London General Holdings v USP Holdings plc
Reference:  EWCA Civ 931;  FSR 6; (2005) 28(10) IPD 28073
Court: Court of Appeal
Judge: Waller, Laws & Jacob LJJ
Date of judgment: 22 Jul 2005
Summary: Copyright - Breach of Confidence - Causation of Damage - Assessment of Reasonable Notional Royalty
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Instructing Solicitors: Berwin Leighton Paisner for the Appellant; DLA Piper Rudnick Gray Cary UK LLP for the Respondent
For the purpose of Scheme A (“Apollo”) the Defendants (“LGH”) used as a precedent, and thereby made infringing copies of, a complex trust agreement (“CAA”) which had been drafted by the Claimants’ (“USP”s) lawyers and which had been supplied to LGH in confidence for the purpose of a previous joint venture. LGH and USP subsequently competed to secure Scheme B (“Powerhouse”). USP secured the contract for the Powerhouse scheme, after twice agreeing to drop their price. After the first price drop LGH disclosed an infringing copy of the CAA to Powerhouse in an unsuccessful effort to secure the contract. At the inquiry as to damages, the Master awarded USP the sum of £112,000 for the first drop in price on the basis that this had been caused by LGHs’ misuse of the CAA and the loss flowed directly and foreseeably from the copyright infringements committed the previous year. He also awarded them £15,000 as a notional royalty for the infringement in relation to Apollo.
(1) On the appeal, whether the Claimants’ loss of profit on the Powerhouse scheme was properly recoverable from the Defendants;
(2) On the cross-appeal, whether the Master should have awarded damages for the second drop in price; and
(3) Whether the Master’s notional royalty should be increased by £50,000 to take account of the Defendants’ infringement of copyright on 7 March 2000 in the context of the Powerhouse scheme.
Neither the price drop on 1 March 2000 nor the price drop on 24 March 2000 could be attributed to the taking of text from the copyright-protected document. The utility of the CAA in the Powerhouse negotiations rested in the trust-based concept which it exemplified. Damages for breach of copyright can only be awarded for the unauthorised use of the actual text of the document. They could not be recovered for pirating an idea found in the text. Since the claim in confidence was co-extensive with the claim in copyright, the same result followed. But it was appropriate to increase the notional royalty award from £15,000 to £35,000 to take account of the infringement on 7 March 2000, which took place when the parties were in head-to-head competition.
This case revisits the territory of Work Model Enterprises Ltd v Ecosystem Ltd  FSR 356. As in that case, although the infringing article was used by the defendant for the purpose of competing with the copyright owner, the competitive advantage thereby obtained did not depend on the exact text being copied. It depended instead on the communication of ideas, over which the copyright owner cannot assert a monopoly. These cases demonstrate that the liability of a copyright infringer is limited to those consequences which are attributable to that which made his act wrongful in the first place.