyrights passed to Metropolis, they would have been included in the 2013 asset sale by the administrator of Metropolis to Saffron;

Whether Mrs Fields assigned her Copyrights to MFD
On 10 April 2012 Mrs Mel signed the following handwritten instrument:

“I, Mei Fields, as owner of the copyright of my designs, allow my works to be used by MEI FIELDS DESIGNS LTD, and transfer ownership of copyright.
My designs may be licensed with my permission.
These include all works dating from 1st January 2000 and future works until further notice or termination.”

There was a dispute between the parties as to whether this instrument was a non-exclusive licence or an assignment.  The deputy judge remarked at [85]:

"The 10 April 2012 Document set out in full above is clearly unsatisfactory in legal terms: it is internally inconsistent. If an assignment, it should not also mention licensing or termination. If a licence, then the word “assignment” is misplaced. It is certainly not clear on its terms what it means. I must therefore look at the commercial context and ask myself which interpretation is consistent with business common sense. In doing so, I have come to the conclusion that the document is an assignment, because that is the interprettion more consistent with the commercial consequences. MFD went on to licence Ms Fields’ card designs to third parties. These licences are not expressed to be sub-licences. Whilst some of the words of the document are inconsistent with that interpretation, interpreting it as an assignment does less violence to the main claim “I … transfer ownership of copyright” than interpreting the document as a licence."

He concluded that the instrument was an assignment.

Directors' Liability

The above findings were enough to dispose of the action and counterclaim.   However, as Saffron had disposed of most of its assets some 6 months after service of the claim form, it had no assets with which to satisfy a judgment.  The court therefore had to determine whether Mr Steele was jointly and severally liable for Saffron's wrongdoing.

Mr Stone noted a growing body of case law in the Intellectual Property Enterprise Court on directors' liability observing that that was not surprising given the frequency with which very small business entities come before it.  He referred to Judge Hacon's decisions in Grenade (UK) Limited v Grenade Energy Limited and Another [2016] EWHC 877 (IPEC)  and The Zockoll Group Limited v Mr Handy Limited and Others [2018] EWHC 324 concluding that "where an allegation of joint tortfeasance is raised against an individual who is the sole shareholder and director of the company, in effect there is evidential burden on the person to explain why the court should not assume that he or she personally carried out the acts of the company which are complained of in the proceedings."

He said at para [119]:

"In my judgment, as a sole director and sole shareholder with self-professed responsibility for the business, the shift in evidential burden set out in Grenade is engaged here. The  facts of this case differ from those in Grenade and in Zockall. In Grenade, Mr Chawla, the second defendant, was said to be a “one-man company”. It does not appear from that judgment that the corporate defendant had any employees. The position is less clear from the report of the decision in Zockall, but what is clear from Zockall is that “the buck stopped with [the fourth defendant], and that he took all significant decisions”. In my judgment, that finding is at one with the present facts, and Mr Steele’s own evidence."

The deputy judge analysed the process by which Saffron decided to make the cards in the first column of the appendix and found that Mr Steele "actively co-operated to bring about the acts of Saffron, the primary tortfeasor, and he intended that his co-operation would help bring about those acts."  He also found  that Mr Steele made the decision to keep selling Mrs Fields’ designs after the termination of MFD's licence.  For those reasons, he held that Mr Steele was liable as a joint tortfeasor.

Comment
Although MFD won the action and counterclaim the case was probably a much closer run thing than the result indicates. Had Metropolis acquired the copyrights in Mrs Fields's artwork they would have been transferred to Saffron by the administrators which would have been the end of the case. At para 5-15 of the 17th edition of Copinger and Skone-James, the authors say:

"The position of a company director sometimes causes difficulty because a director will not necessarily be employed under a contract of service, even where he is an executive director. The fact that a managing director, as part of his management activities, from time to time acts as if he were a servant or employee does not make him an employee for this purpose. If he is so employed, the ordinary rule applies. If he is not, the legal title to the copyright will not vest in the company but the fiduciary duties which he owes as a director and officer will usually mean that he holds on trust for the company any copyright in work he does qua director."

This case was an exception to the above rule and it will be cited for that reason.

It will also be cited as authority for the proposition that a director who owns most or not all of a company's issued share capital will usually be held liable for any wrongdoing it may commit.

Anyone wishing to discuss this case should call me on 020 7404 5252 during office hours or message me through my contact form.