Reed Smith Client Alert

Authors: Nick Swimer Stephen Edwards

Does a copyright owner have a proprietary claim to property purchased from the proceeds of an infringement of copyright? On 5 February 2013, Mr Justice Newey delivered a detailed judgment in the High Court that provides a clear indication of the limitations on the remedies available for infringement of copyright. Since the decision in Twentieth Century Fox Film Corporation and others v David Harris and others [2013] EWHC 159(Ch), we have found ourselves advising on, and have given a lot of thought to, the legal and practical implications of this case.

In 2008, the members of the Motion Pictures Association of America Inc. (the Studios) brought copyright infringement proceedings against Newzbin Limited. Newzbin was a members-only website that aggregated a large amount of illegally copied film, television, literature and other material, and made it available online. Mr Justice Kitchin found that the site was "engaged in a deliberate course of conduct well knowing that the vast majority of the materials in the Movies category [are] likely to be protected by copyright and that the users of those materials are infringing that copyright." An injunction was therefore granted, requiring the website to be taken down.

Soon after the Newzbin site was taken down, it was resurrected as Newzbin2. The Studios successfully obtained site-blocking injunctions, pursuant to section 97A of the Copyright, Designs and Patents Act 1988 (CDPA), requiring major internet service providers to block their subscribers’ access to the site. In addition, the Studios obtained freezing injunctions against David Harris (the Newzbin2 site operator) and three companies alleged to have links to the Newzbin2 website, to ensure assets would be available to meet a judgment. The Studios then took a further step of applying for a proprietary injunction against these and other defendants.

Why did the Studios seek a proprietary injunction over assets already subject to a freezing injunction?

A freezing injunction permits a defendant to deal with the assets in the ordinary course of business, in addition to which a certain amount of money may be spent on living expenses and legal representation. A proprietary injunction is a far more restrictive measure, wholly curtailing a defendant’s ability to deal with the assets. In essence, the measure would reflect the position where the court believes there is an arguable case that the claimant actually owns the assets. The Studios argued that the revenues generated by Mr Harris could be directly traced to his high-performance car, a house in Brighton and a number of other high-end assets; accordingly, the Studios had a proprietary right to those assets. The Studios’ application was based on the following grounds:

  1. Statute
    The list of remedies available for copyright infringement contained in section 96(2) CDPA refers to "all such relief by way of damages, injunctions, accounts or otherwise." The Studios argued that the wording "or otherwise" leaves the list open to the inclusion of proprietary injunctive relief.
  2. The theft analogy
    The Studios likened copyright infringement to theft, citing Mr Justice Jowitt, in R v Carter (1993): "to make and distribute pirate copies of films is to steal from the true owner of the copyright." As with theft, a constructive trust would arise over the proceeds of the infringement.
  3. Case law
    In Attorney-General v Guardian Newspapers Ltd (No. 2) (1990), the Crown sought to restrain publication of a book by a former MI5 agent and claim any profits made by The Sunday Times in serialising it. In that case, the Lords had considered, obiter, the possibility that the copyright in the book belonged in equity to the Crown, and revenue arising from its exploitation would be held on a constructive trust.

The court rejected the Studios’ position on each of the points for the following reasons:

  1. Statute
    The court considered it unlikely that the legislator intended the words "or otherwise" in section 96(2) CDPA to include a proprietary claim to assets purchased from the proceeds of the infringing activity. The Copyright Act 1956 had included a remedy of conversion damages based on the value of the infringing article. This was widely criticised and ultimately repealed. Consequently, it seems unlikely that current law intended to create a similar remedy to one which had already been considered bad law and repealed.
  2. The theft analogy
    Were a constructive trust applied to the entire proceeds from the copyright infringers’ activities, the court considered that this would have a "chilling effect on innovation and creativity." Entrepreneurs would be deterred by even the smallest risk that they might inadvertently breach a third party’s copyright and have to account to the same for all revenue generated from exploitation of the intellectual property. The court considered that trespass, rather than theft, was a more useful analogy in the context of copyright infringement.
  3. Case law
    The court distinguished Attorney-General v Guardian Newspapers Ltd (No. 2) from the present facts on the basis that it concerned a breach of trust and fidelity, whereas no such obligation existed in the present case. Additionally, the comments made in that case regarding a resulting trust were made obiter and without the benefit of argument from the defendant.

This judgment means that, thankfully, a disguised revival of conversion damages will not be added to the list of remedies available for copyright infringement. The existing remedies, such as declaratory relief, prohibitory injunctions, damages, accounts of profits and delivery up and disposal, give copyright owners a formidable array, especially since users of copyright works also need to have in mind that certain infringements can also give rise to criminal proceedings.

Client Alert 2013-112