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Thursday, 13 March 2014

Calculation of damages: a cautionary tale

If maths was not your strong suit at school, then this blog post is for you. This Kat brings you a cautionary tale from the Intellectual Property Enterprise Court (“IPEC”), England and Wales, where in Lilley v DMG Events Ltd [2014] EWHC 610 (IPEC), 12 March 2014, a significant exaggeration of the damages claimed in respect of a copyright infringement has led to a case being struck out of court. 

Background
To provide brief background information, the original action concerned a claim for copyright infringement made by Mr Victor Lilley against DMG, a company which edits and publishes technical journals, including ‘Speciality Chemicals’ Magazine and ‘Adhesives Technology’ Magazine.  

Mr Lilley entered into a contract with DMG to supply a number of articles which appeared in these publications between 1996 and March 2004.  After the articles had appeared in DMG’s publications, DMG authorised two companies, the Gale Group “Gale” and EBSCO, to publish Mr Lilley’s articles. Mr Lilley alleged that these authorisations constituted an infringement of his copyright in these articles, and claimed damages in the mammoth region of £798,728,820 from DMG. 

Subsequent to this, two applications were put before Judge Hacon by DMG. The first was to strike out those parts of the Particulars of Claim and Reply to Particulars in the IPEC which related to a claim against DMG for “unlawfully resisting the copyright infringement claim” under CPR rule 3.4(2). The second application sought to strike out the Statements of Case of Mr Lilley in their entirety on the grounds that they were an abuse of the court’s process, or was otherwise likely to obstruct the just disposal of the proceedings.

The First Application: “unlawfully resisting the copyright infringement claim”
Those of you who are well versed in the laws of copyright will know that unlawfully resisting the copyright infringement claim” is not recognised as a tort under English Law, and DMG submitted this argument to the court.  Further DMG submitted that the court should follow the example of Roth J who had struck out a previous claim by Mr Lilley on 15 March 2013 based on the same alleged tort in similar proceedings brought by him against the Chartered Institute of Management Accountants ([2013] EWHC 1354 (Ch), at [45]).  The court was told that Mr Lilley had sought permission to appeal this order but was refused by a decision of Floyd LJ. 

What was surprising in this case was Mr Lilley’s response (who was acting as litigant in person) in which he had stated that he made no claim based on a tort of unlawfully resisting the infringement claim.  It was merely a heading he had used for Part 10 of his Particulars of Claim, and the tort he wished to rely on in this part of his Particulars was negligent misstatement. The statements that Mr Lilley stated he relied on came from a letter dated 21 December 2006 from DMG’s solicitors which stated that;
  1. this was a flat fee rather than a royalty fee per publication;
  2. DMG is entitled to provide copies to the distributors; and
  3. Lilley Information Systems Limited (Mr Lilley’s company) is not now entitled to vary the original agreement and claim royalty payments from DMG.
Therefore, the court stated, it should follow that the “unlawfully resisting the copyright infringement claim” part of the Statement of Case should be struck out; however, the new claim of ‘negligent misstatement’ would not be struck out when it had barely been explored. 

The Second Application
The perhaps more interesting part of this story is the second application from DMG to strike out the Statements of Case of Mr Lilley in their entirety under CPR rule 3.4(2)(b), on the grounds that it constituted an abuse of process. The court stated in its judgment that DMG relied in particular on Jameel v Dow Jones & Co Inc [2005] EWCA Civ 75.

In Jameel Lord Phillips MR stated [at 54]:
“An abuse of process is of concern not merely to the parties but to the court. It is no longer the role of the court simply to provide a level playing field and to referee whatever game the parties choose to play upon it. The court is concerned to ensure that judicial and court resources are appropriately and proportionately used in accordance with the requirements of justice.”
Judge Hacon explained that he would “have to make an assessment of the upper limit of damages to which Mr Lilley would arguably be entitled if he were to prove infringement at trial, and must then decide whether that upper arguable limit warrants the commitment of this court’s resources to Mr Lilley’s claim”.

Maximum arguable damages
The court stated in its judgment that the parties did agree that the damages should be assessed according to the principles laid down in General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1975] 1 WLR 819.  These principles were summarised into 3 potential approaches to the calculation of damages (conveniently described by the parties as Group 1, 2 and 3):

Group 1    Where the owner of the infringed IP right (“the proprietor”) makes a profit from    the sale of goods or services protected by the IP right which has been infringed, damages are calculated by assessing the loss of profit to the proprietor caused by the redirected sales to the infringer. 

Group 2   Where the proprietor usually grants a licence and/or receives royalties for the exploitation of their IP, damages due are the royalty payments or licence fee that the infringer would have paid to the proprietor had the infringer acted lawfully and taken a licence of the type generally granted.

Group 3    In this case the court objectively assesses what would have been paid by way of a royalty on the hypothesis that the proprietor had been a willing licensor and the infringer a willing licensee.  The courts will look to analogous and the surrounding commercial facts in this situation.

DMG argued that the court should follow the Group 3 approach and calculate damages based on the (1) amount DMG would have paid Mr Lilley for the right to authorise others to publish Mr Lilley’s articles and (2) the royalties which would have been payable to Mr Lilley. Under the Group 3 approach, the maximum quantum of damages that Mr Lilley would have been entitled to was calculated at £83. This was based on the figures which showed the total number of articles from DMG’s publications published by Gale and EBSCO, and how much each of them paid to DMG.

Billion pound Kat
Mr Lilley on the other hand argued that the court should use the Group 2 approach, as he stated that he had licensed the publication of his articles to DMG, and therefore Group 2 was the appropriate stance to take when assessing damages which would total £798,728,820.  However, Judge Hacon did not accept that the licences referred to in Mr Lilley’s Statement of Case were “of a nature to provide any guide to the appropriate damages which DMG would have to pay if found to infringe Mr Lilley’s copyrights by authorising Gale and EBSCO to publish at the time (between two and ten years after first publication) and in the manner they did”.                                               

I'm shocked!
Therefore in the end the court found DMG’s argument to be the more persuasive and, following the Group 3 analysis, stated that if the case were to go to trial, the amount of damages that would have been awarded would be £83, a staggering £798,728,737 below the sums claimed.                                                        
                                                    
In his judgment, Judge Hacon stated that he, “did not believe this would be an appropriate use of the court’s resources when the maximum which could ever be at stake is around £83.  It would be an abuse of the process”.  He also stated that he “must consider other litigants with more serious and possibly more pressing claims, the resolution of which would necessarily be delayed by the hearing of the trial of this action and any preliminary hearings in advance of the trial”.

Now that’s what this Kat calls a ‘slight’ exaggeration of damages.

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