The Inquiry - FBT Productions, LLC v Let Them Eat Vinyl Distribution Ltd.
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| Grooves on a Vinyl LP Record Author Evan-Amos Licence Public Domain Source Wikimedia Commons |
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Intellectual Property Enterprise Court (Ian Karet) FBT Productions, LLC v Let Them Eat Vinyl Distribution Ltd [2021] EWHC 932 (IPEC) (20 April 2021)
In FBT Productions, LLC v Let Them Eat Vinyl Distribution Ltd and another [2019] EWHC 829 (IPEC) (2 April 2019), Judge Hacon held that Let Them Eat Vinyl Distribution Ltd ("LTEV") had infringed FBT Productrions LLC's copyright in Eminem's album Infinite ("the Work"). I discussed that decision in Copyright - FBT Productions, LLC v Let Them Eat Vinyl Distribution Ltd and Another on 1 May 2019. S.97 (2) of the Copyright, Designs and Patents Act 1988 provides that in an action for infringement of copyright all such relief by way of damages, injunctions, accounts or otherwise, is available to the claimant as is available in respect of the infringement of any other property right. This was an inquiry to determine the amount of money that LTEV should pay to FBT Productions Ltd ("FBT") by way of damages for infringing that copyright.
Accounts and Inquiries
The owner of an intellectual property right that has been infringed can require the infringer either to compensate him or her for the loss or damage that the infringement may have caused or to account for the profits that the infringer has gained from his or her infringement. The intellectual property rights owner is not entitled to both for the reasons given by the editors of Copinger & Skone-James at para 21-287 of the 18th edition of their treatise on copyright. The proceedings to determine the amount that an infringer owes by way of damages is known as an "account" and those to determine the amount for which he or she must account are known as "an account."
Split Trials
Intellectual property cases are assigned to the Chancery Division by s.61 (1) and paragraph 1 of Schedule 1 of the Senior Courts Act 1981 As it has only been possible to obtain damages in a chancery action since the Chancery Amendment Act 1858 came into force, actions for the infringement of intellectual property rights tend to take place in two stages. First, there is a trial to determine whether or not there has been an infringement. If the court finds that there has been an infringement the court will usually grant the rights owner a final injunction. The successful rights owner can then elect an account or an inquiry at the end of a trial on liability. He or she can require the infringer to give information and disclose documents to enable the rights owner to make an informed choice. Once the rights holder has made his or her election the court will direct the parties to set out their cases in statements of case, disclose relevant documents and serve witness statements and experts' reports. The account or inquiry will usually take place several months and in some cases years after the determination of liability.
The Inquiry
In this case, FBT claimed £288,209 for:
"a) the loss of an opportunity to license a third party to exploit the Work (and various tracks comprised in the Work);
b) the losses flowing from the licence the Claimant would have offered the Defendant for the exploitation of the Work; or
c) a reasonable royalty for the actual sales made by the Defendant based on the notion of a willing licensee/willing licensor negotiation"
"a) the loss of an opportunity to license a third party to exploit the Work (and various tracks comprised in the Work);
b) the losses flowing from the licence the Claimant would have offered the Defendant for the exploitation of the Work; or
c) a reasonable royalty for the actual sales made by the Defendant based on the notion of a willing licensee/willing licensor negotiation"
The inquiry came on before Ian Karet sitting as a judge of the High Court on 9 March 2021. At para [78] of his judgment of 20 April 2021 Mr Karet assessed FBT's damages at £7,452.50 plus interest.
Loss of Opportunity
Mr Karet referred to para [31] of Judge Hacon's judgment in SDL Hair Ltd v. Next Row Ltd [2014] EWHC 2084 (IPEC) in relation to damages for lost opportunity:
"(1) A successful claimant is entitled, by way of compensation, to that sum of money which will put him in the same position he would have been in if he had not sustained the wrong, see Livingstone v Rawyards Coal Co. (1880) 5 App.Cas., 25 per Lord Blackburn at 39.
(2) The claimant has the burden of proving the loss, see General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197, at 212.
(3) The defendant being a wrongdoer, damages should be liberally assessed but the object is to compensate the claimant, not punish the defendant, see General Tire at p.212.
(4) The claimant is entitled to recover loss that was (i) foreseeable, (ii) caused by the wrong and (iii) not excluded from recovery by public or social policy, see Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443, at 452.
(5) In relation to causation, it is not enough for the claimant to show that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss. It is not necessary for the tort to be the sole or dominant cause of the loss, see Gerber at p.452.
(6) An inquiry will generally require the court to make an assessment of what would have happened had the tort not been committed and to compare that with what actually happened. It may also require the court to make a comparison between, on the one hand, future events that would have been expected to occur had the tort not been committed and, on the other hand, events that are expected to occur, the tort having been committed. Not much in the way of accuracy is to be expected bearing in mind all the uncertainties of quantification. See Gerber at first instance [1995] RPC 383, per Jacob J, at 395-396.
(7) Where the claimant has to prove a causal link between an act done by the defendant and the loss sustained by the claimant, the court must determine such causation on the balance of probabilities. If on balance the act caused the loss, the claimant is entitled to be compensated in full for the loss. It is irrelevant whether the court thinks that the balance only just tips in favour of the claimant or that the causation claimed is overwhelmingly likely, see Allied Maples Group v Simmons & Simmons [1995] WLR 1602, at 1609-1610.
(8) Where quantification of the claimant's loss depends on future uncertain events, such questions are decided not on the balance of probability but on the court's assessment, often expressed in percentage terms, of the loss eventuating. This may depend in part on the hypothetical acts of a third party, see Allied Maples at 1610.
(9) Where the claim for past loss depends on the hypothetical act of a third party, i.e. the claimant's case is that if the tort had not been committed the third party would have acted to the benefit of the claimant (or would have prevented a loss) in some way, the claimant need only show that he had a substantial chance, rather than a speculative one, of enjoying the benefit conferred by the third party. Once past this hurdle, the likelihood that the benefit or opportunity would have occurred is relevant only to the quantification of damages. See Allied Maples at 1611-1614."
Mr Justice Nugee (as he then was) considered Allied Maples in Wellesley Partners LLP v. Withers LLP [2014] EWHC 556 (Ch) at para [188] of his judgment:
"(4)…there are …cases where the claimant does not seek to establish as a matter of causation that he has lost the opportunity of acquiring a specific benefit which is dependent on the actions of a third party; rather, he claims he has lost the opportunity to trade generally, and claims the loss of profits that he would have made."
"(1) A successful claimant is entitled, by way of compensation, to that sum of money which will put him in the same position he would have been in if he had not sustained the wrong, see Livingstone v Rawyards Coal Co. (1880) 5 App.Cas., 25 per Lord Blackburn at 39.
(2) The claimant has the burden of proving the loss, see General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197, at 212.
(3) The defendant being a wrongdoer, damages should be liberally assessed but the object is to compensate the claimant, not punish the defendant, see General Tire at p.212.
(4) The claimant is entitled to recover loss that was (i) foreseeable, (ii) caused by the wrong and (iii) not excluded from recovery by public or social policy, see Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443, at 452.
(5) In relation to causation, it is not enough for the claimant to show that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss. It is not necessary for the tort to be the sole or dominant cause of the loss, see Gerber at p.452.
(6) An inquiry will generally require the court to make an assessment of what would have happened had the tort not been committed and to compare that with what actually happened. It may also require the court to make a comparison between, on the one hand, future events that would have been expected to occur had the tort not been committed and, on the other hand, events that are expected to occur, the tort having been committed. Not much in the way of accuracy is to be expected bearing in mind all the uncertainties of quantification. See Gerber at first instance [1995] RPC 383, per Jacob J, at 395-396.
(7) Where the claimant has to prove a causal link between an act done by the defendant and the loss sustained by the claimant, the court must determine such causation on the balance of probabilities. If on balance the act caused the loss, the claimant is entitled to be compensated in full for the loss. It is irrelevant whether the court thinks that the balance only just tips in favour of the claimant or that the causation claimed is overwhelmingly likely, see Allied Maples Group v Simmons & Simmons [1995] WLR 1602, at 1609-1610.
(8) Where quantification of the claimant's loss depends on future uncertain events, such questions are decided not on the balance of probability but on the court's assessment, often expressed in percentage terms, of the loss eventuating. This may depend in part on the hypothetical acts of a third party, see Allied Maples at 1610.
(9) Where the claim for past loss depends on the hypothetical act of a third party, i.e. the claimant's case is that if the tort had not been committed the third party would have acted to the benefit of the claimant (or would have prevented a loss) in some way, the claimant need only show that he had a substantial chance, rather than a speculative one, of enjoying the benefit conferred by the third party. Once past this hurdle, the likelihood that the benefit or opportunity would have occurred is relevant only to the quantification of damages. See Allied Maples at 1611-1614."
Mr Justice Nugee (as he then was) considered Allied Maples in Wellesley Partners LLP v. Withers LLP [2014] EWHC 556 (Ch) at para [188] of his judgment:
"(4)…there are …cases where the claimant does not seek to establish as a matter of causation that he has lost the opportunity of acquiring a specific benefit which is dependent on the actions of a third party; rather, he claims he has lost the opportunity to trade generally, and claims the loss of profits that he would have made."
The claimant argued that the case before Mr Karet was such a case.
Notional Licences
As for national licences, Mr Karet referred to paras [18] and [19] of Judge Hacon's judgment in Henderson v All Around the World Recordings Ltd [2014] EWHC 3087 (IPEC), [2015] IP&T 33:
"'i) The overriding principle is that the damages are compensatory: see Attorney-General v Blake at 298 (Lord Hobhouse of Woodborough, dissenting but not on this point), Hendrix v PPX at [26] (Mance L.J., as he then was) and WWF v World Wrestling at [56] (Chadwick L.J.).
(ii) The primary basis for the assessment is to consider what sum would have [been] arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place: see PPX v Hendrix at [45], WWF v World Wrestling at [55], Lunn v Liverpool at [25] and Pell v Bow at [48]–[49], [51] (Lord Walker of Gestingthorpe).
(iii) The fact that one or both parties would not in practice have agreed to make a deal is irrelevant: see Pell v Bow at [49].
(iv) As a general rule, the assessment is to be made as at the date of the breach: see Lunn Poly at [29] and Pell v Bow at [50].
(v) Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain: see Pell v Bow at [51].
(vi) The court can take into account other relevant factors, and in particular delay on the part of the claimant in asserting its rights: see Pell v Bow at [54]".
The Court of Appeal in Force India ([2013] EWCA Civ 780; [2013] RPC 36) did not dissent from Arnold J's summary of the law (at [97]).
19. Wrotham Park damages, though they are for breach of contract, are in all relevant respects the same as those I have to consider under this head, so the foregoing principles set out by Arnold J apply. In the inquiry as to damages for infringement of trade marks in 32Red Plc v WHG (International) Limited [2013] EWHC 815 (Ch), Newey J's assessment was by consent also on the basis of willing licensor and willing licensee. Newey J endorsed the principles identified by Arnold J and expanded on them as follows:
'(vii) There are limits to the extent to which the court will have regard to the parties' actual attributes when assessing user principle damages. In particular
(a) the parties' financial circumstances are not material;
(b) character traits, such as whether one or other party is easygoing or aggressive, are to be disregarded [29]-[31].
(viii) In contrast, the court must have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. The task of the court is to establish the value of the wrongful use to the defendant, not a hypothetical person. The hypothetical negotiation is between the actual parties, assumed to bargain with their respective strengths and weaknesses [32]-[33].
(ix) If the defendant, at the time of the hypothetical negotiation, would have had available a non-infringing course of action, this is a matter which the parties can be expected to have taken into account [34]-42].
(x) Such an alternative need not have had all the advantages or other attributes of the infringing course of action for it to be relevant to the hypothetical negotiation [42].
(xi) The hypothetical licence relates solely to the right infringed [47]-[50].
(xii) The hypothetical licence is for the period of the defendant's infringement [51]-[52].
(xiii) Matters such as whether the hypothetical licence is exclusive or whether it would contain quality control provisions will depend on the facts and must accord with the realities of the circumstances under which the parties were hypothetically negotiating [56]-[58].'"
(a) the parties' financial circumstances are not material;
(b) character traits, such as whether one or other party is easygoing or aggressive, are to be disregarded [29]-[31].
(viii) In contrast, the court must have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. The task of the court is to establish the value of the wrongful use to the defendant, not a hypothetical person. The hypothetical negotiation is between the actual parties, assumed to bargain with their respective strengths and weaknesses [32]-[33].
(ix) If the defendant, at the time of the hypothetical negotiation, would have had available a non-infringing course of action, this is a matter which the parties can be expected to have taken into account [34]-42].
(x) Such an alternative need not have had all the advantages or other attributes of the infringing course of action for it to be relevant to the hypothetical negotiation [42].
(xi) The hypothetical licence relates solely to the right infringed [47]-[50].
(xii) The hypothetical licence is for the period of the defendant's infringement [51]-[52].
(xiii) Matters such as whether the hypothetical licence is exclusive or whether it would contain quality control provisions will depend on the facts and must accord with the realities of the circumstances under which the parties were hypothetically negotiating [56]-[58].'"
The Assessment
FBT's claim that LTEV's infringements led to the loss of an opportunity to license a third party to exploit the Work (and various tracks comprised in the Work) was unsupported by the evidence. The deputy judge said at para [58] of his judgment:
"...... I do not accept the discovery led FBT to abandon its plans, because they appear to have continued as before."
The claimant had discovered the infringements in early August 2104 yet later in that month its management had given instructions for a marketing plan indicating that it intended to continue with a re-issue. In fact, it reiterated that intention as late as October in an interview with Rolling Stone. Even if FBT was dissuaded from licensing the Work by the infringement of its copyrights, LTEV's infringement was not the only one. Applying Judge Hacon's test in SDL Hair Ltd v. Next Row Ltd, Mr Karet concluded that the claimant had not proved that the defendant's wrongdoing had caused the loss of an opportunity.
"...... I do not accept the discovery led FBT to abandon its plans, because they appear to have continued as before."
The claimant had discovered the infringements in early August 2104 yet later in that month its management had given instructions for a marketing plan indicating that it intended to continue with a re-issue. In fact, it reiterated that intention as late as October in an interview with Rolling Stone. Even if FBT was dissuaded from licensing the Work by the infringement of its copyrights, LTEV's infringement was not the only one. Applying Judge Hacon's test in SDL Hair Ltd v. Next Row Ltd, Mr Karet concluded that the claimant had not proved that the defendant's wrongdoing had caused the loss of an opportunity.
As FBT had stated that it would never have licensed LTEV because it was not an attractive potential licensee, FBT c\ould not claim lost licence fees from that defendant.
That left only the third head of damages, namely "a reasonable royalty for the actual sales made by the Defendant based on the notion of a willing licensee/willing licensor negotiation." Mr Karet directed himself at [68] that
"The principles in Henderson require the court to consider the right infringed and the time over which that took place. In this case the hypothetical negotiation would have been for a licence to make 2,891 copies of the Work in the United Kingdom."
Disregarding both the royalty that LTEV had paid to its licensor, Boogle Up, and FBT's licence terms to another licensee for digital distribution the learned deputy judge assessed FBT's damages as follows:
"[73] The damages should thus be calculated for a licence to make 2,981 copies of the Work. The notional licensor would know that the licensee had experience in market with a number of re-issues of significant artists. The licence would be for the UK.
[74] The licence would probably have been for a unit price per record. (If it had been a percentage of the price to dealer that would have been assumed so as to give a similar royalty.) Given the nature and reputation of the licensor (with valid rights) and the that this was a special anniversary disc which might attract higher pricing, the notional licensee would have been prepared to pay more than the £1.50 agreed with Boogie Up and would be able to set a higher price to dealer to maintain profits. The licensor would have in mind a likely retail price for the album of about US$24, which Mr Jampol said was a starting price for albums.
[75] Taking all this into account, the hypothetical fee would be £2.50 per disc.
[76] This is equivalent to a rate of just over 32 per cent on the price to dealer of £7.75 that LTEV in fact charged Plastic Head. It is a little higher than the rate Mr Velasco indicated, but his figures were based on a lower price to dealers."
Further Information
The most important takeaway from this case is the need to prove causation. It is not enough to prove an infringement and a loss, there must be a direct causal link between the two in order to meet the test in SDL Hair. Another important takeaway is the difference between the losses flowing from a licence and royalties on actual sales. In the former case, the claim can be defeated if it can be shown that a licence would never have been granted. In the latter case, that consideration is irrelevant, As Mr Justice Arnold had said in Force India
"The fact that one or both parties would not in practice have agreed to make a deal is irrelevant: see Pell v Bow at [49]."
Beatring in mind that this action began with a letter before claim in 2016 and the time and money that both parties must have invested in this litigation, damages of £7,452.50 represent rather slim pickings.
Anyone wishing to discuss this case or damages for IP infringement generally should call me on +44 (0)20 7404 5252 or send me a message through my contact form.
Anyone wishing to discuss this case or damages for IP infringement generally should call me on +44 (0)20 7404 5252 or send me a message through my contact form.
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