Who: IP Enterprise Court
When: 14 November 2013
Law stated as at: 10 December 2013
The IP Enterprise Court recently awarded interim damages for copyright infringement and diverted business to a company whose copyright in its manuals and publicity materials was infringed by a former employee when setting up a competing business.
Redcrier Publications Ltd (“Redcrier”) produced training manuals and conducted online exams for care homes staff. The manuals were supplied to care homes who took out a subscription in a cabinet labeled the “silver box”. Redcrier’s publicity materials included a photograph of a “silver box”. Redcrier was established by Mr Redrup, who sold his share in Redcrier to new owners in 2007. Mr Redrup continued to be involved in Redcrier until 2011, when he left to set up a competing business, Redrup Publishing Ltd (“Redrup”). On leaving Redcrier, Mr Redrup took (a) half of Redcrier’s staff and (b) copies of Redcrier’s manuals with him.
Mr Redrup then began distributing fliers to existing clients of Redcrier in which he: (a) advertised Redrup as an upgraded service from Redcrier; (b) used Redcrier’s “silver box” photo and suggested that the services being provided by Redrup were a seamless upgrade from those provided by Redcrier; and (c) made allegations about how the Redcrier business was run. Redcrier therefore brought a claim against Redrup and Mr Redrup for breach of copyright and libel (for which a second trial is taking place). Redrup admitted infringing copyright in the manuals but Mr Redrup denied all liability (the liability of Mr Redrup is set to be considered at a later trial).
Redcrier’s claim was for damages relating to: (a) infringement of copyright in the photograph of the “silver box” that formed the crux of Redcrier’s publicity materials; (b) damages for loss of “upgrade” business; and (c) damages for the sale of the infringing manuals to new customers. The issue before the Court was Redcrier’s request an interim payment ahead of the full quantum assessment. The defendants offered up £50 in damages in related to (a) above. The Court dismissed this £50 offer, ordering Redrup to pay Redcrier a total of £37,450 by way of interim payment, on the basis of the following reasoning.
Calculating interim payments
Under CPR r.25.7(4), the amount awarded by way of interim payment should not be more than is likely to be awarded at the final hearing, and if it is, CPR r.25.8(2) provides that the claimant must repay the excess to the defendant, although the award should be calculated in a way that made a repayment unlikely to occur.
Redcrier had not yet chosen between an enquiry as to damages or an account for profit. The Court held that a claimant who was suing on alternative claims was entitled to invoke CPRr25.7 if the Court is satisfied that the claimant would recover a substantial sum one way or another, which in this case, it was.
Infringing copyright in the “silver box” photograph
The “silver box” photograph, whilst unlikely to fetch a very large licence fee from a third party licensee, did represent a significant feature of Redcrier’s goodwill and Redrup used the photo on its flyer in order to benefit from that goodwill.
Redcrier would never have granted a licence for Redrup to use the photo, but the Court proceeded on the basis that the parties were hypothetically willing to negotiate a licence and applied the principles discussed in the recent 32 Red v WHG case (32Red plc v WHG (International) Ltd and others  EWHC 815 (Ch)). The £50 offer was, on this basis, rejected in favor of a figure of no less than £750 which was ordered to be paid as an interim award.
Loss of income from existing customers
Redrup had supplied infringing manuals to customers for at least one year. The court estimated that Redcrier had lost 30 customers to Redrup , at £150 lost profit per customer per annum. The Court held that each customer lost represented a loss of profits extending over more than one year, but it was unlikely that Redcrier would have lost less that an average of two years’ upgrade business per lost customer. The Court therefore valued Redcrier’s loss of income from existing customers at £9,000.
Lost profits from new business diverted from Redcrier
Redrup estimated that it had made sales of 1.5 infringing materials to 138 new customers over the infringement period. The Court held that Redcrier would not necessarily have made all of those sales instead of Redrup – Redcrier held 5% of the relevant market and could be taken to have acquired 5% of Redcrier’s new customers. Redcrier had therefore lost 7 new customers, which the Court valued as £1,000 per customer, plus a notional figure of £150 per customer in respect of the next year’s profits on updates for each customer (a total of £8,050).
Notional royalties for manuals sold to customers independently acquired by Redrup
In respect of the remaining 131 new customers, Redcrier was entitled to a notional royalty on each infringing manual sold. In the hypothetical licensc negotiations, the Court held that Redcrier would have been in a position to demand a high royalty because Redrup needed a set of manuals to enter the market. The royalties were unlikely to be assessed at less than £150 per customer, which led the Court to award a further £19,650 of damages in notional royalties.
Why this matters:
The Court considered an interim payment of £36,700 represented a reasonable and conservative amount, calculated in a way which was unlikely to lead to Redcrier repaying any money to Redrup following an enquiry into damages or an account for profits and the eventual trial on the issue of Mr Redrup’s individual liability.
The judgment goes into unusual detail on the calculation of interim awards for damages and offers an interesting insight into the process of assessing damages for loss of income, lost profits and notional royalties which will provide a useful benchmark for future cases.
Moreover, the judgment indicates that infringing copyright in a photograph with associated goodwill (like the “silver box”) could in a case like this, where it was used to win business from the copyright owner, lead to an award of considerable damages. This applied even when, as in this case, the photograph in question is intrinsically trivial and on the open market no willing buyer would pay, and no willing seller could expect to receive, a very large licence fee.