Damages under the IP Enforcement Directive a decade on – UK

Written on 19 Dec 2014

The “moral prejudice” referred to in Article 13(1)(a) had not previously formed part of the English approach to damages, and so raised the question as to how it should be calculated. It is also notable that Article 13(1)(a) suggests that the claimant can recover both its own lost profits and any unfair profits made by the infringer.

The Intellectual Property (Enforcement, etc.) Regulations 2006 (the ” UK Enforcement Regulations”), implementing the Enforcement Directive, came into force on 29 April 2006. Regulation 3 implements the damages provisions. This is worded in slightly different terms to the Enforcement Directive, stating:
3. (1) Where in an action for infringement of an intellectual property right the defendant knew, or had reasonable grounds to know, that he engaged in infringing activity, the damages awarded to the claimant shall be appropriate to the actual prejudice he suffered as a result of the infringement. 

(2) When awarding such damages— 

(a) all appropriate aspects shall be taken into account, including in particular—
(i)the negative economic consequences, including any lost profits, which the claimant has suffered, and any unfair profits made by the defendant; and
(ii)elements other than economic factors, including the moral prejudice caused to the claimant by the infringement; or
(b) where appropriate, they may be awarded on the basis of the royalties or fees which would have been due had the defendant obtained a licence.

Until recently, the UK Enforcement Regulations had come under little scrutiny by the UK Courts. However, Judge Hacon has now provided some guidance as to the interpretation of Regulation 3 in his recent decision at the Intellectual Property Enterprise Court in Jodie Aysha Henderson v All Around the World Recordings Ltd ([2014] EWHC 3087). 

The case concerned an inquiry as to damages pursuant to an earlier finding of infringement of the claimant’s performer’s rights in a sound recording. The defendant, All Around the World was found to infringe Miss Henderson’s performer’s right by copying a recording of her vocal performance in a particular song and issuing copies of the recording to the public without her express or implied consent. 

The Judge awarded Miss Henderson damages under the “user principle” i.e. based on the royalties which would have been agreed between her and All Around the World of 6 %. However, Miss Henderson was entitled to rely on Article 13(1) of the Enforcement Directive, that is, where the infringer knowingly or with reasonable grounds to know engaged in an infringing activity since the relevant knowledge was admitted by All Around the World. Miss Henderson submitted that where Regulation 3(2)(a)(i) and Article 13(1)(a) apply the claimant is entitled to both lost profits and any unfair profits that the defendant has made. She argued that the “unfair profits” accrued, in this case, were the profits accrued to the defendant as would be assessed in an account of profits. 

Judge Hacon did not agree, saying that if the claimant were correct in this submission then this would mark a “radical change in the law”. In his view, the wording of Article 13(2) makes it clear that the claimant retains the right to elect between an inquiry as to damages and an account of profits. 

He explained that, where knowledge is shown, Article 13(1)(a) requires the court to take into account the “actual prejudice” suffered as a result of the infringement. But as stated in recital [26] of the Enforcement Directive, the “aim is not to introduce an obligation to provide for punitive damages but to allow for compensation based on an objective criteria”.   

Unfair profits

The Judge then went on to consider what is meant by “unfair profits”. He considered that “unfair profits” were intended to cover the situation where the claimant would not receive adequate compensation for the actual prejudice suffered if damages were to be assessed by reference to lost profits, moral prejudice and expenses, or royalties. Thus, there is flexibility to award an additional sum related to the profit the defendant made from knowing infringement. Judge Hacon agreed that the present case was an example of “unfair profits”. Miss Henderson is likely to have wanted her name to have featured on the record, therefore in addition to losing the royalty Miss Henderson also suffered loss in the relation to the extent to which her name and reputation would have been enhanced by the release of the single. Accordingly Judge Hacon awarded Miss Henderson an additional £5,000 for unfair profits for the loss of promotion of her name. 

Judge Hacon also opined that this category of damages is effectively a substitution for the category of “additional damages” under s191J(2) of the Copyright, Design and Patents Act 1988 (the “CDPA”). Whether he is correct in this remains to be seen. Since s191J(2) CDPA was not repealed by Parliament when introducing the Regulation, it may not be correct to assume that one replaces the other. 

Moral prejudice

Judge Hacon also considered the meaning of moral prejudice in the Enforcement Directive, opining that this will only apply in limited circumstances: where the claimant suffers little or no financial loss such that there would be no compensation or where the compensation would not be proportionate to the overall damage suffered. He gave the example of a defendant infringing the copyright in photographs disclosing private grief by publishing them on the internet. That act may generate no profit for the defendant and no financial loss for the copyright owner but the emotional stress might be acute. Judge Hacon held that current case did not fall into this category and made no award for moral prejudice.