A recent decision of Judge Hacon in the Intellectual Property Enterprise Court has demonstrated the severity with which defendants may be treated where there is a flagrant breach of intellectual property rights, where additional damages in the value of twenty times the compensatory damages were awarded [1].

Background

Absolute Lofts South West London Limited (“Absolute Lofts”) is a provider of loft conversion services in the London area. Following completion of the conversions, Absolute Lofts would, with the permission of the home owners, take photographs of the completed works to publish on the Absolute Lofts website, in the hope of attracting new business and customers.

Artisan Home Improvements (“Artisan”) was also, between early 2010 and April 2015, a provider of loft conversion services, operating in and around the Bradford area, under its sole director and shareholder, Mr Ludbrook (together with Artisan, the “Defendants”). Prior to 2010, Mr Ludbrook had offered small building work for residential properties and expanded into the loft conversion market in 2009. As the business began to pick up, Mr Ludbrook began to trade through Artisan for the first time. One of Mr Ludbrook’s previous customers agreed to create a website advertising the loft conversion services for Mr Ludbrook in 2008, and then for Artisan, which went live in September 2010.

In May 2014, Absolute Lofts wrote to Artisan complaining of Artisan’s use of 21 images taken from the Absolute Lofts website. After this, Mr Ludbrook contacted a marketing agency in Halifax who helped Artisan shut down its website in the middle of May 2014. The 21 images which were the subject of Absolute Lofts’ complaint were removed and subsequently replaced by 21 licenced images, which were purchased from a stock photograph library. The website then went live again, and was active until Artisan went into liquidation in April 2015.

During the proceedings, Mr Ludbrook admitted that Artisan infringed Absolute Lofts’ copyright in the 21 images, and accepted joint liability with Artisan for the infringement. Judge Hacon decided that there were therefore two outstanding issues to be resolved.

  1. The first was the quantum of compensatory damages, which was agreed by both parties to be assessed under the ‘user principle’.
  2. The second related to additional damages, initially under s.97(2) Copyright, Designs and Patents Act 1988 (“CDPA 1988”) and the amount. Should that argument fail, Absolute Lofts would claim under art.13(1) Enforcement Directive[2].

Compensatory Damages

Judge Hacon made his assessment of the calculation of damages according to the user principle, as he set out in Jodie Aysha Henderson v All Around the World Recordings Limited[3] (“All Around the World”), by reference to earlier case law[4]. This assessment is made on the theoretical basis of “what the parties would have agreed as willing licensor and willing licensee”, on the premise that the parties would have entered into negotiations immediately before the acts of infringement.

In this instance, it was assumed that Mr Ludbrook would have known he needed images for Artisan’s website that would need to be sourced elsewhere, and that he wished to use Absolute Lofts’ images. It was stated that Mr Ludbrook was “not a man fussed about misleading his potential customers”, and that Artisan’s website was clearly set up so that it represented all the photographs as loft conversions done by Artisan, despite the work done having nothing to do with them.

Mr Colton, the photographer for Absolute Lofts, did not suggest either he or Absolute Lofts had suffered any adverse effect from the infringement or would have expected to. There would be no effect on direct competition, by virtue of the distance between operating areas, and Mr Colton suggested that there was no real likelihood that anyone was likely to pay for the use of the photographs, meaning any agreed sum would be a bonus to Absolute Lofts. He could have every incentive to conclude a deal, and naturally would attempt to negotiate as advantageous a deal as possible.

There were obvious limits to Mr Ludbrook’s bargaining position on the other hand. Short of taking the photographs himself, Mr Ludbrook had two options: to arrange for a photographer take the photographs, or to purchase images from a photographic library. The relative costs of Mr Ludbrook’s options were heavily disputed.

With the first option, Absolute Lofts contended it would have cost Artisan around £9,000 to commission a professional photographer, whereas Artisan estimated it to be between £700 to £1,000. Judge Hacon found the representations of experts for both parties unhelpful, as they proceeded with their analysis on false premises, namely, that Mr Ludbrook wanted professional shots on Artisan’s website, where the photographs used by Absolute Lofts (whilst adequate) were not of a professional standard, and that Mr Ludbrook would have contemplated paying for customised photographs of actual loft conversions, which seemed highly unlikely, with Judge Hacon noting Mr Ludbrook was “prepared to use the cheapest images that looked good enough and could pass for photos of loft conversions done by Artisan”.

As regards the second option, when faced with Absolute Lofts’ letter before action in May 2014, Mr Ludbrook sourced images from a photographic library, at the cost of £300. On this basis, Judge Hacon commented that this was “as good a guide as any”, and an initial sum of £300 was awarded to Absolute Lofts.

Additional Damages

Judge Hacon was directed to Nottinghamshire Health Case NHS Trusts v News Group Newspapers LTD[5] in which it was held that additional damages in accordance with s.97(2) CDPA 1988 could be awarded due to a ‘couldn’t care less’ attitude on the part of the defendant. Although on cross-examination, Mr Ludbrook maintained that he gave three original photographs to the website designer, Mr Bhatti, and trusted him to source the additional photographs, Judge Hacon took the view on balance that Mr Ludbrook either knew that the copies of photographs on Artisan’s website were infringing copies or had reasonable grounds to know they were. This was sufficient to engage both s.97(2) CDPA 1988 and art.13(1) Enforcement Directive.

Interestingly, where he had in All Around the World avoided deciding on the continuing applicability of s.97(2) CDPA 1988 in light of art.13(1) Enforcement Directive, Judge Hacon held here that, where both are at play, a successful claimant is entitled to rely on either, whichever would provide for the greater damages. He also commented, however, that he was unsure that the reference to unfair profits under art.13(1) Enforcement Directive will often be different to those assessed under s.97(2) CDPA 1988.

Reinforcing the wording of art.3(2) Enforcement Directive (which in turn echoes those in art.8 InfoSoc Directive[6]) that the sanctions “shall be effective, proportionate and dissuasive”, therefore concluding that an element of deterrence is more likely to be necessary where there has been knowing infringement, Artisan was ordered to pay additional damages of £6,000.

Comment

The additional damages substantially outweighed the compensatory damages, with additional sums due worth 20 times the original amount. Although there is relatively little explanation from Judge Hacon in reaching the final sum awarded, this judgment is important in clearly demonstrating the clout which a claim for additional damages under s.97(2) CDPA 1988 or art.13(1) Enforcement Directive for flagrancy of breach can have. In future, this decision will impact upon instances where defendants admit liability or are found liable, not only where they have knowingly breached, but also where insufficient due diligence was conducted and they are believed to have “not cared less” or been reckless as to the source of the original materials.