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Cite as: [1999] 3 IR 392, [1999] IEHC 165

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Universal City Studios Incorporated v. Mulligan (No.2) [1999] IEHC 165; [1999] 3 IR 392 (18th May, 1999)

THE HIGH COURT

1994 No. 2908 P

BETWEEN

UNIVERSAL CITY STUDIOS INCORPORATED

DISNEY ENTERPRISES INC.

TWENTIETH CENTURY FOX FILM CORPORATION

WARNER BROTHERS INCORPORATED

PLAINTIFFS

AND

GERARD MULLIGAN

DEFENDANT

Judgment of Ms. Justice Laffoy delivered on the 18th day of May, 1999

1. In my judgment in these proceedings delivered on 25th March, 1998, I found that the Defendant was in possession of and was dealing in counterfeit video cassettes in the knowledge that they were counterfeit and constituted an infringement of the copyright therein owned by various copyright owners, who are represented by the Plaintiffs, which video cassettes had been seized in seventeen seizures at various locations in Dublin City and County, County Wicklow, County Meath, County Cavan and County Monaghan between May 1992 and November 1997 and acquired as a result of "test purchases" in Dublin City on five occasions between February 1997 and November 1997. On the basis of that finding I granted a perpetual injunction in the terms sought by the Plaintiffs restraining infringement of the Plaintiffs' copyright in cinematograph films and pre-recorded video cassettes. In the proceedings, the Plaintiffs had sought, in addition to injunctive relief, an order directing an inquiry as to the damages to which they were entitled as a result of the Defendant's wrongdoing and also an account of all profits made by the Defendant in connection with the infringement of their copyright. Having been put to their election as to which of those remedies they wished to pursue, the Plaintiffs sought an inquiry as to damages. This judgment arises out of that inquiry, which was held on 21st April, 1999.

2. Between 25th March, 1998 and 21st April, 1999, the solicitor who had acted for the Defendant in the substantive hearing had come off record. The Defendant was not represented and did not appear on the inquiry as to damages.

3. The Plaintiffs' claim for damages has been presented on the basis that they are entitled to recover damages reflecting actual loss they have incurred and also in respect of the damage to the video industry and the undermining of the integrity of that market caused by the Defendant's involvement in video piracy.

4. Mr. Brian Finnegan, the Director General of INFACT, the Irish National Federation Against Copyright Theft, which is a non profit making subsidiary of the Motion Picture Industry Association of the United States, which represents 72 companies in the motion picture industry, testified on the inquiry. His approach to the calculation of the losses incurred by the Plaintiffs as a result of the copyright infringements on the part of the Defendant which had been found by the Court was as follows. He calculated that the total number of video cassettes seized or acquired in the seizures and test purchases was 2,687, which he calculated represented an average yield of 117 video cassettes per seizure or acquisition. He interpreted the evidence of the seizures as showing that the Defendant was operating on seven days of the week. The average wholesale price of a video cassette for rental is £37.48 and the average wholesale price of a "sale thru" video is £7.85. Three bases of assessment of the Plaintiffs' damages were suggested, namely:-

(A) It was suggested that the Plaintiffs had incurred a loss of £121,802 on the actual seizures on the basis of the loss of sales of 2,687 video cassettes for rental at £37.48 each and the same number of "sale thru" video cassettes at £7.85 each.

(B) It was suggested that on the basis of a year's trading by the Defendant the Plaintiffs would lose £1,782,013, on the assumption that the Plaintiffs were deprived of sales of 117 tapes on each of seven days of 48 weeks in the year amounting to 39,312 tapes.

(C) It was suggested that on the basis of the Defendant trading over a period of 5 years, and the evidence at the substantive hearing established that he was trading between 1992 and 1997, the loss to the Plaintiffs would be five times the loss referred to at (B), amounting to £8,910,065.

5. There is a useful summary of the principles governing the quantification of damages for infringement of copyright in Clark and Smyth on Intellectual Property Law in Ireland at page 330. As to the general principles applicable, the authors state as follows:-

"The principles which underlie the award of damages following upon a copyright infringement are based upon the principle of compensation, although there are other possibilities. It sometimes occurs that the issue of damages is not central to the litigation - the establishment of infringement of right may be more important to a plaintiff and some judges may simply award a figure without an enquiry into loss".

6. As to measuring the loss, the authors state as follows:-

"The measure of damages following on from an infringement of copyright is sometimes said to be a matter which is left 'at large' - that the award is a matter for the Court's judgment and discretion. However, it is accepted that the plaintiff will normally seek to obtain the amount by which the value of the copyright of the plaintiff has been diminished as a chose in action; this is often calculated by looking at the volume of sales made by the defendant of the pirated work and deducting the cost of production from the income made by the defendant by way of the unauthorised reproduction and sale. This approach, however, does not always provide adequate compensation to the plaintiff, even if it has the merit of being simple and compatible with the principles of unjust enrichment. The plaintiff may be able to show that his work was more expensive and had a higher profit margin than the pirated work, so merely giving the plaintiff the defendant's profit may not compensate the plaintiff for lost volume of sales. This is particularly important and some cases hold that where the defendant's product undercuts the plaintiff's product, this should be reflected in the compensation award."

7. The difficulty inherent in quantifying the copyright owner's loss in the case of video piracy was highlighted by the decision of the Chancery Division of the English High Court of Justice (Scott J.) in Colombia Pictures Industry -v- Robinson (1988) FSR 531. In his judgment (at page 536) Scott J. commented as follows:-

"To require certainty of proof that pirate marketing caused loss of sales would be impossible. Once it is shown that pirate marketing took place, some loss of legitimate sales may, in my view, properly be assumed. Where reasonable commercial expectations for the film in question are established in evidence and where, relatively to other comparable films, the film has done poorly and where the presence of pirate copies upon the market has been established, the copyright owner is, in my judgment, entitled as against the pirate and in the absence of any other explanation for the lack of success of the film in question to attribute the shortfall in sales to the activities of the pirate."

8. In this case, on the evidence before the Court, it is impossible to measure the loss of the Plaintiffs, either jointly or severally, in consequence of the Defendant's activities which have been found to be unlawful. There is no evidence whatsoever of the Defendant's volume of sales of the pirated work of any individual plaintiff or, indeed, of all of the Plaintiffs. The only evidence before the Court of the Defendant's trading activity is that on 22 different occasions at different locations over 5 years, the Defendant was in possession for sale of various quantities of pirated video cassettes which included various titles. It is impossible to deduce from the evidence what volume of sales of pirated copies of the Plaintiffs' titles the Defendant achieved, thus inflicting loss on the Plaintiffs.

9. Moreover, there is no evidence from which one could deduce that the activities of the Defendant affected the commercial success of any title of any Plaintiff, say, the commercial success of the Second named Plaintiff's title "Pocahontas".

10. In my view, the Plaintiffs' methodology in calculating their losses is not reasonable and it does not give any measure of the Defendant's gain from his counterfeiting activities or the Plaintiffs' loss as a result of it. From what emerged at the substantive hearing of the Defendant's activities, which involved selling pirated videos from market stalls in local markets, it would defy reason and common sense to conclude that such activities in any year would have resulted in losses of almost £2m to the Plaintiffs and the other major motion picture producers.

11. The evidence on the substantive hearing and on the inquiry as to damages undoubtedly establishes that video pirates are capable of causing very serious damage to the legitimate video rental and retail industry, as well as to copyright owners. In my judgment of 25th March, 1998 I outlined the evidence as to the poor quality of the counterfeit copies which were seized from the Defendant. I think it is reasonable to infer that the circulation of such poor quality copies is damaging to the Plaintiffs and to the legitimate rental and retail outlets. Moreover, trading by the Defendant in counterfeit video cassettes of a title before the cinematic release or the video rental release of the title in question is damaging to the industry. Mr. Finnegan testified that such activity can have a devastating effect on a local legitimate retail or rental outlet, which cannot compete with the pirates and, in the past, has resulted in the insolvency of legitimate traders. Mr. Finnegan's evidence was that it is particularly difficult to "police" pirate operations such as the Defendant's operation, which are carried on from market stalls. Mr. Finnegan estimated that in the last 8 to 9 years, it has cost INFACT in the region of £700,000 to monitor and counteract the Defendant's activities alone.

12. In my judgment of 25th March, 1998 I indicated that, in principle, I considered this to be an appropriate case in which to award the additional damages under Section 22(4) of the Copyright Act, 1963 which the Plaintiffs have claimed. Such damages are penal damages (per O'Dalaigh C.J. in Folens -v- O'Dubhghaill (1973) I.R. 255 at p.266). The Defendant has undoubtedly committed flagrant infringements of the Plaintiffs' copyright and benefits have undoubtedly accrued to him and unless additional damages are awarded over and above the compensatory damages which the Plaintiffs are entitled to on the evidence, I do not think the Plaintiffs will get effective relief. I must stress, however, that the most effective relief to prevent ongoing unlawful activity on the part of the Defendant is the relief which has already been granted to the Plaintiffs, namely, a perpetual injunction. It is open to the Plaintiffs to apply to Court for an Order of attachment and committal if and as often as the Defendant breaches the perpetual injunction. Nonetheless, given the itinerant nature of the Defendant's past trading activities and the resulting difficulties encountered by the Plaintiffs in "policing" his activities, I think that in order to get a truly effective remedy the Plaintiffs must be awarded penal damages.

13. Acknowledging that this is a case in which the quantification of damages is very much "at large", because of the nature of the evidence adduced by the Plaintiffs on the inquiry and the absence of the Defendant, I have come to the conclusion that the appropriate award of damages is £75,000, to include £50,000 damages under Section 22(4).