IPEC Small Claims - Piercing the Corporate Veil and Benefits of Use to 'Small-time' Creatives

Two directors have been held personally liable along with a dissolved limited company in respect of copyright infringement.

In the recent case of IP14S01982 Webb v (1) VA Events Ltd, (2) Carl Jason Austin and (3) Dale Stanley Vicker a specialist aerial photographer convinced the court that he should be awarded six times his normal usage fee as compensation for the unauthorised use of his work by the Defendants, the publishers of the now defunct website, vaevents.com.

The judge also took the view that the directors of the company in default who were also named as defendants could not shelter behind their status as directors of a limited company, the so-called corporate veil, and were held personally liable.

Background facts and award

The Claimant produces aerial landscape images and charges £150 for credited use of one of his images, or £300 if the client opts to omit a byline. In breach of the Claimant's copyright, the Defendants published two of the Claimant's images.  In normal circumstances that would establish a loss of income of £300, however, the degree of flagrancy by the Defendant's convinced the judge to elevate the award by an additional 500% to £1,800 plus costs adding up to a total award to the Claimant of £2,716.

During the hearing the Claimant was able to show that the Defendants and/or their agents had removed each of the 33 '©www.webbaviation.co.uk' watermarks that overlaid his images and that attempts had been made to re-draw and clone in missing parts of the images where the watermarks had been. The Defendants must therefore have spent many hours doing this.  Further, they also asserted their own copyright in the images by way of a copyright statement on each page of the website.

The Defendants proposed three lines of defence.  First they argued that they didn't know the images were copyright protected relying on section 97(1) of the CDPA.  Second they claimed that the website developer had created/used the images.  Third and finally they argued that any liability should be a liability of the company and not the directors thereby seeking to hide behind the corporate veil.

The first argument held no water with the judge who quoted the Hoffman v Dare and said it was naive to suggest a company involved in promotion and marketing thought images found on the internet were not protected by copyright.  With regard to the second argument the defendants failed to produce any evidence proving the website designer's involvement and the website developer was also a liquidated company.  The third argument is considered below.

Piercing the Corporate Veil

Following various correspondences being sent to the Defendant company by the Claimant to which no response was received the day before the Claimant had said he would issue proceedings, in May 2014, the directors filed an application to dissolve the company at Companies House.  Clearly this was an attempt to escape the threat of imminent litigation.

The company had no assets or premises, and only appeared to possess a bank account and a telephone number therefore the Claimant named the directors as defendants personally along with the company, VA Events Ltd. Generally company directors will not be held personally liable for the companies activities, however, as the Claimant was quoted as saying at the time, "this needs to be pursued for moral reasons; we need to know if directors can be held liable."

Quoting MCA Records Inc v Charly Records [2002] the judge found in the Claimant's favour and held the directors personally liable.  Judge Hart referred to the two directors controlling the company alone, they being the "directing minds" of the company.

Flagrancy

Although there is no concept of punitive damages in the UK law, Section 97(2) of the Copyright Designs and Patents Act 1988 ("CDPA") permits judges to award an uplift in damages where flagrancy has occurred. The CDPA is also clear that infringement for commercial purposes is a criminal act as well as a civil tort for which damages can be claimed.

During the course of the hearing it transpired that the Defendants had written two letters to the court describing the claim as "ludicrous and preposterous". As well as denying their own liability and placing blame on the uncontactable web designer, the Defendants' letter also stated that the Claimant was responsible for the infringement because he had put the image on the internet.

The Claimant, pointing to the 33 copyright watermarks, commented as follows, "There has never been a more clearly copyright-marked photograph displayed. There is no doubt the defendants unwise comments and attitude to copyright contributed greatly to the amount of the flagrancy award and indeed the judge commented on the Defendants attitude to copyright in her summing up".

Also coming back to haunt them, the Defendants had described the removal of 33 instances of "© www.webbaviation.co.uk" and unlawful use of the image as "inadvertent".  The judge commented that the use of this word was misleading and indicative of the Defendants attitude. Their removal was described by the judge as, "deliberate, deceitful, calculated and not easy to do with each script being individually removed". Their actions also had the consequence of 'orphaning' the work.

There was also the matter of the Defendants adding their own assertion of copyright at the bottom of each web page, which was a clear indication that they knew or at least ought to have know about copyright protection and infringement.

The overall result was a new record as far as uplift for flagrancy is concerned, and also a weakening of impunity for company directors who infringe copyright. It is also a validation of visible watermarking as a protection mechanism, and that tampering with or removing them is evidence of flagrancy and will provide grounds for elevated damages.

Commenting on the decision and award Mr Webb said that, "The most important thing is not the £2,716 I will get from the Defendants, but the fact that the Defendants have to pay £1,800 for a £300 picture, plus costs, which will deter other image users from infringing my work. This will be worth far more in extra sales from people who will now buy my images instead of infringe".

As Webb quite rightly points out, "Copyright law works exactly the same for musicians, authors, composers or any other creative. I think this latest judgement is good news to all of us, whatever branch of the creative arts we are in."

Benefits of the IPEC small claim track

2012 saw the introduction of the Intellectual Property Enterprise Court (IPEC) and a small claims track to provide cheap and accessible resolutions to copyright claims under £10,000 in front of specialist judges.  For small-time creative individuals the IPEC small claims track can be a very effective cost-effective forum as it works for those without large scale legal budgets and has changed the enforcement of IP rights for such individuals dramatically.

In the past UK copyright law has seemed to encourage infringement, since the basic premise of a damages claim is merely to restore the revenue lost by unlawful use. If infringing parties have to pay little more when caught than they would have paid to purchase rights to use legally, it becomes a rational business decision not to pay and hope to evade detection at least some of the time.

Faced with court and legal fees of up to and above £20,000 the protection of copyright with such relatively low value to a claimant was effectively unenforceable.

As can be seen from the above with the introduction of the IPEC small claims track this prohibitive situation has now been rectified and the door opened to a whole new wave of low value claims for copyright infringement.

For further information or advice on any of the issues raised in the article above please do not hesitate to contact McDaniel & Co on 0191 281 4000 or legal@mcdanielslaw.com