Independiente Ltd & Ors v Music Trading On-Line (HK) Ltd (t/a CD-WOW) & Ors

In this case I have to deal with two applications. The first application is made in an action number HC02C02413 (“the First Claim”). In the first claim there are seven named claimants each of which are major manufacturers and suppliers of music recordings by way of CD or DVD. The first to sixth claimants sue on their own behalf and as representative claimants for all other members of the British Phonographic Industry Ltd (“the BPI”) and Phonographic Performance Ltd (“the PPL”). The First Claim was concerned with a claim for infringement of copyright against, originally, five defendants of which the first application is directed to the First Defendant Music Trading On-Line (HK) Ltd a company conducting a worldwide trade in the supply and sale of, amongst other things, music CDs and DVDs (“Products”) and the Fifth Defendant, Philip Howard Robinson a director of the First Defendant until the 31^st March 2006. The first Defendant has at all material times carried on business under the name of “CD-WOW” and I will hereafter in this judgment refer to it by that name. The first application is by the Claimants and seeks the punishment of CD-WOW and the Fifth Defendant for their (alleged) breaches of an undertaking given to the court by CD-WOW as part of an agreement of the 20^th January 2004, settling the First Claim (“the Settlement Agreement”) embodied in a consent order made by Master Bowman on 21^st January 2004 (“the Undertaking”). By the undertaking CD-WOW undertook:-

“… from 4pm on 27^th January 2004 (save for media comprising both audio and visual content, in which case from 4pm on 9^th February 2004) they will not, without the express written consent of the relevant UK copyright owner or' exclusive licensee whether acting by their respective directors, officers, employees or agents or otherwise howsoever:

1.

Despatch and/or supply any non-EEA Product (not being an Excluded Product) from anywhere in the world to any customer in the United Kingdom.

2.

Issue any Non-EEA Product (not being an Excluded Product) to the public in the United Kingdom.

3.

Do any of the following acts in the United Kingdom in relation to any Non-EEA Product (not being an Excluded Product) with knowledge of the fact that it is a Non-EEA Product or reason to believe it is a Non-EEA Product:

a.

import into the United Kingdom;

b.

possess in the course of a business;

c.

sell;

d.

distribute in the course of a business.

4.

Authorise any person to do any of the acts set out in paragraphs 1 and 2 above.”

The Claimants further seek an order directing an enquiry as to damages suffered by the Claimants both in their individual and representative capacities in respect of the infringement of the United Kingdom sound recording copyrights which the court may find proved in the course of the proceedings for contempt with, in addition, additional damages pursuant to section 97(2) of the Copyright Designs and Patents Act 1988 (“The CDPA”), an enquiry as to the amount of interest on such damages pursuant to section 35A of the Supreme Court Act 1981 and an order for payment of the amount of such damages and interest to the Claimants. I will refer to this application as “the Contempt Application”.

The second application is made in proceedings number HC05C02480 in which there are fifteen claimants, of which twelve are manufacturers and distributors of, amongst other things, Products, who sue in their individual capacity only. In these proceedings (“the second claim”) the Claimants seek relief against CD-WOW only for breach of contract arising from the Settlement Agreementof the 20^th January 2004. The Claimants’ application in the second claim is for summary judgment under CPR Part 24. I will refer to this application as “the Summary Judgment Application”.

The background facts of the case are not substantially in issue. From about February 2000 CD-WOW has operated a web retail business selling, amongst other items, Products under that name. CD-WOWis currently the second largest internet importer of Products into the United Kingdom. It advertises its business primarily on the internet. It maintains a web site in English directed at customers in the United Kingdom and has registered various United Kingdom domain names. From CD-WOW’s website it is possible to discover each of the various Products which CD-WOW has for sale together with their price in £ sterling. Besides its advertising on the internet CD-WOW has advertised its Products in the UK through the conventional media primarily on television. CD-WOW’s business is substantial. Between the 1^st January 2004 and the 26^th June 2005 EMI Hong Kong Ltd alone supplied CD-WOW with 259,496 Products for onward sale to its customers. CD-WOW had many other suppliers.

A customer is able to order a CD or DVD from CD-WOW by accessing its web site and clicking on the appropriate icon. Thereafter the customer, having chosen the Product which he or she wishes to acquire, indicates that choice and types in credit card details and the required delivery address. The customer will then receive, by e-mail, a confirmation of the order. Customer’s orders are serviced from CD-WOW’s warehouse in Hong Kong where stocks of Products, available for sale and advertised on CD-WOW’s web site, are maintained.

A Miss Chow Chui Yee (“Miss Chow”) CD-WOW’s office manager swore an affidavit describing how CD-WOW’s warehouse operations worked. Miss Chow’s affidavit was the only testimonial evidence put in by CD-WOW on the two applications. She was cross-examined. CD-WOW’s delivery system, including its warehouse operations, were under the control of a Mr Henrik Wesslen (“Mr Wesslen”) a director. At paragraphs 5 and 6 of her affidavit Miss Chow describes how she and the other staff of CD-WOW were informed by Mr Wesslen of the first claim and of the terms of the Settlement Agreement whereby that claim was settled. Paragraph 7 of her affidavit reads as follows:-

“I was told by Mr Wesslen that the defendant had given undertakings to the court whereby the defendant agreed not to despatch and or supply any non-EEA Products to the UK and Eire and that non-EEA essentially meant EEA “music” Products which had not previously been put into free circulation in the EEA. I fully understood this to mean that all Products despatched to the UK and Eire must have first been placed on the market in the EEA.”

Miss Chow then describes the “change in purchasing practices with Suppliers” allegedly put into effect by CD-WOW consequent on the Settlement Agreement. In summary she states at paragraph 8 that CD-WOW increased its purchases from suppliers manufacturing inside the EEA, and the number of those suppliers, so that CD-WOW was able to obtain increased supplies of Product which had been in free circulation within the EEA the copyright protection of which would have become “exhausted” under the relevant Community directive.

Between paragraphs 10 and 16 of her affidavit Miss Chow describes operations in CD-WOW’s warehouse. In addition to Mr Wesslen, CD-WOW employed 7 buyers who were responsible for all ordering of Product from suppliers. Miss Chow described how stocks of the separate CDs and DVDs which CD-WOW had available for sale were stored in the warehouse on shelves differentiated by individual Product. Of those individual Products, Product available to be delivered into the EEA was separated on the relevant shelf from Product available to be sold elsewhere in the world.

CD-WOW employed a number of employees described as “pickers”. When an order was received a label would be prepared recording the name and address of the customer and identifying the Product that he had ordered. This order would be passed to a picker who would then take from one of the shelves the Product or Products which fulfilled the customer’s order. The pickers were responsible for stocking the shelves and so would have been familiar with the places on the shelves where the various items of stock were kept. Having selected the appropriate Product to fulfil the order the picker would pass it to a second employee described as a “spider”. It was the spider’s responsibility to marry the selected Product with its printed label and to pass these to packers who would individually pack each order for despatch and attach its label to it. Those packages would then be passed to the Hong Kong post for despatch, in the case of UK customers, to the United Kingdom.

CD-WOW initially employed commercial carriers for this purpose but latterly has made a bulk delivery arrangement with the Hong Kong post, at preferential rates, to effect delivery to its customers. Because of the scale of the traffic involved the Hong Kong post makes a daily collection from CD-WOW’s warehouse pursuant to this arrangement. The price paid by the customer is a composite amount being the cost of the Product together with package and postage. On arrival in the UK the individual packages are distributed to customers through the British postal system.

CD-WOW’s terms of sale are comprised in standard printed terms of which the customer will be sent a copy. It is accepted that, as a result of those terms, property in the Product purchased passes to the purchaser once individual Products have been appropriated to the contract of sale, under the process which I have described, and when payment has been received through operating the customer’s credit card. The conditions of sale provide for a system for replacing Product incorrectly supplied or damaged in transit. This system involves the maintenance of stocks of Product in the United Kingdom available to be delivered in place of that actually despatched from Hong Kong.

It seems to me that the following emerged from the cross-examination of Miss Chow:-

It is not in issue that CD-WOW was able to acquire Product for the purposes of its business at substantially cheaper prices than those at which similar Product could be acquired from suppliers in the EEA and that this placed CD-WOW at a substantial competitive advantage so that they were able to undercut the prices obtainable by those suppliers for their Product. In consequence the First Claim was commenced on the 23^rd August 2002. Subsequently on the 1^st August 2003 similar proceedings were commenced in Ireland “the Irish Claim” by a similar group of Claimants including some of the Claimants in the First Claim against the same Defendants but also an additional defendant company. In these proceedings the Claimants claimed that CD-WOW had infringed their copyright by, amongst other things, acting in contravention of Section 18 (Primary Infringement) and in contravention of Sections 22 and 23 (Secondary Infringement) of the CDPA by 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 upon the market in the EEA by or with the respective copyright owners’ consent. The Claimants relied on the evidence of a number of test purchases from the UK and Ireland from CD-WOW in Hong Kong in respect of some of which the Product delivered was non-compliant.

On the 13^th March 2003, on an application by CD-WOW under CPR Rule 19.6(2) the Vice Chancellor made the following ruling:-

“For all these reasons I consider that the claim is properly brought by the individual claimants on behalf of the relevant Members, as defined in the particulars of claim as proposed to be amended as well as on their own behalf. Similarly I see no reason to make any order under CPR Rule 19.6(2)… .”

The trial of the First Claim was scheduled to commence on the 2^nd February 2004. In the result, following negotiations, the Settlement Agreement was signed on the 20^th January 2004. The Settlement Agreement also settled the claims in the Irish Claim. Pursuant to the terms of the Settlement Agreement the parties signed a consent order which was annexed to the Settlement Agreement. In consequence the order of Master Bowman was made on the 21^st January 2004 giving effect to the draft order, the consent of CD-WOW to its making being indicated by their solicitors.

Notwithstanding that consent, subsequent test purchases, the first test purchase was ordered on the 20^th September 2004 and despatched by CD-WOW on the 18^th October 2004, revealed further infringements which involved importation into the United Kingdom of non-compliant Products, on the market at substantially lower prices than those at which the same Products were selling on the UK market generally. As a result on the 15^th November 2004 the Claimants’ solicitors sent a letter before action to the solicitors of CD-WOW. In consequence the Second Claim was commenced on the 14^th September 2005 for damages for breach of contract being the Settlement Agreement. The specific breaches relied on were in respect of importations into the United Kingdom for sale of two CDs and two DVDs together with the offer for sale of numerous DVDs in the United Kingdom all of which comprised non-compliant Products. In particular, in the Second Claim, the Claimants contend that the terms of the undertakings given by CD-WOW to the court, pursuant to the consent order, were also given contractually by CD-WOW to the Claimants with the result that any further parallel importations of non-complaint Products would constitute further breaches of that agreement. On the 27^th January 2006 CD-WOW entered a defence in the Second Claim which took three defences, the first, that the Settlement Agreement did not include any contractual obligations to the Claimants to stop parallel importation of Product, second, that the Second Claim was a disguised attempt to gain evidence for future contempt proceedings and third, and substantively, that CD-WOW had received assurances from companies, affiliated to the Claimants who were suppliers of Product to CD-WOW, which bound the Claimants, that the Product which they had supplied had in fact been first placed on the market in the EEA with the consent of the relevant EEA copyright proprietor. No particulars of any such assurances were pleaded and, as has emerged, no evidence of any such assurance has been produced.

On the 27^th July 2006, in the Second Claim, a preliminary issue was directed as to the availability to the Claimants of the Claimants’ pleaded contract claim which was determined by Mr Justice Underhill on the 8^th and 9^th of November in favour of the Claimants. An appeal from his decision to the Court of Appeal was dismissed after a full hearing on 26^th January 2007. The Court of Appeal refused permission to appeal to the House of Lords and those representing CD-WOW have now stated in correspondence that they do not intend to petition the House for permission. Meanwhile, and as a result of the revelation by test purchases of further infringements the Contempt Application was made of the 24^th October 2006 and the Summary Judgment Application was made the following day. By order dated the 29^th November 2006, at a CMC, Mr Justice Lightman made an order expediting the hearing of those applications with directions which allowed for the effective determination of the contempt application and, if considered appropriate, the summary judgment application.

The contempt application is based on 33 test purchases each of which proved positive in the sense that an order placed with CD-WOW was performed by the delivery to a purchaser in the United Kingdom, in the manner which I have described above, of non-compliant product in respect of the importation of which the copyright proprietor had not given its consent.

The Claimants have filed extensive affidavit evidence from a number of deponents including the initiators of each of the 33 test purchases relied upon. It is the Claimants’ case that their evidence establishes, in respect of each of those 33 test purchases, the following facts:-

I accept that the Claimants’ evidence established the above five assertions of fact. No evidence was put in on behalf of CD-WOW challenging these assertions nor was there any challenge to them in the course of the hearing before me.

So far as assertion (iv) is concerned it appears to have been asserted at one stage that CD-WOW had obtained the consent, express or implied from suppliers of Product who were related companies of some of the Claimants. In Roche Products Ltd & anr v Kent Pharmaceuticals Ltd [2006] EWHC 335 (Ch) Mr Justice Lewison, having reviewed the authorities, described what the court is looking for when dealing with a contention that the copyright owners consent to the challenged transaction had been given was “an actual consent, which may be express or implied, and not a deemed consent.” There was no evidence before this court of an actual express consent by any of the Claimants or those they represent to any of the transactions comprised in the 33 test purchases. Equally there is no evidence of circumstances from which such consent is to be implied. The mere fact that CD-WOW obtained supplies of Product from companies related to one or more of the Claimant copyright owners is quite insufficient to support an implication that the relevant copyright owner consented.

So far as the Fifth Defendant is concerned, the First Claim has been settled against him upon terms which include acceptance by the Fifth Defendant that (a) the 33 positive test purchases relied on by the Claimants, which took place during the period of his directorship of CD-WOW, constituted breaches of the Undertaking by CD-WOW and (b) the Fifth Defendant was partly responsible for the failure to prevent such breeches during his period as director. Pursuant to those terms, announced at the commencement of the hearing, the Claimants discontinued their application for relief against the Fifth Defendant.

With relation to these 33 test purchases, on the 12 February 2007 solicitors for CD-WOW wrote to the Claimants solicitors as follows:-

“As you are aware and have pointed out in correspondence, our client’s evidence does not seek to challenge evidence your clients have put forward as to alleged breaches. Notwithstanding your clients’ attempts to reverse the burden of proof' by seeking our client’s “acceptance” of the alleged breaches, we can confirm that our client has not and will not challenge (in summary judgment or committal proceedings) that the specific pleaded test purchases were made, or that they did regrettably constitute breaches of the undertakings. It remains our client’s case that these represent a tiny proportion of all its sales. Moreover, if your clients are prepared to submit to an enquiry as to damages restricted solely to the pleaded test purchases, our client would be prepared not to object to such an enquiry….

This letter should not be taken as an admission by our client of any deliberate contempt of court, which is strongly denied. As set out in the affidavit evidence of Chow Chui Yee, our client did nor deliberately or recklessly breach the Consent Order in respect of the pleaded test purchases, or otherwise. Our client has at all times endeavoured to ensure that procedures were put in place to avoid any mistakes occurring. We are instructed by our client to apologise to the Court in respect of the unchallenged incidents and Ms Chow will if necessary be in a position to explain to the Court the further safeguards which have been taken to avoid the repetition of such incidents in the future.”

The 33 test purchases relied on were 33 out of a total of 129 test purchases starting in January 2004 and which preceded the issue of the Contempt Application on the 24^th October 2006, of which 24 took place in September 2006 when it appears that an organised campaign of test purchasing was undertaken by the Claimants. There were 37 test purchases in that month which failed in the sense that the orders placed were met with the deliveries of compliant Product. In fact there appears to have been another positive test purchase initiated on the 30^th September 2006 included in the 129 which was not relied on by the Claimants in their Contempt application. 17 of the positive tests relied on were confined to four titles. As follow up tests the Claimants instituted a further 16 test purchases all of which post-dated the issue of the Contempt application. Of these 16, three and a further two, were in respect of the same title, thus these 16 test purchases covered 13 different titles. Of those 16, 14 proved positive. The information with respect to the test purchases is contained in exhibit RG3 to the affidavit of Rosalind Groome, a witness for the Claimants, who was called and cross-examined. No challenge was made to the content of this exhibit. It follows that out of 147 test purchases over a period between January 2004 and the 29^th December 2006 48 proved positive. In the case of the 16 follow-up test purchases, taking place between the 4^th December and the 29^th December 2006, 14 proved positive.

In the course of his submissions, Mr Roberts for CD-WOW cited to me a passage from the judgment of Mr Justice Laddie in Tankaria v Morgan [2005] EWHC 3282 (Ch) at paragraph 27:-

“Applications for committal or punishment for contempt of Court are treated with particular care. They are quasi criminal in nature. The applicant must prove the breach beyond reasonable doubt; furthermore, there are strict formal requirements as to the service and content of the order which is alleged to have been breached, and the content of the application notice. Perhaps of greatest significance in this case is the importance of the date and content of the application notice. The respondent is only obliged to meet the "charges" set out in the application notice. In other words, the charges are those specified in the application notice. The question of whether there has been contempt has to be determined as of the date of the application notice. Subsequent behaviour of the respondent may be highly relevant to whether he or she has purged or mitigated the alleged contempt. It may also throw light on the accuracy or otherwise of any evidence served. However, it seems to me that actions or inactions after, and therefore not encompassed within the application, cannot themselves be considered as part of the charges against the respondent.”

I gratefully adopt and apply Mr Justice Laddie’s approach to the facts of the present case.

CD-WOW accepts that the 33 positive tests constituted breaches of the Undertakings. They submit, however, that these positive tests are not to be taken as the tip of an iceberg of widespread breaches by CD-WOW. They submit that they are only examples of inadvertent failure to carry into effect CD-WOW’s reorganisation of the conduct of its business in the light of the Settlement Agreement directed to avoiding any breaches of the undertakings. This is particularly so bearing in mind the evidence before the court of the size of CD-WOW’s business involving the importation of Products into the United Kingdom.

Adopting Mr Justice Laddie’s approach I unhesitatingly reject these submissions. Mr Spearman, for the Claimants, took me to the inter solicitor correspondence starting with his solicitors’ letter of the 15^th November 2004. At this stage the Claimants’ complaints were directed to test purchases which had established breaches of the Undertaking in respect of 4 individual Products. The stance adopted by CD-WOW’s solicitors in this correspondence was not that the apparent breaches were the result of inadvertent failure to ensure that compliant Product was used to meet orders from the United Kingdom, but rather that their clients were entitled to do so on three separate grounds. The first ground, in respect of the “Live Aid” DVD was that this was not a “music product” and so not covered by the Undertaking. The second justification in respect of this DVD was that it was a “region zero” Product which meant that its manufacturers had authorised it for sale throughout the World without restriction. These justifications were soon abandoned. In relation to the Live Aid DVD CD-WOW’s solicitors wrote to the Claimants’ solicitors on the 30^th November 2004 as follows:-

“We have already informed you that our clients believed its dealings were compliant. The buyer responsible understood this DVD to be a region zero and, in any event, had not appreciated that it was a “music Product” covered by the order. The position has been rectified and we reiterate that if there has been any error, our clients apologise therefore.”

In their letter of the 12^th January 2005 CD-WOW’s solicitor’s state that up to November 2004 the total number of Live Aid DVDs sold worldwide by their clients was 5,290 of which approximately half would have gone to the United Kingdom.

The third justification was put forward in relation to two of the CDs in a letter to the Claimants’ solicitors from CD-WOW’s solicitors of 30^th March 2005 in which they say:-

“The reality (once again) is that:

1.

There is no evidence of any act of deliberate or knowing breach of the order.

2.

Our clients take the order and its effect very seriously and have at all times endeavoured to ensure compliance with the order.

3.

Our client’s position reflects assurances from its suppliers (in respect of Robbie Williams and Westlife) namely EMI (HK) and BMG (HK) that CDs delivered to our client are not in breach of the order.”

Before the court were unanswered affidavits from representatives of EMI (HK) and Sony BMG (HK) denying that any such assurances had been given. No evidence has been introduced by CD-WOW of any such assurance by a supplier of Product to CD-WOW. The example given of an Australian distributor of Product is not such evidence. That the attempt to justify the importation into the UK of non-compliant Product was spurious, is illustrated by the fact that no real attempt is now made to support the attempt to justify on these grounds and no evidence is adduced, either oral or documentary to demonstrate that the justifications were genuinely believed in by responsible officers of CD-WOW e.g. Mr Wesslen.

It follows from these letters that, so far from the test purchases being evidence only of inadvertent breach on a very small scale, at least three of the Products among the 33 test purchases were being deliberately dispatched to the UK to meet orders on the basis that CD-WOW was entitled to do so notwithstanding the undertaking which had been given. It is against this background that 33 test purchases proved positive out of 129 initiated during a period of approximately two and half years from January 2004, and of which 24 proved positive out of 61 initiated in September 2006. Even taking account of the fact that there was a concentration during September 2006 on test purchasing on a few particular titles, it seems to me that these results are strong evidence that CD-WOW was committing widespread breach of the undertakings on the 24^th October 2006 when the Contempt Application was launched.

Again following the approach of Mr Justice Laddie, in the Tankaria case, in relation to post application behaviour in contempt cases, the fact that of the 16 post application test purchases, extending to 13 titles, 14 proved positive seems to be clear indication that CD-WOW had taken no effective steps to ensure compliance with the undertakings even after an application to punish the company for contempt had been served.

In my judgment the Claimants have established beyond reasonable doubt i.e. the standard of proof required in criminal cases, that CD-WOW were as at the 24^th October 2006 in substantial breach of the Court’s order which was not the product of mere inadvertence on their part.

It is the Claimants’ case that the evidence upon which I have found that CD-WOW are guilty of contempt of court is sufficient to support an application by them for an order that the court direct an enquiry as to the damage recoverable by the Claimants from CD-WOW in respect of the infringements of their copyright which that evidence proves.

In Midland Marts v Hobday & anr [1989] 1 WLR 1143 Mr Justice Vinelott having found that the defendants were in contempt of court for breaches of undertakings given to the court as part of a negotiated settlement in an action involving contested rights of way, was considering the sanction which the court should impose. Having found that the court had no power to impose a fine and direct that the fine be paid to the plaintiff, went on to consider whether the court could award damages on the basis that the contempt constituted a breach of the contract comprised in the settlement agreement. At page 1146 of the report he said this:-

“The question is not one of jurisdiction but of practice, that is, whether damages should be awarded or an inquiry directed where the proceedings before the court are punitive in form but where the breach alleged is both a breach of an undertaking to the court and a breach of contract with the other party. Although this course has not been taken in the past I can see no reason in principle why the court, if satisfied that the facts proved at the hearing of a motion to commit constitute both a breach of the undertaking to the court and a breach of contract and also that there is no tenable ground of defence to an action for damages for breach of contract, should not direct an inquiry into damages or in a sufficiently clear case make a summary award of damages. It would, I think, be unjust and give rise to unnecessary multiplicity of proceedings, that an applicant who has established facts which constitute both a breach of an undertaking to the court and of the respondent’s contractual undertakings should be put to the delay and expense of instituting separate proceedings in which the question whether there had been a breach of the undertakings would be res judicata.”

In Phonographic Performance Ltd v Reader [2005] FSR 42 Mr Justice Pumfrey was considering a case where an application had been made to commit a defendant for contempt for breach of an injunction made in a copyright case. At paragraph 13 of the report, having cited the judgment of Mr Justice Jacob in Sony Computer Entertainment v Owen [2002] EWHC 45 and the passage at 742 he says this:-

“13 In summary therefore one can conclude that where the underlying infringement is established to the standard required to support an application to commit for breach of an injunction, then there is no arguable defence to a claim for copyright infringement; and the circumstance that the infringements complained of are committed in breach of a Court Order render either an enquiry as to additional damages or, in a proper case [render appropriate], a summary award of additional damages to the copyright owner.”

In referring to additional damages Mr Justice Pumfrey was referring to the statutory power to award additional damages under section 97(2) of the CDPA. Mr Justice Pumfrey, therefore, linked the award of damages for infringement of copyright to the establishment of a case to impose a punishment for contempt of court, namely, meeting the criminal burden of proof, though he did not say that such a burden needs to be undertaken in all cases. By contrast the phrase used by Mr Justice Vinelott in the Midland Marts case to describe the burden of proof which a claimant must discharge in obtaining an order for damages in the course of an application to commit for contempt, was for the claimant to demonstrate that the defendant had “no tenable ground of defence”. This would seem to equate the burden to that which must be discharged by an applicant for summary judgment.

Given that the claim for damages in such circumstances, and any suggested defence to the claim, will not usually have been fully pleaded and there will have been no disclosure of documents, it seems to me that the court should impose the summary judgment burden on any claimant seeking an order for damages as part of a contempt application unless the court is giving judgment after a full trial where the issue of damages has been fully pleaded, when the ordinary civil burden of proof would apply.

Mr Roberts for CD-WOW contends that this is not an appropriate case for the summary award of damages for infringement of copyright. He contends that the fact that his client has admitted 33 breaches of the Undertaking does not mean that the court is in a position to give summary judgment that his client is liable for damages for infringement of copyright.

The Claimants’ principal case for infringement of copyright is one of primary infringement under Sections 16 and 18 of the CDPA. So far as material to this judgment those Sections provide as follows:-

“16(1)  The owner of the copyright in a work has, in accordance with the following provisions of this Chapter, the exclusive right to do the following acts in the United Kingdom—

(a)…;

(b)

to issue copies of the work to the public (see section 18);…

and those acts are referred to in this Part as the “acts restricted by the copyright”.

(2)

Copyright in a work is infringed by a person who without the licence of the copyright owner does, or authorises another to do, any of the acts restricted by the copyright.

Infringement by issue of copies to the public.

18.

(1)  The issue to the public of copies of the work is an act restricted by the copyright in every description of copyright work.

(2)

References in this Part to the issue to the public of copies of a work are to

(a)

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”.

The question therefore is did CD-WOW in placing an item of non-compliant Product in the post with the view to its being delivered through the postal channels to a member of the United Kingdom public who had ordered the item in question from the lists of Products available on CD-WOW’s web site, issue that Product to the public within the meaning of Section 18 (2) and more particularly, pursuant to sub-section (a), did CD-WOW place that item of Product “in circulation in the EEA”.

There does not seem to be any authority directly on the point. In Laddie Prescott & Vitoria on The Modern Law of Copyright and Designs, the third edition at paragraph 15.17, the authors, having rehearsed such authorities as they consider give guidance on the meaning of the sub-section, advance the following as their conclusion:-

“It is therefore submitted that for the purposes of the distribution right under Section 18 the act of putting a copy into circulation occurs when, and in the place where, the copy is delivered to a member of the public.”

I do not understand any of the parties before me to disagree with this conclusion. It is, however, the submission of Mr Roberts for CD-WOW that delivery of the Product in the present case took place when, property in it having passed pursuant to the contractual arrangements between CD-WOW and the customer, it was delivered by CD-WOW to the Hong Kong postal authorities for onward transmission to the customer. It follows, it is submitted, that the Product would have been put in circulation in the United Kingdom by the customer who would not have been guilty of infringement because he did so for the purpose of his private use.

As authority for this submission Mr Roberts cited the decision of the House of Lords inSabaf SpA v MFI Furniture Centres Ltd [2005] RPC 10. In this case the House of Lords were considering an infringement of patent case under the Patents Act 1977 Section 60(1). The holder of the patent was attempting to make the Italian manufacturer of the infringing product guilty of importing the product in question into the United Kingdom in circumstances where, having manufactured it, the Italian company had arranged for its transportation and delivery to its United Kingdom customer. On this issue section 60(1) provided that a person infringes the patent rights of the patent holder when he “makes, disposes of, offers to dispose of, uses or imports the product or keeps it whether for disposal or otherwise.” The question for decision was whether the Italian manufacturer was the importer of the product for the purposes of section 60(1). In his leading speech at page 218 of the report Lord Hoffmann, having noted that the judge had found that, prior to despatch, title in the goods had passed to the United Kingdom customer, said this:-

“The alternative submission was that by arranging the transport, Meneghetti had itself done the act of importing the goods into the United Kingdom. On the face of it, this is a startling submission. MFI was obviously the importer of the goods. Meneghetti’s arranging the transport may or may not have been sufficient to amount to participation in the act of importation so as to make itself jointly liable as a secondary party, but in view of the abandonment of any allegation of joint liability, no such argument has been advanced. The contention is that Meneghetti was the importer.

In my opinion this argument must fail. Meneghetti made arrangements on behalf of MFI for the importation by MFI of its goods into the United Kingdom. The contract of carriage is presumed to have been made on behalf of the consignee and owner of the goods: see Clarke, International Carriage of Goods by Road (3rd ed., Sweet and Maxwell, 1997) at pp.428-429, para.216a. If there had been short delivery, MFI would have been the proper party to sue on the contract. But I do not think that one need rely on the technicalities of the contract of carriage. Meneghetti was not the importer because, whoever had contracted with the carrier, MFI was the importer.”

It was Mr Spearman’s submission for the Claimants that delivery of the Product took place when it was delivered to the customer in the United Kingdom by the postal system and that act amounted to the issue to the public of the Product for the purposes of Section 18(2)(a). He drew my attention to regulation 4 of the Sale and Supply of Goods to Consumers Regulations 2002 SI 2002/3045) which came into force on the 31^st March 2003 and which were made with a view to implementing directive 1999/44/EC of the European Parliament and of the Council on certain aspects of the sale of consumer goods and associated guarantees. The effect of the regulations was to insert a new Section 32(4) into the Sale of Goods Act 1979. So far as material to this judgment this section provides that “in a case where a buyer deals as consumer… sub-sections (i) to (iii) above must be ignored, but if in pursuance of a contract of sale the seller is authorised or required to send the goods to the buyer, delivery of the goods to the carrier is not delivery of the goods to the buyer.”

Sub-section 32(1) of the 1979 Act contains the rule which remains applicable to sale of goods in general, where the seller is authorised or required to send the goods to the buyer, that delivery to the carrier is prima facie deemed to be delivery of the goods to the buyer. The effect of sub-section (4) is to reverse that rule in respect of sales of goods to a buyer who “deals as consumer”.

In KK Sony Computer Entertainment & anr v Pacific Game Technology (Holding) Ltd [2006] EWHC 2509 (Ch) Judge Fysh QC, sitting as a Deputy Judge of this court, was considering a case of infringement of copyright with facts, somewhat similar to those of the present case, in which the defendant, a Hong Kong company, was selling video games, consoles and accessories for playing music over the internet where its advertisements appeared on its web site. The claimants, the copyright owners, sued in respect of infringements of copyright where infringing goods were delivered to United Kingdom customers of the defendants. In his description of the facts the Deputy Judge highlighted that, as in the present case the defendants’ prices were quoted in £ sterling and sterling was the default currency when the defendants’ web site was accessed from England. The manuals available on the web site were in various languages including English. A number of testimonials to the defendants’ product published on the web site were from UK purchasers, and shipping the goods to the UK appears to have been arranged by the defendants.

Under the heading “The Law” at paragraph 16 the Deputy Judge said this:-

“16

The policy of Community exhaustion is reflected in both the trade marks and design legislation by excluding from infringement goods put on the market in the EEA by the right owner or with his consent. Exclusion by reason of the owner’s consent also arises in a similar manner in section 18 (2) of the CDPA 88. Two issues therefore next require attention: first whether Sony has given its consent to what is now complained of and secondly, whether by offering the goods for sale on its website, Pacific [the defendant]has fallen within any of the acts which under a relevant statute, give rise to infringement.”

Having concluded that Sony had not given consent either expressly or by implication, and having contrasted a web site giving general information with one where the information is targeted at a particular country or countries (see per Jacob J in Euromarket Designs Incorporated v Peters and Crate & Barrel Ltd [2001] FSR 20),the judge then summarised one of the submissions made by the defendants at paragraph 25 as follows:-

“25 Against this, Pacific pointed out in their evidence on the application inter alia that they were a Hong Kong company having no trading presence in the UK or EEA and that title to the goods they sold passed in Hong Kong. They asserted that their trading style ‘Lik Sang’ made sense only to Chinese speakers to whom the trading title and the characters [had a meaning].”

The Judge expressed his conclusion at paragraph 27 as follows:-

“27 The acts of which complaint is made have in my view been perpetrated not in Hong Kong but here in the EEA, and without Sony's consent. Moreover, it would make no sense if intellectual property rights in the EEA could be avoided merely by setting up a website outside the EEA crafted to sell within it. Were the acts of which complaint is made to have been committed physically within the EEA they would unarguably have been infringing acts. I cannot see how the electronic intermediary of a website which focussed at least in part on the EEA would make them any less so.”

I have come to the clear conclusion that the effect of the new section 32(4) of the Sale of Goods Act 1979 on the facts of this case, means that it was CD-WOW who delivered Product in the performance of a sale contract when the Product in question was delivered by the postal authorities to CD-WOW’s customer in the UK. I do not regard the Sabafcase as authority against this conclusion. The question in that case was whether the alleged infringer was the “importer” of the goods in question into the UK. Further Lord Hoffmann, in arriving at this conclusion, appears to have placed some reliance on the general rule for sale of goods that, without more, delivery to a carrier constitutes delivery to the consignee purchaser. Section 32(4) of the Sale of Goods Act expressly reverses that rule where the buyer “deals as consumer”. It is clear that customers of CD-WOW in the UK, who ordered Product in the manner which I have described above, were dealing as consumers. Judge Fysh in the Sony Computer case in coming to a similar conclusion on facts similar to those in the present case, placed reliance on the fact that the defendants’ web site was plainly intended to have effect in the United Kingdom to attract purchasers. The same is plainly true of CD-WOW’s web site and I respectfully agree that this strengthens the case for infringement. However in my view Products would still have been issued to the public by CD-WOW for the purposes of section 18(2) (a) even if there had not been a CD-WOW web site aimed at United Kingdom customers.

In my judgment on the facts before me CD-WOW has “no tenable ground of defence” to the Claimants’ claim for damages for primary infringement of the Claimants’ copyright rights under sections 16 and 18 of the CDPA.

That is sufficient to dispose of the Contempt Application subject to detailed questions as to the form of the consequent order. The Claimants presented an alternative case for secondary infringement by CD-WOW pursuant to sections 22 and 23 of the CDPA. Since this is effectively an application for summary judgment and it is not necessary for me to decide whether there has been secondary infringement by CD-WOW, I do not propose to embark on an examination of whether the Claimants have made out a case under sections 22 and 23. The issues under sections 22 and 23 are more complex and, accordingly, the decision on whether the Claimants have presented a case for summary judgment for secondary infringement by CD-WOW is more finely balanced. Mr Spearman accepts that the allegation of secondary infringement adds little to his clients’ claims.

The Claimants seek an enquiry as to damages for infringement of copyright and, in my judgment, they are entitled to that relief. The question, however, arises as to the width of that enquiry. It is CD-WOW’s submission that the enquiry should be limited to the damages flowing from the breaches of copyright resulting from the 33 test purchases relied upon. I reject that submission. I have found that the 33 test purchases are evidence of substantial breach of the Claimants’ rights continuing after the issue of the Contempt Application. In my judgment the Claimants, and those they represent, are entitled to damages in respect of any breaches of their copyright disclosed by an enquiry which result from the importation into the United Kingdom by CD-WOW of any Product to which that copyright extends. I will hear submissions as to the period over which the enquiry should operate which cannot, extend to a date earlier than the Settlement Agreement of the 20^th January 2004. The earliest test purchase, which was negative, was in January 2004. The earliest positive test purchase was on the 20^th September 2004. I will make an order for disclosure of documents by CD-WOW for the purposes of such an enquiry. In doing this I regard myself as following the practice outlined by Mr Justice Lightman in his judgment in Island Records Ltd v Tring International plc & anr [1995] FSR 560 at pages 562 and 563.

I turn to consider the question of whether I should make any order, at this stage, on the Claimants’ application for additional damage pursuant to section 97(2) of the CDPA. It is clear from the judgment of Mr Justice Pumfrey in the PPL v Reader case that in appropriate circumstances it would be open to me to do so. However I have come to the conclusion that this is not an appropriate moment in which to deal with this aspect of the Claimants’ case. I have also concluded that I should delay consideration of the penalty to be imposed on CD-WOW in respect of their contempt of the order of the court.

Until disclosure has been given pursuant to the enquiry which I have directed, I have no accurate idea of the scale of the breaches of the Claimants’ copyright which CD-WOW has committed notwithstanding that I have found that they must have been substantial. Much may turn on the pattern and extent of any infringements. Accordingly I will stand over consideration of these aspects of the case until after the enquiry has taken place.

Summary judgment under the Second Claim would add nothing to the relief which I have found to be available to the Claimants in the First Claim who are also Claimants in the Second Claim, that is, all those Claimants save the 10^th, 13^th, 14^th and 15^th Claimants. CD-WOW is the sole Defendant to the Second Claim. The Second Claim is not a representative action. As I understand the position the 8^th, 9th and 10^th Claimants are not the owners or licensees of any relevant copyright rights. It seems to me, therefore, that only the 1^st to 7^th and 11^th to 15^th Claimants are entitled to relief in the Second Claim and only in respect of loss resulting from CD-WOW’s unauthorised import of Products in respect of which they were the actual copyright owner or licensee. This is not the basis upon which I understand the Claimants to be seeking summary judgment and it may be that they may wish for an opportunity to re-think the Second Claim and amend it. I will receive further submissions, in the light of this conclusion as to how this claim may be advanced. For the moment my inclination is to stand over the claim for summary judgment for further consideration by the Claimants.