Twentieth Century Fox Film Corporation v Harris Approved Judgment

Neutral Citation Number: [2013] EWHC 159 (Ch) Case No: HC12F01500 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Rolls Building, Royal Courts of Justice, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL Date: 05/02/2013
Before :

MR JUSTICE NEWEY
--------------------Between : (1) TWENTIETH CENTURY FOX FILM CORPORATION (2) UNIVERSAL CITY STUDIOS LLC (3) WARNER BROS. ENTERTAINMENT INC. (4) PARAMOUNT PICTURES CORPORATION (5) DISNEY ENTERPRISES, INC. (61) COLUMBIA PICTURES INDUSTRIES, INC. (the members of the Motion Picture Association of America Inc., on their own behalf and on behalf of all the other companies that are controlled by, controlling of or under common control with such members (together “the Group Companies”) that are the owners, or exclusive licensees, of the copyright in films and television programmes) - and (1) DAVID HARRIS (2) KTHXBAI LIMITED (3) THE NZB FOUNDATION (4) PAYPAL (EUROPE) SARL et CIE SCA (5) CHRISTOPHER ELSWORTH (6) MOTORS FOR MOVIES LIMITED Claimants

Defendants

--------------------Mr Richard Spearman QC (instructed by Wiggin LLP) for the Claimants Miss Jane Lambert (instructed by JWK Solicitors) for the First and Second Defendants

Hearing dates: 20 December 2012 --------------------Judgment Mr Justice Newey :

1.

The question raised by this case is whether a copyright owner has a proprietary claim to money derived from infringement of the copyright.

Twentieth Century Fox Film Corporation v Harris Approved Judgment

Background 2. The claimants (“the Studios”) are the members of the Motion Picture Association of America Inc. and are the owners or exclusive licensees of the copyright in numerous films and television programmes. They sue in a representative capacity, on behalf of themselves and other group companies. In 2008 the Studios brought proceedings against a company called Newzbin Limited in respect of the operation of a website of the same name, the sole purpose of which was alleged to be to make available to its users unlawful copies of copyright works including films and television programmes. The case was tried by Kitchin J in early 2010. In a judgment dated 29 March 2010 ([2010] EWHC 608 (Ch)), Kitchin J concluded that Newzbin Limited was liable to the Studios for infringement of their copyrights. He found that Newzbin Limited had “engaged in a deliberate course of conduct well knowing that the vast majority of the materials in the Movies category of [the] Newzbin [website] are commercial and so likely to be protected by copyright and that the users of Newzbin who download those materials are infringing that copyright” (paragraph 128 of the judgment). The Newzbin website was taken down not long after Kitchin J had given judgment, but another website with a similar name came into existence soon afterwards. The Studios allege that this website, “Newzbin2”, operated in the same way as the original Newzbin site and that it shared that site’s purpose. The Particulars of Claim accordingly assert: “the Newzbin2 website is the same as the Newzbin website; its purpose is the same; and the use to which it is put by its members is the same”. 5. The proceedings before me seek relief against individuals and companies who are alleged to have links to the Newzbin2 website. The first defendant, Mr David Harris, is said to be either the sole operator of the website or one of its operators. The second defendant, Kthxbai Limited (“Kthxbai”), of which Mr Harris is apparently the sole director, is said to have received payments from the Newzbin2 website. The third defendant, the NZB Foundation (“NZB”), a Panamanian company for which Mr Harris was formerly a protector and now holds a power of attorney, seems to own the property in which Mr Harris lives. The other defendant of relevance for present purposes, Motors for Movies Limited (“MFM”), of which Mr Harris appears to be the only director, owns the McLaren car that stands in the drive at Mr Harris’ home. Among others, claims for breach of copyright and unlawful means conspiracy are put forward. The Studios have already obtained freezing injunctions against Mr Harris, Kthxbai, NZB and MFM. Mann J granted such an order against Mr Harris, Kthxbai and NZB on 23 November 2012, and the order was continued until trial or further order by Warren J on 3 December. On 20 December, I made an order in similar terms against MFM. The Studios now ask that proprietary injunctions should be granted against Mr Harris, Kthxbai, NZB and MFM. Millett LJ referred to the difference between such an injunction and the more common freezing (or “Mareva”) injunction in Ostrich Farming Corporation Ltd v Ketchell (10 December 1997, unreported). He said:

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“The courts have always recognised a clear distinction between the ordinary Mareva jurisdiction and proprietary claims. The ordinary Mareva injunction restricts a defendant from dealing with his own assets. An injunction of the present kind, at least in part, restrains the defendants from dealing with assets to which the plaintiff asserts title. It is not designed merely to preserve the defendant's assets so as to be available to meet a judgment; it is designed to protect the plaintiff from having its property expended for the defendant's purposes”. 8. To obtain proprietary injunctions, the Studios need to show that there is a serious question to be tried as to whether they have proprietary rights in the assets over which they seek injunctive relief. That in turn depends on whether there is at least a serious argument that a copyright owner has a proprietary claim to the proceeds of an infringement of copyright.

The parties’ cases in summary 9. Mr Richard Spearman QC, who appeared for the Studios, argued that, where a copyright is infringed, the copyright owner has a proprietary claim to the whole proceeds of the infringement. Those proceeds, Mr Spearman submitted, are held on constructive trust for the copyright owner, or at least it is seriously arguable that that is the case. Passages in a variety of authorities point in that direction, so it is said. In contrast, Miss Jane Lambert, who appeared for Mr Harris and Kthxbai, disputed that any proprietary claim exists. According to Miss Lambert, the Studios are arguing for a remedy that has never been awarded by any Court in respect of any species of intellectual property. The owner of intellectual property whose rights have been infringed will often be entitled to an account of profits, but (so Miss Lambert submitted) there is no question of the fruits of infringement being subject to a trust. Were it otherwise, Miss Lambert said, there would be a chilling effect on innovation and creativity.

10.

Discussion 11. The remedies for infringement of copyright are dealt with in chapter VI of part I of the Copyright, Designs and Patents Act 1988. Section 96(2) of the Act, which is to be found in this chapter, states that, in an action for infringement of copyright, “all such relief by way of damages, injunctions, accounts or otherwise is available to the plaintiff as is available in respect of the infringement of any other property right”. Mr Spearman stressed the words “or otherwise”. These, it is true, are capable of encompassing a proprietary claim. On the other hand, section 96 does not specifically refer to the existence of such a claim. Textbooks and case law also make no direct reference to the availability of proprietary relief for breach of copyright. More specifically, I was not taken to any textbook or case in which it had been suggested that a copyright owner can advance a proprietary claim to the fruits of a breach of copyright. That is the more striking since, given the potency of proprietary claims, they could be expected to be asserted routinely in breach of copyright cases were they available. Mr Spearman cited authorities to show that a copyright can be the subject of a constructive trust. That is doubtless correct. As, however, Miss Lambert pointed out,

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that is very different from saying that the fruits of a breach of copyright are held on trust for the copyright owner. 15. Mr Spearman likened copyright infringement to theft. Support for the analogy can be found in R v Carter [1993] FSR 303, where Jowitt J, delivering the judgment of the Court of Appeal Criminal Division in a video piracy case, said: “[I]t has to be borne in mind that counterfeiting of video films is a serious offence. In effect to make and distribute pirate copies of films is to steal from the true owner of the copyright, the property for which he has to expend money in order to possess it. It is an offence really of dishonesty”. Building on the analogy, Mr Spearman invoked Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, dicta in which indicate that a constructive trust can arise in relation to stolen property. At 715-716, Lord BrowneWilkinson said: “The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins. At law those coins remain traceable only so long as they are kept separate: as soon as they are mixed with other coins or paid into a mixed bank account they cease to be traceable at law. Can it really be the case, it is asked, that in such circumstances the thief cannot be required to disgorge the property which, in equity, represents the stolen coins? Moneys can only be traced in equity if there has been at some stage a breach of fiduciary duty, i.e. if either before the theft there was an equitable proprietary interest (e.g. the coins were stolen trust moneys) or such interest arises under a resulting trust at the time of the theft or the mixing of the moneys. Therefore, it is said, a resulting trust must arise either at the time of the theft or when the moneys are subsequently mixed. Unless this is the law, there will be no right to recover the assets representing the stolen moneys once the moneys have become mixed. I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v. Wilson [1913] 2 K.B. 235, 244; R. Leslie Ltd. v. Sheill [1914] 3 K.B. 607. Moneys stolen from a bank account can be traced in equity: Bankers Trust Co. v. Shapira [1980] 1 W.L.R. 1274, 1282C-E: see also McCormick v. Grogan (1869) L.R. 4 H.L. 82, 97”. 16. As Mr Spearman noted, Lord Browne-Wilkinson’s remarks have been doubted as well as applied in subsequent cases. Even assuming, however, that they represent the law, I do not think they are of much help in the present context. The fruits of an infringement of copyright cannot, as it seems to me, be equated with the stolen coins.

Twentieth Century Fox Film Corporation v Harris Approved Judgment

While the owner of the coins will have lost title to the coins at law, the copyright owner will have retained title throughout both in equity and at law. A copyright infringer is more akin to a trespasser rather than to the thief of the coins. 17. That leads to the next point: that a landowner has no proprietary claim to the fruits of a trespass. A person who has profited from trespassing on someone else’s land may be ordered to pay what are sometimes called “restitutionary damages” to the landowner (see e.g. Ministry of Defence v Ashman (1993) 66 P&CR 195). Perhaps, though some recent authority rather points in the opposite direction (see e.g. Forsyth-Grant v Allen [2008] EWCA Civ 505, [2008] Env LR 41), there could be circumstances in which, exceptionally, the landowner could claim an account of profits. The authorities do not, however, support the proposition that the landowner could assert a proprietary claim against the trespasser. Suppose, say, that a market trader sells infringing DVDs, among other goods, from a stall he has set up on someone else’s land without consent. The owner of the land could not, as I see it, make any proprietary claim to the proceeds of the trading or even the profit from it. There is no evident reason why the owner of the copyright in the DVDs should be in a better position in this respect. On Mr Spearman’s case, a copyright owner’s claim would not even be limited to the infringer’s profits: in principle, the entire proceeds of sale would be held on trust for the copyright owner. That might both be unfair and stultify enterprise. The proceeds of an infringement might be out of all proportion to the profits generated (e.g. because of the cost of raw materials used in the infringing product). It might not seem just for even a deliberate wrongdoer to have to pay the copyright owner the amount of his gross receipts, and an infringer need not have known that he was breaching copyright. Further, were Mr Spearman’s submissions correct, a person might be deterred from pursuing an activity if he perceived there to be even a small risk that the activity would involve a breach of copyright or other intellectual property rights. As was submitted by Miss Lambert, that could have a chilling effect on innovation and creativity. Section 18 of the Copyright Act 1956 is noteworthy in this context. As Arnold J explained in Les Laboratoires Servier v Apotex Inc [2011] EWHC 730 (Pat), [2011] RPC 20 (at paragraph 67): “S.18 of the 1956 Act created a statutory fiction that infringing copies of copyright works were deemed to belong to the copyright owner. This gave rise to the remedy of conversion damages i.e. damages based on the whole value of the infringing article. It was a provision that often caused surprise even to lawyers and judges other than those who specialised in intellectual property law, let alone to lay people. By the time of Columbia v Robinson it had been widely criticised, and was generally recognised as being anomalous and ripe for repeal. It was duly repealed not long afterwards by the Copyright, Designs and Patents Act 1988”. It was thus thought unacceptable for a copyright owner to be entitled to the whole value of an infringing item. Yet that is what the result would be if copyright owners had the proprietary claims for which the Studios contend.

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21.

Mr Spearman sought support in Attorney-General v Guardian Newspapers Ltd (No. 2) [1990] 1 AC 109. That case concerned a book, “Spycatcher”, that a Mr Peter Wright had written about his service in MI5. The Crown sought to restrain publication of the book by newspapers and also, as against “The Sunday Times”, an account of profits. As to this, the trial judge, Scott J, said (at 139-140): “I had supposed that the claim against ‘The Sunday Times’ for an account would be based on the proposition that in equity the Crown should be treated as the owner of the copyright. Prima facie, this approach would seem to have some merit. If Mr. Wright in writing the book was acting in breach of a continuing duty of confidence and fidelity that he owed to the Crown, there would, in my view, be a strong argument for regarding the product of the breach of duty as belonging in equity to the Crown. If that were so, and on the footing that ‘The Sunday Times’ could not claim to be a bona fide purchaser without notice of the Crown's equity, it would follow that ‘The Sunday Times’ would be accountable to the Crown for any profit it made in serialising Spycatcher. It would also follow that the Crown would, in this jurisdiction at least, be entitled to prevent further publication of the book by anyone who could be shown to be on notice of the Crown’s equity. The Crown would be entitled to do so on straightforward proprietary grounds. The equitable owner of copyright in a book can choose to suppress the book and forego any profit therefrom if he chooses”. The Crown, however, disavowed any claim to be entitled in equity to the copyright in the book (see 140).

22.

Dillon LJ touched on the same point in the Court of Appeal. He said (at 211): “It has seemed to me throughout the hearing of this appeal that there could have been strong arguments for saying that, as Mr. Wright wrote and published Spycatcher in breach of his duty of secrecy to the Crown and was only able to do so by the misuse of secret information which had come to him in the course of his employment as an officer in the Security Service of the Crown, the copyright in Spycatcher belongs in equity to the Crown and is held on a constructive trust for the Crown with whatever consequences may follow from that. Since, however, the Crown has in the most explicit terms disclaimed any reliance on equitable copyright, I put such thoughts out of mind”.

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Scott J’s thesis also received support when the case reached the House of Lords. There, Lord Keith of Kinkel said (at 262-263): “There remains of course, the question whether the Crown might successfully maintain a claim that it is in equity the owner of the copyright in the book. Such a claim has not yet been advanced, but might well succeed if it were to be”. In similar vein, Lord Griffiths said (at 276):

Twentieth Century Fox Film Corporation v Harris Approved Judgment

“as at present advised I accept the view of Scott J. and Dillon L.J. that the copyright in Spycatcher is probably vested in the Crown”. Lord Goff of Chieveley said (at 288): “Indeed, there is some ground for saying that the true answer is that the copyright in the book, including the film rights, are held by him on constructive trust for the confider - so that the remedy lies not in breach of confidence, but in restitution or in property, whichever way you care to look at it: see, in this connection, ante, pp. 210D - 211C, per Dillon L.J. At all events, since the point was not argued before us, I wish to reserve the question whether, in a case such as the present, some limited obligation (analogous to the springboard doctrine) may continue to rest upon a confidant who, in breach of confidence, destroys the confidential nature of the information entrusted to him”. 24. Scott V-C returned to the topic briefly in Attorney-General v Blake [1997] Ch 84, which concerned an autobiography written by a Mr George Blake, who had been a Soviet agent as well as a member of the Secret Intelligence Service and who had fled to the Soviet Union after escaping from prison. Substantial parts of the book related to Mr Blake’s activities as a member of the SIS and were based on information he had acquired while an SIS officer. At 96-97, Scott V-C said: “In the event, therefore, the second question, namely whether the Crown can claim, as remedies for the defendant’s breach of duty in writing and authorising publication of his book, to be entitled in equity to the copyright in the book and to an account of the defendant’s profits from the book, does not arise. Since, however, the issue has been the subject of careful and detailed submissions, I will state, in summary terms, my conclusions on the question. If the defendant had owed the Crown the duties contended for, the writing and publication of the book would have constituted a breach of those duties. If the point had been free from authority, I would have held that the defendant, as wrongdoer, ought in equity to be required to hold the fruits of his wrongdoing for the person to whom the duty was owed, namely the Crown. That was the view I expressed in the Spycatcher case [1990] 1 A.C. 109, 139. The same view was expressed by Dillon L.J. in the Court of Appeal, p. 211, and, tentatively, by Lord Keith, p. 263, and, more firmly, by Lord Griffiths, p. 276, in the House of Lords. As, however, the Crown did not desire to take the point, the point was not the subject of any argument. As at present advised I believe the point to be precluded by authority in the form of Lister & Co. v. Stubbs (1890) 45 Ch.D. 1 and Halifax Building Society v. Thomas [1996] Ch. 217, both Court of Appeal decisions by which I am bound. The Privy Council in Attorney-General for Hong Kong v. Reid [1994] 1 A.C. 324, an appeal from the Court of Appeal of New Zealand, disapproved Lister & Co. v. Stubbs. But that disapproval does not relieve me from the

Twentieth Century Fox Film Corporation v Harris Approved Judgment

obligation in this jurisdiction of accepting its authority. I am, if I may respectfully say so, persuaded by the reasoning of Lord Templeman in his judgment in Reid’s case that Lister & Co. v. Stubbs ought no longer to be regarded as good law. That reasoning, applied to the present case on the footing that the defendant’s writing of and authority for the publication of the book were breaches of his continuing duties to the Crown, would justify, in my judgment, the conclusion that the Crown was entitled in equity to the benefit of the copyright in the book and to the profits derived by the defendant therefrom”. 25. Scott V-C thus took the view that the point he had raised in the “Spycatcher” case was inconsistent with Lister & Co v Stubbs (1890) 45 Ch.D. 1, by which he considered himself to be bound. Recent authority confirms that, the Supreme Court apart, the Courts are bound to follow Lister & Co v Stubbs: see Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347, [2012] Ch 453 and, now, FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17 (albeit that in FHR the Court of Appeal seems to have interpreted Lister & Co v Stubbs in such a way as to limit its scope). That, though, is not the only reason why the “Spycatcher” case is not in the end, as it seems to me, of real help to Mr Spearman. In the first place, as Laddie J observed in Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 (at 412), the views expressed by Lords Keith, Griffiths and Goff on the copyright question were “not only obiter, they were also expressed without the benefit of any argument from the defendants”. Secondly, the present case differs substantially from “Spycatcher”. The issue in the present case is whether a copyright owner has a proprietary claim to the fruits of infringement. The point aired in “Spycatcher” was whether a copyright was itself the subject of a trust in circumstances where the author had acted “in breach of a continuing duty of confidence and fidelity” (to quote from Scott J) and misused “secret information which had come to him in the course of his employment” (to use words of Dillon LJ). Similarly, in Blake Scott V-C referred to whether the Crown could claim to be entitled in equity to the copyright of Mr Blake’s book as a remedy for his “breach of duty in writing and authorising publication of his book”. Two of the other cases on which Mr Spearman relied involved duties comparable to those owed by Mr Wright and Mr Blake. In Magical Marking Ltd v Holly [2008] EWHC (Ch) 2428, [2009] ECC 10, where Norris J took the view that information and documentation contained in CDs and a DAT tape was held on constructive trust, a Mr Holly, who had been a director of the first claimant, had been involved in a “raid” in the course of which the first claimant’s electronic business records had been copied (see paragraph 11) and had “breached his fiduciary duties to [the first claimant] in obtaining the material to be found on the CDs and the DAT tape” (paragraph 72). Missing Link Software v Magee [1989] 1 FSR 361 depended on the fact that the first defendant had been an employee of the claimant. Neither case appears to me to be of any significant assistance to Mr Spearman in the present case, where there is no suggestion that any of the defendants has ever been an employee or director of any of the Studios. I should finally refer to an Australian decision, Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63, (2001) 208 CLR 199. That case involved an application for an interlocutory injunction to restrain the broadcasting of a film of the applicant’s operations at a “brush tail possum processing facility”. The operations had been filmed secretly: one or more people had broken into the applicant’s premises and installed hidden cameras. The High Court of Australia

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concluded, by a majority, that no injunction should be granted, but comments by certain of the judges tend to suggest that, where a film has been made unlawfully, its maker may hold the copyright to it on trust. Thus, Gummow and Haynes JJ (with whose judgment Gaudron J expressed agreement) said (at paragraph 102): “A cinematograph film may have been made, as in Lincoln Hunt [Australia Pty Ltd v Willesee (1986) 4 NSWLR 457], in circumstances involving the invasion of the legal or equitable rights of the plaintiff or a breach of the obligations of the maker to the plaintiff. It may then be inequitable and against good conscience for the maker to assert ownership of the copyright against the plaintiff and to broadcast the film. The maker may be regarded as a constructive trustee of an item of personal (albeit intangible) property, namely the copyright conferred by s 98 of the Copyright Act. In such circumstances, the plaintiff may obtain a declaration as to the subsistence of the trust and a mandatory order requiring an assignment by the defendant of the legal (ie statutory) title to the intellectual property rights in question.” Callinan J agreed with Gummow and Hayne JJ on the point, although he noted that the relevant copyright legislation would apply “somewhat uneasily” (see paragraph 309). 28. The issue, however, does not seem to have been the subject of argument in the High Court, the plaintiff not having claimed to have an interest in the copyright in the film. In any case: i) The point under consideration (viz. whether copyright in a film made unlawfully was subject to a trust) was rather different to that with which I am concerned (viz. whether a copyright owner has a proprietary claim to the fruits of infringement); and The Australian approach to constructive trusts is by no means the same as that in this jurisdiction. In particular, as the Full Court of the Federal Court of Australia noted in Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6 (in paragraph 574): “unlike Australian law, [English law] does not recognise that the constructive trust can be a discretionary remedy: see Sinclair Investments, at [37]; contrast Bathurst City Council v PWC Properties Pty Ltd [[1998] HCA 59; (1998) 195 CLR 566] at [42]”. Conclusion 29. Despite Mr Spearman’s persuasive advocacy, it seems to me clear that a copyright owner does not have a proprietary claim to the fruits of an infringement of copyright. I shall not, therefore, grant proprietary injunctions.

ii)