PHONOGRAPHIC PERFORMANCE (SOUTH EAST ASIA) LTD v. LOST CITY LTD t/a CLUB LOST CITY

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. This assessment follows judgment by consent of the parties and an order for enquiry as to the plaintiff's damages sustained from the defendant's admitted infringements of copyrights under the plaintiff's control. It is undisputed that the plaintiff's status is that of a collecting society acting either on authority or assignment from its members to collect revenue in respect of the public performance of copyrighted items of broadcast music. The copyrights under the plaintiff's control are contained in its repertoire, which comprises both sound recordings and karaoke videograms of Cantonese songs belonging to its various members.

2. The sound recording and videogram items within this enquiry are particularised in paragraphs 13 and 14 respectively of the amended statement of claim. These paragraphs disclose that the infringements of copyright relate to one sound recording and three videograms, and that all four incidents of infringement occurred on 2nd August 1996. This also appears from the evidence of Mr. Ho Cheung Tim, a licensing officer in the plaintiff's employ, who visited the defendant's premises on the date in question and collected evidence of infringement.

3. It was material to the argument of Ms. Wong for the defendant to establish that the plaintiff's repertoire covered a vast number of sound recordings and videograms. The plaintiff produced as Exhibit P3 a heavy bundle of printouts listing the various commercial labels operated by its customers. Each label could however cover many individual items of music, and it was impractical to produce a printout of the complete list of the plaintiff's protected recordings. This difficulty was overcome by the plaintiff's admissions that its repertoire contained at least 50,000 videograms and at least one million songs in sound recording discs and tapes.

4. Whilst the four acts of infringement were admitted by the defendant, the parties adopted widely differing approaches to the calculation of the ensuing damages. Ms. Tam for the plaintiff argued that damages were awarded to place the plaintiff in the position in which it would have been had the defendant observed the plaintiff's copyrights and obtained a licence before broadcasting the protected items. Counsel therefore argued that the measure of damages amounted to the cost of an annual licence, calculated according to the plaintiff's standard tariffs for the year of infringement - 1996.

5. The plaintiff's calculations on the above basis appear in the third affidavit of Ms. Tsang Pak Lin, the plaintiff's General Manager, at pages 44 and 45 of the agreed bundle of affirmations. The tariffs for sound recordings and videograms (known respectively as tariffs "F" and "X-6") are annexed to that affidavit and appear at pages 160 and 164 of the agreed exhibit bundle. The tariffs have a built-in escalation factor dating from first publication of each of them (1st January 1992 for "F" and 15th November 1994 for "X-6"), and based on the increase in Consumer Price Index (B) at the date of calculation. At pages 162 and 169 respectively of the exhibit bundle are statistics showing the relevant starting levels of CPI (B) on the commencement dates of each tariff.

6. Ms. Tam addressed the authorities in arguing the plaintiff's claim to damages at the level of its licence fees for the year of the infringement. She pointed out a passage in Copinger and Skone James (13th edition) at page 343 to the effect that -

7. Ms. Wong for the defendant argued however that the expression "fair fee or royalty" should be considered in the context of the infringements occurring on one day only, and the infringeing performances representing in number a small fraction of the plaintiff's repertoire. It would, said Ms. Wong, be unfair in these circumstances for the defendant to pay damages amounting to one year's licence fees for the entire repertoire.

8. Ms. Tam drew support from judicial comment in General Tire and Rubber Company v Firestone Tyre and Rubber Company Ltd. [1976] RPC 197, that the appropriate measure of damages would be the "going rate" which the (in that case) patentee would have charged for granting the licence. The calculation would evaluate a notional bargain between the infringer and the holder of the copyright in order to establish what the infringer would have paid if he had applied for the licence in the normal way. At page 213, Lord Wilberforce recognised this approach as offering useful guidelines, provided that the circumstances which would attract the going rate between freely bargaining parties were comparable to those in which the notional bargain is to be imposed on the infringer by way of damages.

9. This proviso of Lord Wilberforce expresses much of the difference between the two approaches now urged upon the court. Ms. Wong, in brief, argues that the circumstances of the defendant's infringement are very different from those of the freely bargaining users of the plaintiff's licence. Because the infringement was for one day only and comprehended a fraction of the total repertoire, the imposition of a year's licence fee as damages would be grossly disproportionate.

10. The authorities show that the plaintiff's usual royalty or licence fee may be a starting point in assessing damages for infringement, but the court is at large to consider particular commercial practice and the individual circumstances of the case. It is axiomatic that the burden is on the plaintiff to prove its damages, and to do so it must provide the court with material for its assessment. In seeking to prove its claimed damages the plaintiff has submitted its calculations based on its annual licence fees and has explained its trade practice through its General Manager, Ms. Tsang.

11. Ms. Wong for the defendant has however sought to show that the plaintiff has on occasions given licences for part of a year, has given one-off licences for one particular day, and has given heavy reductions or discounts to certain of its customers. She has also relied on correspondence in which the plaintiff has offered the defendant a reduction from its usual terms. Ms. Wong sought to use these instances to show that the annual licence fee based on the full tariff is not the only method of pricing adopted by the plaintiff towards its licencees.

12. It was Ms. Tsang's evidence that the plaintiff only offered a one-off licence for a particular event, such as a concert, and that its normal practice was to deal in annual licensing periods. She also said that pro-rated licences for a part year occurred only in special circumstances, for example with a change during a licensing period in the information provided by the licensee for calculating the fees. This would occur if there were a reduction during a licence year in the number of seats or viewing screens in the establishment, when the licensee would be given the benefit of a pro-rated fee reduction for the remainder of the year. A pro-rated part year fee may also be applied if the establishment terminated its lease in the course of the year. Apart from those instances where there was specific justification for a pro-rated fee, Ms. Tsang said that only annual and one-off licences were issued. The cross-examination on these topics centred on the data in the printout of the plaintiff's list of customers, which was produced as exhibit P1.

13. Ms. Tsang agreed that substantial reductions in fees had been made in respect of establishments operated by four of the plaintiff's customers. The reason was that these customers all operated chains of establishments and assisted the plaintiff by compiling monthly lists of the various songs broadcast in order to provide an indication of demand. This was a service which could only usefully be offered by a customer controlling a chain of establishments, and a similar reduction would not therefore be available to the plaintiff.

14. Ms. Wong also cited the reduction in fees offered in correspondence to the defendant as further indication that the plaintiff applied its fees flexibly. The letter in question is dated 5th June 1996 and appears at page 171 of the exhibit bundle. It offers what is described as a 30% reduction of the original licence fee payable if accepted by 12th June. From its wording, this letter clearly represents an attempt to compromise to avoid litigation, and as such it reflects frequent practice between parties to a commercial dispute. The defendant, who failed to accept the offer and later infringed the plaintiff's copyrights, cannot now rely on the letter to argue the plaintiff's flexibility as to fee scales. I am unable to draw any such inference. I note in passing that the reduction offered in the schedule to the letter applies only to the disco at the defendant's premises, with which we are not here concerned. The fees suggested for the karaoke and the restaurant/bar, with which we are concerned, are unaffected by the offer.

15. In claiming as damages the amount of its annual licence fee the plaintiff is placing the defendant in the position of an annual licensee. In evaluating the fairness of this I reject the suggestion that the damages could more realistically be based on a one-off licence fee. Although the infringements occurred on one day only, the infringeing broadcasts were not arranged for a specific event, nor had the choice of the day been approved by the plaintiff. The defendant's infringeing behaviour had the nature of random licensed usage rather than that of a pre-arranged one-off performance, and the shortness of the duration of the infringements does not change their character.

16. Neither do I find it appropriate, as Ms. Wong suggests, that the damages should reflect the amount of the licence fee divided by the ratio of the infringeing items to the total number of items in the plaintiff's repertoire. This would produce an award so small as to be counted in cents, and would offer to potential users no incentive whatsoever to apply for licences. The purpose of copyright law is to protect copyright, and minimal protection would be offered if potential users could more profitably infringe and wait to be caught than pay the licence fees. The infringeing user would have the financial advantage over the lawful licensee. None of this can possibly have been contemplated by the legislation and I reject it as a basis for assessing damages. The encouragement offered to infringement by this approach would moreover be grossly unfair to the plaintiff.

17. I am satisfied that Ms. Tsang has answered the issues in cross-examination directed to showing that the plaintiff was flexible in its fee structure. From this, I also accept Ms. Tsang's evidence that the plaintiff's usual practice was to offer licences either on a one-off basis, or calculated on an annual basis from its tariffs. The defendant was aware of the plaintiff's copyrights and was aware of its usual terms for an annual licence. It was also well aware of the nature of a one-off licence, as it had obtained such a licence specifically for a mini-concert between 11 pm and midnight on 10th May 1996, according to the uncontradicted evidence of Ms. Tsang. Like many similar establishments, the defendant had the choice either to accept the plaintiff's licence terms or to refrain from playing the music under copyright. It chose to do neither, ignoring the plaintiff's rights as well as the offered reduction in the annual fee, and proceeded to infringe the plaintiff's copyrights at a time of its own choosing.

18. I am satisfied from all this that the nature of the defendant's behaviour in infringeing the plaintiff's copyrights was that of a licensee entitled to broadcast the relevant items at will. I therefore find that the appropriate measure of compensation is the annual licence fee of which the plaintiff has been deprived. The circumstances of the infringements readily fall within the proviso offered by Lord Wilberforce to the "going rate" principle that -

19. It follows that the measure of damages will accord with the plaintiff's own tariffs, according to the calculations in Ms. Tsang's third affidavit at pages 44 and 45 of the bundle of affirmations. There is however one outstanding and relatively minor matter of dispute relating to the area comprehended by the infringeing sound broadcast.

20. A copy plan of the defendant's premises has been produced as exhibit D1, and the original coloured version has also been provided for the assistance of the court. It is accepted that the infringeing sound broadcast took place in the area marked with blue diagonal and vertical lines and described as "Cafe de Ah Cheung". It is also accepted that the seating capacity (on which factor the plaintiff bases its fees) for this area is 30. The point of dispute however is that the plaintiff contends that the music broadcast in the Cafe could also he heard in the Coffee Shop, which is the area marked purple in the original plan, to the upper left of the Cafe. If this were the case, a further 20 seats would be added to the plaintiff's calculation of its licence fee for the sound broadcast. The defendant however disputes that the music broadcast in the Cafe could be heard in the Coffee Shop.

21. Evidence on this point was offered by Mr. Ho for the plaintiff and by Mr. Tang, the defendant's General Manager. Mr. Ho said that the broadcasts from the juke box in the Cafe were audible in the Coffee Shop. Mr. Tang however said that two powerful loudspeakers in the broadcasting area emitted continuous western style music and prevented any music from the Cafe reaching the Coffee shop. The positions of these speakers were marked with red crosses on exhibit D1. In the light of this conflicting evidence, I am unable to find a probability that the music broadcast from the Cafe was audible in the Coffee Shop. The seating factor for the sound broadcasting damages will therefore be restricted to the 30 seats in the Cafe itself.

22. The plaintiff's videogram fees are based on a combination of tariff "F" as to the number of seats, plus a surcharge according to tariff "X-6" providing a sliding scale of charges based on the number of video monitors. It is not disputed that the number of seats for this calculation is 345, and the number of monitors is 45. The method of calculating the two annual fees is clearly described by Ms. Tsang at paragraphs 5 and 6 of her third affidavit and I accept these calculations, save for the adjustment in the case of the sound broadcast. I am also satisfied from Ms. Tsang's evidence that the annual fees have been accepted by many establishments and that they reflect a fair level of compensation to the plaintiff for the defendant's infringements.

23. The plaintiff's figures for the sound broadcast infringement will therefore be adjusted downwards to reflect the reduction in seats from 50 to 30. This will give an award of $3606.87 x 3/5 = $2164.12. For the videogram infringement the plaintiff's figure of $65,424.75 is applied, and the total award will therefore be $67,588.87. In the circumstances of a blatant infingement after earlier negotiations I find it appropriate to award interest at the judgment rate from the date of the infringement (2nd August 1996) to date of payment. Costs are awarded to the plaintiff with a certificate for counsel.