If you copy somebody else’s description of a commercial scheme, do you have to account to them for all profits you make by exploiting it? A recent Court of Appeal decision highlights the limits on copyright infringement damages and the protection conferred by a standard non-disclosure agreement.
Topic: Intellectual property
Who: London General Holdings Limited v USP plc
Where: Court of Appeal of the High Court of Justice, London
When: July 2005
London General Holdings ("LGH") appealed against a breach of copyright verdict requiring it to pay damages of £126,720 to competitor USP plc ("USP").
The copyright material in question was a scheme document ("Document") setting out a system for the provision of extended warranties to retailers of household electrical goods. The Document had been obtained by LGH from a third party under a confidentiality agreement, but the copyright in the Document as a literary work was by the time of the proceedings owned by LGH's competitor and the respondent to the appeal, USP.
LGH had reworked the Document but it was still a substantial copy of the original Document. When, as part of a tendering process in which USP was also involved, LGH sent the reworked Document to a retailer interested in operating the warranty scheme, USP got wind of what had occurred.
Tender winning hit
In order to win the tender and take it out of the hands of LGH, USP had to drop its price and suffer loss of profit of £111,720. At first instance the Court awarded USP the full amount it claimed by way of loss of profit plus a notional royalty of £15,000.
LGH appealed on the basis that the loss of profit and notional royalty awards represented double recovery and that in any event the losses claimed were not directly related to the alleged breach of copyright in the Document.
The Court of Appeal upheld LGH's appeal, but not on the grounds LGH had submitted.
The Appeal Judges said that any loss of profit sustained by USP had been directly related not to breach of copyright in the Document, but to LGH's "pirating" of the business concept/ideas contained in the Document. Accordingly, USP had sustained no damage as a direct result of LGH's unauthorised copying of the element of the Document that was protected by copyright, namely the words on the page.
Loss of profit award revoked
In the circumstances the loss of profit element of the damages award was set aside, but it did not go all LGH's way. There had still been copying of the text of the Document by way of its being sent to LGH's prospective customer and also to the customer's lawyers as well as LGH's own lawyers. Each of these unauthorised reproductions was a separate breach of copyright and a notional royalty should be awarded in that regard.
£15,000 had already been awarded, but this was felt by the Court of Appeal to be sufficient only for the first infringement, and since there had been more than one act of copying,the notional royalty award was increased to £35,000.
Why this matters:
This case underlines the limitations on the protection which the law of copyright confers on business schemes as set out in any document which attracts copyright protection as a literary work. Copyright law is blinkered and gives a remedy only for the physical reproduction of the protected work.
It also underlines the potential limits on the protection conferred by a non-disclosure agreement. One critical point was that the NDA agreement here ("NDA") was between LGH and a third party, not between LGH and USP. USP had bought the copyright in the Document at a later point, but apparently acquired no rights by way of the NDA. It might have been different if, for example, the original NDA had been drafted in such a way as to allow USP an enforcement right courtesy of the Contracts (Rights of Third Parties) Act.
The notional royalty award was reasonably substantial, but there has to be serious doubt as to whether it was going to be anywhere near sufficient to cover USP's irrecoverable legal costs.