In a case brought by various film studios against the owners of a website which infringed their copyright works, the High Court has held that a copyright owner does not have a proprietary claim against the proceeds of copyright infringement.

Background

In 2010 the Newzbin website was shut down following a court ruling that it had deliberately made available illegal copies of copyright works.  Shortly afterwards, a new website called Newzbin2 came into existence.

In the present action, various film studios (the “Studios”) had already obtained freezing injunctions against the Defendants (including the operator of Newzbin 2, and companies under his control) and then sought a proprietary injunction as the Studios had asserted a proprietary claim against the proceeds of copyright infringement.

Freezing injunctions v proprietary injunctions

The difference between freezing injunctions (or ‘Mareva’ injunctions) and proprietary injunctions was addressed by Millett LK in Ostrich Farming Corporation Ltd v Ketchell  (10 December 1997, unreported). There it was stated that, unlike a freezing injunction, a proprietary injunction “is not designed merely to preserve the defendant's assets so as to be available to meet a judgment; it is designed to protect the plaintiff from having its property expended for the defendant's purposes”. Unlike a freezing injunction, which operates against a defendant personally, a proprietary injunction operates in rem against the assets themselves.

In order to obtain a proprietary injunction, the Studios had to demonstrate there was a “serious question to be tried” in relation to their claim of having a proprietary right to the asset in question (i.e. the proceeds of copyright infringement).

Proprietary rights to the proceeds of copyright infringement

To try and establish a proprietary right, the Studios argued that the Defendants held the proceeds of the infringement on constructive trust. Such a remedy existed, they argued, under the Copyright Designs & Patents Act 1988 s.96(2) which (in addition to damages, injunctions and accounts) grants copyright holders relief as is otherwise available. The act of copyright infringement was also likened to that of theft, and the Studios suggesting that the proceeds were held on trust in the same way that stolen monies may be held on trust in a bank account (so long as it is still traceable in equity).

The High Court disagreed with this analogy. The owner who has his monies stolen retains equitable title, but loses legal title. By contrast the copyright owner’s legal and equitable right to the copyright work remain constant throughout infringement. Instead, said the Court, “a copyright infringer is more akin to a trespasser than to the thief”.  The Court developed this analogy, likening the copyright holder’s remedy to that of landowner who has no proprietary claim to fruits of trespass, but must instead rely on restitutionary damages.

Finally, the Studios’ claim had been against the copyright infringers’ total monies, and the Court felt “it might not seem just for even a deliberate wrongdoer to pay a copyright owner the amount of his gross receipts”. The Court also noted the ‘chilling effect’ such a decision would have on activities which carried even the slightest risk of intellectual property infringement.

Comment: The Court’s decision, although probably the most correct route open to it, still seems to rely on tenuous reasoning and seems unfair, particularly in light of the deliberate nature of the Defendants’ alleged wrongdoing. The law of trespass does not comfortably reconcile with the act of online copyright infringement. By having to retreat to analogies with acts of physical trespass, the Court’s decision demonstrates how inadequate the law can be when dealing with acts of digital piracy, even despite the infringement being carried out wilfully and on a massive scale.

The Court was correct in holding that copyright infringement couldn’t be likened to theft, but it isn’t exactly trespass either.

The full judgment can be found at http://www.bailii.org/ew/cases/EWHC/Ch/2013/159.html