What are additional and compensatory damages?

Absolute Lofts South West London Ltd v Artisan Home Improvements Ltd and Another [2015] EWHC 2608 (IPEC)

Introduction

A large proportion of intellectual property cases do not include a reported decision on the assessment or quantification of damages. When infringement is found, the parties are usually keen to agree a figure without having to take on the extra costs of a damages hearing. For this reason, there have been relatively few judgments explaining how damages should be calculated, and what types of damages are available.

This case started as a copyright infringement case, although arguably it should have at least included a claim for inverse passing-off. By the time of the trial, however, liability had already been admitted. For this reason, HHJ Hacon focused only on the issue of damages. In his judgment, HHJ Hacon discussed two key issues to be determined. The first was the amount of compensatory damages that the Claimant, Absolute Lofts South West London Limited (Absolute Lofts), were owed. The parties agreed that this ought to be assessed on the basis of the "user principle". The second issue was whether Absolute Lofts were due additional damages under a) section 97(2) of the Copyright, Designs and Patents Act 1988, and/or b) article13(1) of Directive 2004/48/EC on the enforcement of intellectual property rights (the Enforcement Directive).

Facts

Whilst this is not a decision on infringement, it is important to lay out the facts. Artisan Home Improvements Limited (Artisan), and its director, Darren Ludbrook (collectively, the Defendants) admitted that they had infringed the copyright in photographs owned by Absolute Lofts. 21 photographs of loft-conversions from the Absolute Lofts’ website were used on the Defendants’ website in September 2010, suggesting that the Defendants had carried out the conversions pictured. Following a complaint from Absolute Lofts, the website was shut down in May 2014. Before the website went live again, the images were replaced with 21 licensed images from a stock photograph library. In April 2015, Artisan went into liquidation.

Whilst no trial was needed on infringement, a hearing on quantum was needed, since the amount of damages could not be agreed. Absolute Lofts claimed for several different types of damages, including compensatory and additional damages. The findings were as follows.

Compensatory damages and the user principle:

The Defendants had (in theory, at least) a number of options when uploading pictures to its website. They could have paid the Claimant for the pictures used; hired a photographer to take custom photos; or obtained images from a photographic library for a fee. The Defendants did not pursue the first option and, given their attitude towards the pictures, they would not have paid for customized shots. As the second Defendant eventually paid £300 for stock images HHJ Hacon used this as a guide in determining what the parties would have agreed as willing licensor and willing licensee.

Additional damages:

Various examples of dishonesty by the Defendants established a "couldn’t care less" attitude. This was enough to establish that the Defendants either knew that there was copyright infringement or had reasonable grounds to believe so.

Usually, damages are awarded on the basis of actual prejudice. This can either be in the form of unfair profits made by the infringer or compensatory damages in the form of royalty. On the facts, there were unfair profits for the Defendants as the pictures on the website were a misrepresentation of their work and they profited from this infringement. If unfair profits were taken to be strictly compensatory, the damages would be limited to the actual prejudice suffered, ie £300. There would be little leeway for taking into account the knowing infringement, in contrast to a situation in which someone unknowingly infringed copyright. The Defendants knowingly infringed the Claimant’s copyright and therefore a restitutionary element was needed. In light of the terms of the Enforcement Directive, this cannot be punitive.

In this case, compensatory damages were needed in order to put the Claimant in the same position it would have been in if it had not suffered wrong. This means the loss needed to be foreseeable, caused by wrong and not excluded from recovery by public/social policy. However, HHJ Hacon stated that it would be a mistake to interpret this strictly according to the actual prejudice suffered. Instead, a looser limitation was applied. In assessing the unfair profits that the Defendant made, knowing infringement was taken into account, as actual prejudice would not have provided adequate compensation. HHJ Hacon arrived at a figure of £6000. This was the amount assessed as appropriate whether awarded pursuant to section 97(2) CDPA or article 13(1) of the Enforcement Directive. However, additional damages can only be awarded on one of these bases, not both. Accordingly £6000 was the total amount of additional damages. Additional damages were appropriate in this instance because the Defendants’ business expanded as a result of the use of the Claimant’s pictures on the website, and the unfair profit was contingent on those pictures. Moreover, without additional damages, strict compensatory damages of £300 would not have had the dissuasive element required by article 3(2) of the Enforcement Directive. The additional damages, therefore, acted as a deterrent to future knowing infringement.

Conclusion

In awarding damages, courts can make compensatory, punitive and additional awards. In this case, only compensatory and additional damages were awarded. As there are not many reported decisions on damages in intellectual property law, this case helps to clarify a judge’s thought-process when awarding damages. Specifically, the case may be helpful in understanding the measure of a) compensatory damages under the "user principle", and b) how additional damages under section 97(2) CDPA and c) unfair profits under article 13(1) of the Enforcement Directive sit alongside one another.