THE NEW ZEALAND NATIONAL PARTY & ANOR v EIGHT MILE STYLE, LLC
Court of Appeal of New Zealand
Cooper, Brown and Clifford JJ
3 July 2018, 18 December 2018
 NZCA 596
Copyright infringement – sound track infringing copyright in musical work – damages – application of the user principle – relevant factors – role of appellate court.
Additional damages – whether additional damages warranted s 121 Copyright Act 1994 (NZ).
During the lead up to the 2014 General Election the first appellant (the National Party) broadcast on television and the internet and by a video played at its conference a 30 second advertisement which incorporated a sound track called Eminem Esque. Following a High Court trial, Cull J held that the Eminem Esque sound track was an infringement of copyright in the musical work Lose Yourself. There was no challenge to that finding. The appeal was concerned solely with the award of damages.
At first instance it had been common ground that damages were to be assessed by applying the “user principle” ie determining the licence fee for the infringed work that would have been agreed in a hypothetical negotiation between a willing licensor and a willing licensee. Cull J accepted expert evidence for the first respondent (Eight Mile) as to a minimum baseline fee for a song of the calibre of Lose Yourself, to which an uplift was applied reflecting three factors. These were (1) the use for political advertising (2) the significant risk to the future commercial value of the song and (3) the lack of creative control and opportunity to re-record. After allowing a discount for the short duration of use, Cull J assessed a reasonable licence fee to be NZ$600,000.
The National Party appealed contending:
(a) That the Judge’s analysis of the user principle factors was flawed in seven respects; and
(b) That in applying the user principle to the facts there were eight alleged errors in the agreed lists of issues.
Eight Mile cross-appealed over the court’s refusal to award additional damages. In particular it alleged that the National Party was reckless or sufficiently indifferent as to whether Eminem Esque would amount to infringement and that justified additional damages. A contingent appeal ground was that, if court had erred in finding that the political use to which Lose Yourself was put by the National Party was a factor that should have been taken into account in assessing what was a reasonable licence fee in the circumstances, did the court err in holding that an award of additional damages was not justified in the circumstances. The National Party had received a benefit (for example by being able to use Lose Yourself for a political purpose when that would not otherwise have occurred) and without having adequately to compensate the respondent in respect of that benefit.
Held, allowing the appeal and dismissing the cross-appeal.
Where infringement of an intellectual property right has not resulted in the diversion of sales nor is that right the subject of licences for royalty payments, recourse is generally had to the “user principle” for fixing damages. This involves the assessment of a notional licence fee or royalty, being the price that the IP rights holder would reasonably have charged for permission or authorisation to carry out the infringing act  – .
General Tire & Rubber Co v Firestone Tyre & Rubber Co Limited  1 WLR 8129 (HL); Napier Tool & Die Limited v Oraka Technologies Limited  NZCA 554,  2 NZLR 611 referred to.
Principles set out in Coppinger & Skone James on Copyright (17th ed) Sweet & Maxwell, London 2016 (vol 1 at  -  cited with approval.
As to the criticism of the High Court’s summation of the user principle:
(a) Use of the “charged terminology”
There was no substance in the criticism of the Judge’s characterisation of the hypothetical bargain as ‘what would have been reasonably charged at the time of infringement’. The word “charged” has traditionally been employed as a description of the payment which the user principle reflects  – .
Meters Limited v Metropolitan Gas Meters Limited (1911) 28 RPC 157 at 164-5; Napier Tool & Die Limited v Oraka Technologies Limited  NZCA 554,  2 NZLR 611 referred to.
(b) The proposition that the user principle is restitutionary in nature
The court accepted that user damages are compensatory in nature .
(c) The proposition that evidence is only a guide
It was not the trial judge’s intention to adopt a more liberal approach and her summary did not represent a departure from the recognised approach .
(d) The absence of a licence provision as to quality control
This relevance or otherwise issue would be addressed in the court’s calculation of the hypothetical licence fee .
(e) The omission of consideration of alternative courses of action available to the defendant.
The court preferred the view that the existence of alternative available courses of action is a recognised factor in the user principle. Whether it will be of significance in an individual case will of course be fact dependent .
Oraka Technologies Limited v Geostel Vision Limited  NZHC 769, (2018) 131 IPR 363; 32 Red Plc v WHG (International) Limited  EWHC 815 (Ch); Force India Formula One Team Limited v 1 Malaysia Racing Team Sdn Bhd (2012) EWHC 616 (Ch) referred to.
(f) The omission of references to the parties acting reasonably
There was no substance to criticism concerning the omission of an explicit reference to the parties being required to act reasonably .
(d) The omission of references to the value of the infringing use to a defendant
While this was a factor to be taken into account, it had not been overlooked by the trial judge .
Gallagher Electronics Limited v Donaghys Electronics Limited (1991) 4 TCLR 344 referred to.
The relevance of the New Zealand territory
There was force in appellant’s submission that the expert evidence for the respondent copyright owner had confused the availability of an advertisement (incorporating the infringing copy of the musical work) with the issue of what was being advertised and to whom. It was difficult to see how the international attention of fans who were not voters in the New Zealand election (and so not an intended audience) could attract a price in the hypothetical negotiation. It was not something that the National Party as a reasonable licensee would wish to pay for, nor something for which a reasonable licensor could demand payment . Given the evidence of other witnesses on the relevance of the New Zealand territory, it was not open to the judge to adopt an international base line figure. By, in effect, giving little if any recognition to the territory factor in her analysis, the Judge did depart from the recognised process of judicial estimation of the available indications .
Political use and risk to future commercial value
A higher fee can reasonably be sought for certain types of use of a copyright work which may be viewed as likely to have a polarising affect on a community or among sections of it. A political use was but one instance .
However a distinction should be drawn between types of use which had an inherent divisive quality and hence, viewed objectively, would warrant a higher fee on the one hand, and on the other hand a licensor’s subjective reluctance to agree to a licence because the message, the subject of the advertisement, was not one which the licensor personally endorsed . The court’s acceptance of political use as a factor which warranted an increased licence fee was confined to objective reluctance, namely a licensor’s concern about the nature of the use per se. The concern derived from the fact that, irrespective of whether the licensor agreed with the promotional message or not, the divisive nature of the promoted use would have the potential to impact on the future commercial use of the licensed work in a more substantial way than the opportunity cost associated with a less controversial product or service .
A willingness to license
As to a licensor’s subjective reluctance the Judge had not intended that the licence fee should reflect a subjective reaction to the particular political viewpoint of the licensee. However, the Judge’s intentions in that respect were thwarted as a result of her adoption of an expert’s analysis which made no distinction between objective and subjective reluctance on the part of the licensor ,  and .
It was an error of law for the Judge to have considered the subjective willingness of the licensor in the hypothetical negotiation and to apply that willingness in determining the starting point for the fee. The hypothetical negotiation is predicated on the willingness on the part of both parties. The Judge treated as what she regarded as the National Party’s special willingness as being a bargaining deficit to the licensee which resulted in a higher starting point to which an uplift was then applied .
The relevance of non-infringing alternative options
The budgetary constraints of a defendant might influence the choice of an alternative work if that was an available option. Given that the National Party was limited as to how much it could spend on election advertisements by the provisions of the Electoral Act 1993, both parties would have recognised as a relevant factor the other musical options which the National Party might explore. The apparent absence of consideration of this factor was a further error in the licence fee analysis  – .
The significance of the absence of a quality control provision
The hypothetical licence addresses a retrospective and hence a known use. It assumes that the licensor is a willing participant. Although the licence is an artificial construct, it was unrealistic to incorporate an assumption about the presence or otherwise of a control provision, the absence of which would serve no other purpose than to elevate the licence fee . It would be a perverse outcome that a flagrant infringement in the form of a complete replication of the musical work would not be the subject of complaint by reference to the absence of a quality control provision whereas an inferior quality would generate an increase licence fee. If alleged denigration of the original work was the concern then in the court’s view a claim for damages under s 125 of the Act would be a more appropriate recourse than incorporating an uplift to the hypothetical licence fee on account of the absence of a quality control provision in the licence . Eight Miles’expert witnesses who were directed to proceed on assumptions about both lack of control and denigration of the original work estimated a hypothetical fee which was inappropriately elevated as a consequence .
The role of the Appellate Court
In some cases it may be possible to attribute a value to a factor which has been erroneously considered or overlooked and then to make an appropriate adjustment to a damages award to reflect that. This was not such a case. It was not possible to excise from the expert’s assessment (accepted by the High Court Judge) and correspondingly from the Judge’s award, amounts which were attributable to factors erroneously taken into account. It was therefore necessary for the Court to undertake its own assessment .
The Court’s assessment
The evidence on both sides of the case supported a finding of a reasonable licence fee for the use in the advertisement primarily in the New Zealand territory of NZ$225,000,000 .
Additional damages are reserved for exceptional behaviour and are not compensatory. They are not therefore a haven for compensating for matters that are not within the scope of the user principle where a plaintiff has elected not to seek reputational damages .
This was not a case that warranted an award of additional damages . Having reviewed the evidence the Court agreed that the proposition that National Party turned a blind eye to the risk or saw a risk and embarked on a reckless course of conduct with respect to that risk was not sustainable .
The evidence established that the National Party did not seek an association with Eminem or his views. While a degree of association may have been inevitable on account of the National Party’s desire to use music with which Eminem was clearly associated, this was not an instance of an international attempt to portray an implicit endorsement of an artist. If anything the contrary appeared to be the case .