Determining a fair licence fee for a celebrity photograph

Author: Garth McDonald (Wiggin LLP)

Jason Sheldon v Daybrook House Promotions Ltd [2013] EWPCC 26, Patents County Court, England and Wales, 8 May 2013

Journal of Intellectual Property Law & Practice (2013) doi: 10.1093/jiplp/jpt155, first published online: September 19, 2013

His Honour Judge Birss QC has held that a fair licence fee for the use of a photograph of pop celebrities Ke$ha and LMFAO was worth substantially more than the few hundred pounds suggested by the defendant due to the subjects' celebrity status and the exclusive nature of the photograph in question.

Legal context

The Enterprise and Regulatory Reform Act 2013, which includes provisions for the use of ‘orphan works’, has, of late, caused photographers to be concerned about the commercial use of photographs by third parties who might come across them on the internet with no indication as to who the author (or rather, the photographer) is. The 2013 Act provides that ‘orphan works’ can only be used if a ‘diligent search’ for the author has been made, and a fair licence fee is paid. While it remains unknown what will constitute a ‘diligent search’, this case sheds some light on the considerations which are relevant in determining a fair licence fee for unauthorized commercial use of a photograph.

Facts

Kesha

Mr Sheldon was a professional photographer who had taken some photographs of pop celebrity Ke$ha while she was on tour with the internationally famous pop duo LMFAO. Mr Sheldon had obtained exclusive access to Ke$ha's tour bus when the tour came to Birmingham, and had taken a photograph showing the three individuals in a back-stage party atmosphere, lounging together on a sofa with a bottle of champagne.

The defendant, Daybrook House Promotions Ltd, ran a dance venue in Nottingham called Rock City. In March 2012, Mr Sheldon found that Daybrook was using the photograph taken in Birmingham in connection with a poster advertising campaign for its ‘Floor Fillers’ events.

As far as Mr Sheldon was concerned, the use of the photograph was unlicensed. Accordingly, he sent Daybrook an invoice for the use, totalling £1,351. This sum was based on Mr Sheldon's then understanding of the extent of the use of the photograph at that time.

Daybrook's position was that it accepted that the photograph had been used, but that it did not appreciate that it was an image which it was not entitled to use since the photograph was freely available on the tumblr social networking website. It said that, had it known that the claimant did not intend the photograph to be made so available it would not have used it. In any event, however, Daybrook argued that the claim was low and that the proper fee to be paid should be measured in the range of a few hundred pounds. In response to Mr Sheldon's invoice, Daybrook offered £150.

Analysis

Mr Sheldon issued proceedings for copyright infringement for the money that he felt was owed—the root of the difficulty in this case was the very different view the parties took as to what a fair licence fee would have been for the acts complained of. This involved two issues: the extent of the use of the photograph by Daybrook and, more significantly given how far apart the parties were, what a reasonable licence fee would be for the use.

Judge Birss QC decided that the best way forward was to decide the question of quantum as soon as practicable so that the case could be allocated to the correct track, either the small claims track or the multi-track, in the Patents County Court. The question was, therefore, what damages would be awarded to Mr Sheldon, assuming, which was not admitted, that the acts committed by Daybrook were indeed acts of infringement of copyright owned by Mr Sheldon.

Judge Birss QC decided that, assuming infringement had taken place, the correct measure of damages would be a reasonable royalty, ie the licence fee which would have been agreed between a willing licensor and a willing licensee, having regard to the nature of the right and all the circumstances.

Daybrook contended that the reasonable royalty would be a few hundred pounds. It relied on a quotation of £366 from a photographer, David Baird, for a single image for a club night poster with a print run of ten (6 × 4 inches) and a run of 10,000 postcards. The price was based on the photo being used on a promotional poster for a weekly club night at Rock City with a small print run and displayed on the interior and exterior of the club, and postcard-sized flyers distributed around Nottingham. The cost was calculated using professional software called fotoQuote which was built into Mr Baird's website.

Mr Sheldon argued that the artists featured in the photograph were award-winning and internationally renowned. He said that he had had exclusive access to their tour bus, and that it was not commonplace for photographers to have such access, as contended by Daybrook. He argued that the famous subject matter and the exclusive access were relevant to the sums a photographer in his position would charge to license such a photograph and increase the price. Mr Sheldon also contended that the photograph had been used quite extensively by Daybrook and for an extended period.

Mr Sheldon also provided the court with estimates for the value of the use of the photograph. He prepared various estimates on two bases. The first was produced using his own fotoQuote software to give a figure for national or regional advertising. This resulted in a fee of £12,222.54, which he believed would be increased by about 20 per cent to £14,667.05 given the specific subject matter and characteristics of the image.

The second basis was a bespoke quotation, again using fotoQuote, based on the extent of the use of the image that he had established. Mr Sheldon provided a range of quotations from other online photographic licence agencies. The lowest figure was £4,030 from Retna and the highest was £6,160 from Getty Images. Mr Sheldon arrived at a figure of £4,735.31, which with the 20 per cent uplift resulted in a figure of £5,682.37.

Judge Birss QC found that the point that Daybrook would not have expected to pay more than a few hundred pounds for a photograph was, whilst not entirely irrelevant, not the critical issue. The question was focused on the actual photograph Daybrook used, and a reasonable royalty was that which would be associated with the use of the particular copyright work concerned. In other words, what would the copyright owner have earned for the reproduction of this photographic work by someone wishing to reproduce it?

Further, Judge Birss QC said, while there was no doubt there were pop stars who are more famous than Ke$ha and LMFAO, both were plainly very well-known and current acts. This increased the value of the photograph ‘to some degree’, he said. A factor of even more importance was the exclusivity of access. One of the things which made the photograph interesting was its back-stage party atmosphere, which in turn derived from the exclusivity granted to Mr Sheldon. That was also a factor which would enhance its value.

As for the extent of use of the photograph, Judge Birss QC accepted Mr Sheldon's evidence. The judge also preferred Mr Sheldon's evidence about the general level of fees that he would have been able to charge for the photograph for two main reasons. First, Mr Sheldon's evidence was more detailed and contained convincing corroborative material from other sources such as Getty Images and Retna. Secondly, Judge Birss QC doubted that it would be worthwhile for a photographer, going to the trouble of gaining exclusive access to a location, just to license the resulting photographs for a few hundred pounds.

However, Judge Birss QC rejected Mr Sheldon's first estimate as to value, as it was not based on the actual usage: the measure of damages should be based on the actual reproduction that had taken place. That meant that the most relevant elements of Mr Sheldon's evidence were the bespoke quotations. These produced a range of numbers from about £4,000 to £6,000 with Mr Sheldon's own figure coming to £5,682.37 (which included the mark-up as a result of the subject matter of the image, a point that Judge Birss QC had already accepted).

Accordingly, Judge Birss QC determined that the correct measure of damages was £5,682.37, exclusive of VAT and interest.

Practical significance

This case suggests that the courts are willing to take a pragmatic approach to determining fair licence fees for photographs based on the commercial realities of the world of professional photography. Whether infringement had actually occurred remains to be found (unless the parties settle) but the main point is that, taking all the factual circumstances into account, the court decided that the value of the photograph, had it been properly licensed for use, depended on the celebrity status of the subjects. The exclusivity of access of the photographer was also an important point, enhanced by that status.

Louis Vuitton Holds ISP Accountable for Combined $21.6 Million

Authors: James L. Bikoff, David K. Heasley and Phillip V. Marano (Silverberg, Goldman & Bikoff LLP, Washington DC)

Louis Vuitton Malletier, S.A. v Akanoc Solutions, Inc. et al., No. 07-03952 JW, slip op. (N.D.Cal., 19 March 2010); see also 591 F. Supp. 2d 1098 (N.D.Cal. 2008)

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq079

In the summer of 2009, a jury in the US District Court for the Northern District of California found a web host contributorily liable for copyright and trade mark infringement because it harboured websites selling counterfeit Louis Vuitton goods from China.

Legal context

Despite a relative wealth of jurisprudence on indirect liability, US federal courts have struggled in the digital millennium to apply these theories in the converging areas of IP and internet law. What duty does a web host owe to a copyright owner when third parties store infringing content on the web host's servers? And what duty does an online auction house owe to a brand owner when third parties use the service to sell counterfeit goods? As both legislation and judicial precedent in the USA have evolved to address questions such as these, two primary theories of indirect liability—vicarious and contributory—have driven the law forward.

The roots of vicarious liability lie in the agency principles of respondeat superior, ‘let the superior answer’ for the torts of the agent. Accordingly, vicarious liability for copyright infringement requires that an intermediary defendant hold both (1) the right and ability to supervise directly infringing conduct and (2) a direct financial interest in the infringing activity. This standard differs markedly from trade mark law. Vicarious liability for trade mark infringement requires that an intermediary defendant and a direct infringer have an apparent or actual partnership or exercise joint ownership or control over an infringing product or service.

In contrast, contributory liability is based on tort principles of enterprise liability and imputed intent. Contributory liability for copyright infringement requires that an intermediary defendant have (1) actual or constructive knowledge of another's direct infringement and (2) either intentionally induced a direct infringer or materially contributed to direct infringement. Again, this standard differs markedly from trade mark law. Contributory liability for trade mark infringement, a much less solidified area, requires actual knowledge of specific infringement and either intentional inducement or continued assistance by supplying an infringing product. When an intermediary defendant supplies a service rather than a product, federal courts typically consider the extent of control exercised by that defendant over the third party's means of infringement. Although these standards may appear to be similar, the US Supreme Court has explicitly instructed that the tests for indirect trade mark infringement are more difficult to satisfy than for indirect copyright infringement.

Courts often struggle in applying these theories to intermediaries on the internet because analogies to traditional brick-and-mortar entities can be difficult. Cases involving IP and contributory liability often turn on whether an internet service provider is more like a landlord or a flea market operator than a telephone service provider or some other type of public utility. In addition, courts attach great significance to the actions taken by an internet service provider once it has knowledge of direct infringement. Akanoc Solutions represents the relatively rare circumstance where an internet service provider entirely fails to mitigate direct infringement by taking appropriate action.

Facts

Louis Vuitton Malletier (‘LVM’), which owns trade mark and copyright registrations relating to a variety of handbags and other goods, is the sole and exclusive distributor of its luxury merchandise. In late 2006 it discovered five websites it believed to be selling counterfeit LVM merchandise. By tracing the internet protocol addresses of the websites, LVM was able to send repeated takedown notices to the entity harbouring the websites on its servers—Akanoc Solutions, Inc. (‘Akanoc’). As a web host, Akanoc provided its customers with ‘internet protocol addresses, routers that link internet traffic to websites, and servers that store internet content and allow the content to be accessed through the internet’.

Shortly after sending its takedown notices, LVM purchased and tested items from the websites. Each item was sent using a return address located in China—Akanoc's website advertised an ‘extensive background knowledge of the Chinese economy’ and specialization in ‘creating unique solutions’ for Chinese companies seeking to sell goods in the USA. Each item was determined by LVM to be a counterfeit replica of its products. As its investigation progressed, LVM observed that the infringing websites either remained operable or were moved to different internet protocol addresses that were also owned by Akanoc.

Faced with such persistence, LVM sued Akanoc, its principal—Stephen Chen—and Managed Solutions Group, Inc. (‘MSGI’)—another entity controlled by Chen that owned Akanoc's servers. The complaint, filed in the US District Court for the Northern District of California, alleged four causes of action: (1) vicarious copyright infringement, (2) vicarious trade mark infringement, (3) contributory copyright infringement, and (4) contributory trade mark infringement. After conducting discovery, LVM filed an amended complaint that extended its allegations of indirect copyright and trade mark infringement from the five original websites to an additional 72 counterfeiting websites.

Analysis

In late 2008 the Northern District of California issued a decision granting the defendant's motion for summary judgment with respect to LVM's vicarious liability claims and denying the motion with respect to LVM's contributory liability claims. The Court held that:

• No reasonable jury could find the defendants vicariously liable for copyright infringement because there was no evidence of a ‘direct financial interest’ in the underlying infringing activity. In the Ninth Circuit, ‘the central question of the "direct financial benefit" inquiry ... is whether the infringing activity constitutes a draw for subscribers, not just an added benefit’. The ‘essential aspect’ of the inquiry is ‘whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps’. LVM's claim for vicarious copyright liability was denied because there was no evidence that third parties sought or abandoned the defendants' web hosting services based on their ability to infringe, or that the defendants ‘made more money when they allowed infringement to continue’ and ‘less money when they did not’. The defendants' wilful blindness of the direct infringement was not enough to carry the claim.
  
  
• No reasonable trier of fact could find the defendants vicariously liable for trade mark infringement because no ‘actual or apparent partnership’ existed. The defendants only sold their web hosting services to ‘resellers’, not individual websites, and thus did not deal directly with or receive money from any website operators. Again, wilful blindness was not enough to carry the claim.
  
  
• The defendants could be held contributorily liable for copyright infringement because they had actual knowledge, or at least should have known, of specific pirated material available on their servers and failed to purge such material from the system. To establish the defendants' knowledge of infringement LVM proffered a number of its takedown notices, letters between counsel for the parties, and the defendants' internal emails discussing the takedown notices. LVM also proffered evidence on the ‘simple measures’ the defendants could have taken to purge infringing material from the system, including internal emails discussing their ability to remove individual websites by disabling a single internet protocol address. Moreover, Stephen Chen's deposition testimony illuminated the defendants' apathy toward takedown notices, ‘[We] just don't have a lot of experience with [complaint letters], and we don't have any mechanism to take care of letter complaints’.
  
  
• The defendants could be held contributorily liable for trade mark infringement because they had actual knowledge of specific counterfeiting websites on their servers and continued to provide their web hosting services while remaining wilfully blind to infringing activity. The evidence proffered by LVM to establish specific knowledge of direct infringement sufficed for both its contributory copyright and trade mark infringement claims. However, the Court struggled to determine whether the defendants exercised sufficiently ‘direct control and monitoring’ of the web hosting service. In order to find such direct control, the Court analogized web hosts to brick-and-mortar flea market operators, ‘Defendants physically host web sites on their servers and route internet traffic to and from those websites. This service is the internet equivalent of leasing real estate’.

LVM's contributory copyright and trade mark claims continued on to trial and, in August 2009, the jury returned a verdict in favour of LVM for a total of $34.2 million. Each individual defendant was found liable for $10.5 million and $300,000 in damages for wilful contributory infringement of 13 LVM trade marks and two LVM copyrights, respectively.

In March 2010, the Northern District of California issued a decision granting the defendant's motion for judgment as a matter of law with respect to MSGI and denying the motion with respect to Akanoc and Stephen Chen. On consideration of the motion, the Court found that evidence was insufficient with respect to MSGI, which merely ‘owned servers that were operated by ... Akanoc’ because ‘[t]here was no evidence that [it] sold domain names or operate[d] the servers’. Accordingly, the jury verdict regarding MSGI was vacated and the overall damages were reduced by $10.8 million.

The Court, however, upheld the jury's consideration of Akanoc's and Stephen Chen's ‘action or inaction after receiving notice of infringement’ because they had ‘numerous tools at their disposal for monitoring their servers and terminating abusive users’ including ‘the ability to suspend a particular user, disable IP addresses used by a particular website or if necessary, unplug a server that contained the data for a particular website’. The Court also denied Akanoc's attempt to seek Digital Millennium Copyright Act (‘DMCA’) immunity from damages for contributory copyright infringement. Stephen Chen ‘testified that he did not understand the DMCA’ or its requirement to reasonably implement a policy to terminate web hosting service for repeat infringers. Moreover, ‘evidence indicated that Defendants had not terminated certain repeat offenders’.

Finally, the Court issued a permanent injunction against Akanoc and Stephen Chen, enjoining them from knowingly hosting internet web sites that display, advertise for sale, offer for sale, or actually sell, export or distribute goods or services that exhibit unauthorized reproductions of the LVM trade marks or copyrights. The injunction left in place a reasonable notice and takedown policy with Akanoc.

Legal significance

Akanoc continued to supply its web hosting services to known pirates and counterfeiters and was held to be contributorily liable for copyright and trade mark infringement. It invited spurious Chinese goods into the USA, it ignored takedown notices from rights holders, it failed to implement a reasonable takedown policy, and it even took steps to obscure the internet protocol addresses of counterfeiting websites.

This case builds on a fairly well-established jurisprudence on indirect liability for copyright infringement. It also adds to a rapidly evolving jurisprudence on indirect liability for trade mark infringement. Most importantly, it highlights the disparity between theories of indirect infringement for these two forms of IP on the internet. The Northern District of California's copyright analysis was well supported with direct precedent, whereas its analysis of trade mark law followed doctrinal trends in favour of protecting trade mark owners. Although this case may appear to be run-of-the-mill in the copyright arena, it is a significant advancement in trade mark jurisprudence. As the law of the internet evolves, federal courts are likely to become increasingly open to a notice and takedown regime for brand owners, similar to that of the Digital Millennium Copyright Act.