INTRODUCTION

The Judgment in this case, handed down on 20th March 2007 in favour of BPI¹ in its claim against CD-WOW, is regarded as having set an important legal precedent as the music industry seeks to prevent the illegal parallel importing² of CDs and DVDs from outside the EEA.

THE FACTS AND THE CLAIM

The claimants ('BPI') comprised a number of major manufacturers and suppliers of musical recordings on both CD and DVD. The first defendant ('CD-WOW') ran a Hong Kong based internet retail business. CD-WOW, via its agent, the Hong Kong postal service, allowed the transport into the UK of non-compliant (ie parallel imports) CDs and DVDs, placing them on UK market at prices that were substantially lower than those at which the same products were selling in the UK market generally. CD-WOW would receive orders for CDs and DVDs, individually pack each product for despatch and pass the packages to the Hong Kong postal service with whom CD-WOW had a bulk delivery arrangement.

BPI sought the punishment of CD-WOW (together with the fifth defendant, a former director of CD-WOW) for breaches of an undertaking given to the court by CD-WOW as part of a settlement agreement on the 20th January 2004. BPI also sought an order directing an enquiry as to damages suffered by BPI in respect of CD-WOW's infringement the UK sound-recording copyrights (through issuing to the public, supplying and selling to the public in the UK, sound recordings obtained from Hong Kong which had not previously been placed on the market in the EEA by or with the respective copyright owners' consent).

THE BACKGROUND

On 20th January 2004 the parties entered into a settlement agreement in which CD-WOW agreed to give undertakings to the court. These undertakings included the obligation not to import, despatch, supply or issue non-EEA products to the UK. On 21st January 2004, a customer order was placed and CDs and DVDs despatched in breach of the terms of the settlement agreement. A further 33 subsequent test purchases commissioned by BPI revealed further infringements.

In September 2005 BPI launched an action for damages for breach of contract. Meanwhile, and as a result of the test purchases, on 24th October 2006 BPI also issued proceedings for contempt of court and made a subsequent application for summary judgment³ in relation to the breach of contract claim.

CONTEMPT OF COURT

The Court accepted BPI's evidence of contempt of court in respect of the 33 test purchases that:

• Each of the test purchases was despatched by CD-WOW from Hong Kong to customers based in the UK.
• Each of the CDs or DVDs involved in the test purchases was a physical embodiment of the whole or a substantial part of any copy of a film or sound recording (within the meaning of CPDA 1988).
• The UK copyright in the film or sounding recording in each of the test purchases was owned by, or exclusively licensed to, one of BPI or a member of the British Phonographic Industry and/or of Phonographic Performance Ltd.
• The CD or DVD involved in each of the test purchases had not previously been put into circulation in the EEA by or with the direct or personal consent of the owner or exclusive licensee of the UK copyright or EEA copyright owner or exclusive licensee.
• No CD or DVD involved in each of the test purchases was excluded from the consent order of January 2004.

No evidence was put forward by CD-WOW challenging the above assertions. CD-WOW did, however, submit that the 33 positive tests should not be taken as the tip of the iceberg of widespread breaches by CD-WOW and that instead these stood as no more than examples of CD-WOW's inability to successfully reorganise the conduct of its business in light of the settlement agreement.

The judge rejected these submissions. Evans-Lombe J. referred to the fact that 33 test purchases had proved positive out of 129 initiated during a period of approximately two and a half years and furthermore that of 61 test purchases initiated in September 2006 24 had proved positive. The judge opined that such facts presented 'strong evidence that CD-WOW was committing widespread breach of the undertakings given to the court'. Evans-Lombe J. held that BPI had proved beyond reasonable doubt that CD-WOW was, as on 24th October 2006, in substantial breach of the court's order, which was not mere inadvertence on their part.

INFRINGEMENT OF COPYRIGHT

It was BPI's case that the evidence upon which Evans-Lombe J. found CD-WOW guilty of contempt was sufficient to support an application by them for an order that the Court direct an enquiry as to the damages recoverable in respect of the infringement of their copyright (through parallel importing).

BPI's principal case for infringement of copyright was based on Sections 16 and 18 of the Copyright, Designs and Patents Act 1988 (CDPA). Under Section 16, a copyright owner has the exclusive right (in the United Kingdom) to 'issue copies of the work to the public'. Copyright is therefore infringed by a person who, without the licence of the copyright owner, issues or authorises another to issue copies of the work to the public.

Section 18(2) clarifies that references to 'the issue to the public of copies of a work' are to the act of putting into circulation in the EEA copies not previously put into circulation in the EEA by or with the consent of the copyright owner (ie parallel importing).

The court therefore had to consider whether CD-WOW were liable for the parallel importing of a product within the meaning of section 18 (2). CD-WOW had effectively placed a non-compliant item in the post with the view to it being delivered through the postal channels to a member of the UK public, who had ordered the item from CD-WOW's website. CD-WOW attempted to assert that title to the goods had passed by the time it had delivered the goods to the Hong Kong postal service. CD-WOW claimed that in fact it was the customer who imported the goods to the UK and was potentially liable for the importation of the goods into the UK (and the placing of the goods on the market in the EEA), but that the customer would not have been guilty of infringement because he was putting the goods into circulation for his own private use. In contrast, BPI submitted that delivery of the goods took place when it was delivered to the customer in the UK by the postal system and that act amounted to the issue to the public of the goods for the purpose of Section 18(2).

Evans-Lombe J. noted that there were no authorities on the issue of the point at which goods are deemed to be put into circulation for the purposes of Section 18. The judge noted that under the Sale of Goods Act 1979 (SGA), the general rule for the sale of goods was that delivery to the carrier is prima facie deemed to be delivery of the goods to the buyer. Evans-Lombe J. held, however, that the effect of Section 32 (4) was to reverse that rule in respect of sales of goods to a buyer who 'deals as a consumer' and that, to that extent, it was CD-WOW who had delivered the goods in the performance of a sale contract when the goods were delivered by the postal authorities to CD-WOW's customers in the UK. The judge held that customers of CD-WOW in the UK were dealing as consumers and as such CD-WOW had 'no tenable ground of defence' to BPI's claim for damages for primary infringement of BPI's copyright rights under Sections 16 and 18 of the CDPA.

ENQUIRY AS TO DAMAGES FOR INFRINGEMENT OF COPYRIGHT

The damages inquiry, which was due to take place in July 2007, was moved forward and it was announced in May 2007 that BPI had been awarded up to £41m in damages from CD-WOW. This is the biggest damages award ever made in favour of BPI.

BPI has already begun taking steps to enforce the damages award, having obtained a freezing order on the retailer's Hong Kong bank accounts and assets. It is recognised that enforcement of the award will be time consuming and complex given that the companies assets are located in a number of different jurisdictions.

CONCLUSION

This has been a long-running case, dating back to 2002, and BPI has publicly stated that it hopes that the award will work as a deterrent against others trading in parallel imports (something the claimant continues to monitor with test purchases).

The decision should send out a clear signal to would-be parallel importers that the sale of non-counterfeit products from another country, without the permission of the intellectual property owner, will not go unpunished. It is of particular benefit to the UK music industry in light of the downward pressure on pricing it has faced (particularly by supermarkets dramatically undercutting music stores) since the turn of the millennium.

References

Notes

1. BPI (British Phonographic Industry Ltd) is the British record industry's trade association. Its membership comprises of hundreds of music companies including all four 'major' record companies, associate members such as manufacturers and distributors, and hundreds of independent music companies representing thousands of labels.
2. Parallel importing is the act of putting into circulation in the EEA products not previously put into circulation in the EEA by or with the consent of the intellectual property owner (in this case copyright).
3. Summary judgment is a procedure by which any of the parties or the court can dispose of all or part of a case without a trial where a claim or issue or a defence to a claim or issue has no real prospect of success and there is no other compelling reason for a trial.