“User principle” damages in copyright breach cases

The usual position in intellectual property infringement matters is that the successful applicant can elect between an account of profits or damages.  However, what if the applicant has not suffered any direct loss as a result of the actions of the respondent that is held to have infringed its copyright?

What are User Principle damages?

In copyright infringement matters where a copyright owner cannot establish loss suffered as a result of an infringement, damages may be able to be calculated on the what’s called the “user principle” basis (User Principle).  Under this principle, the applicant, assuming they succeed on the question of liability, is entitled to recover, by way of damages, a reasonable sum from a respondent who has wrongfully used the applicant’s intellectual property.

The applicant may not have suffered actual loss from the infringement, and the wrongdoer may not have derived actual benefit.  Nevertheless, under this principle, the respondent is obliged to pay a reasonable sum for the wrongful use.^[1]

Damages suffered by applicants may be regarded as a loss of royalty or license fee are calculated as a notional or hypothetical royalty or licence fee that would have been required to be paid by the infringer, had a licence been granted.

In assessing the notational licence or royalty fee, a Court will usually consider the nature of the infringement, including factors such as^[2]:

• flagrancy of the infringement(s);
• the need to deter similar infringements;
• the conduct of the respondent after being put on notice of the alleged infringement; and
• any benefit shown to have accrued to the respondent,

Application of the User Principle to the quantification of damages

The applicability of the User Principal for assessing damages in Australia was originally rejected by the Full Court of the Federal Court in 2007 in the decision of Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564 (Aristocrat).  In that case, their Honours emphasised that this principle applies only where a Court finds that loss or damage has indeed occurred and that it was not enough merely to show wrongful conduct by a respondent.^[3]  In effect, an infringing party could rely upon Aristocrat to argue that assessment of damages on the basis of a reasonable royalty is not available to an applicant where the facts establish that the applicant, as the owner of the property in question, would never have licensed it to the infringer.

However, in the case of Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) (2015) 241 FCR 271 (Winnebago), Yates J found that Aristocrat was not a binding authority, at least in relation to areas other than copyright infringement, and held that the user principle was available in an action for passing off, per Justice Yates:

“The plaintiff may not have suffered actual loss from the use, and the wrongdoer may not have derived actual benefit. Nevertheless, under the principle, the defendant is obliged to pay a reasonable sum for the wrongful use”

(Bold is our emphasis)

Responsively, the decision of Katzmann J in Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434 (30 April 2021) (Universal v Palmer) dispelled any uncertainty as to the application of the “User Principle”, holding that the Full Court’s remarks in Aristocrat are not binding.

In this case, the founder of United Australia Party (UAP), Clive Palmer, infringed the musical and literary works in the Twisted Sister song, “We’re Not Gonna Take It” (WNGTI), in political advertisements for the Palmer United Party in the 2019 federal election.

Following Mr Palmer’s refusal to comply with a cease and desist letter, Universal Music Publishing Pty Ltd (Universal) filed copyright infringement proceedings against Mr Palmer in the Federal Court of Australia.  Importantly, the facts in this proceeding found that Universal had not granted Mr Palmer a licence to use WNGTI, and Mr Palmer proceeding with unauthorised use and passing it off as his own infringed Universal’s copyright.

The Court found that Universal should not be limited to nominal damages and the infringement should be assessed in accordance with the “User Principle” and awarded damages under section 115(2) of the Copyright Act 1968 (Cth).

As a result, Mr Palmer was ordered to pay $500,000 in compensatory damages, assessed on the basis of the “User Principle”, or a notional licence fee for use of the works, notwithstanding the initial quote to Mr Palmer of $150,000 for the rights.  This case supports the application of the “User Principle” as seen in Winnebago.  A further $1,000,000 in additional damages was also ordered under section 115(4) of the Copyright Act due to the ‘flagrancy of the infringement’.

How is damage quantified based on the User Principle?

Katzmann J refers to a summary of principles in determining the calculation of damages in Universal v Palmer.^[4]  These are summarised as:

• the licensor and infringer are willing to negotiate;
• impecuniosity on the part of the notional licensee is disregarded;
• whether an agreement is reached between the parties is irrelevant;
• the actual infringement is reflected in terms of any notional licence;
• it is reasonable for the Court to look at the eventual outcome in considering what the parties’ thoughts were at the time of the hypothetical bargain when there has been an absence of an actual negotiation;
• the Court can account for other relevant factors and in particular, the claimant’s delay in asserting its rights; and
• the defendant would arrive at the same result through lawful means if the fact was expected to be accounted for in the parties’ hypothetical negotiation.  All the advantages and further attributes of the infringement do not need to be in the alternative.

Factors to be considered in deciding whether or not to grant a licence in this case

An affidavit of a Ms Masters at paragraph 400 of the judgement listed the factors to be considered by Universal in deciding whether or not to grant a licence.  These were:

• “the current status of the music in the market (such as whether it has been recently released as a single or on an album or is still popular);
• the purpose for which the music is to be used;
• the identity of the advertiser;
• the views of UMP and the songwriter about the proposed use;
• the value to the advertiser;
• the creative control UMP would exercise over the use;
• the media on which the advertisement will be placed;
• the period of use;
• the prominence of the music (such as its duration or volume in the advertisement and whether a more or less prominent part of the music is to be used);
• whether there will be a single advertisement or multiple different advertisements;
• the territory of use; and
• any exclusivity.”^[5]

Factors that contributed to the value of a particular piece of music

Ms Masters also deposed at paragraph 402 about the factors which contribute to the value of a piece of music as follows:

• the popularity and commercial success of the music and the artist or band that performed it; 
• the extent to which the music has previously been used in advertising; and 
• Ms Masters said that every licence has “an opportunity cost”.

Other factors were also deposed to:

• songwriters insisting on some degree of creative control over the use of music – artistic integrity at para 406;
• whether or not the lyrics are changed at para 407 – changing the lyrics almost always changes the licence fee sometimes to a ‘’significant extent’’; and 
• if the licensee was “particularly controversial’’ then the amount quoted would be significantly higher at para 14.

A summary of the factors, that Ms Masters deposed to conclude that the amount of licence fee for an eight month campaign would be $1Million, were:

• “the controversial and divisive nature of the UAP campaign and Mr Palmer;
• the high likelihood of damage to the image of the song, the artist and UMP; through association with the UAP campaign and Mr Palmer;
• the prominent use of the song across 12 versions of the advertisement;
• the size of the campaign (indicated by the number of versions and the use across all media, including paid advertising, contrary to Mr Wright’s indication);
• the lyric changes;
• the poor quality of the re-recording and its rendition as a “sound-alike”; and
• the want of geogating so that the advertisements were accessible overseas, including in the US”.^[6]

Interestingly, Ms Masters’ Evidence was not challenged in cross examination.  In this case, evidence being unchallenged is likely to be a favourable factor in successfully obtaining the large sum of award in the Court’s application of the User Principle basis.

Key takeaways on the User Principle

Damages assessed on the basis of the User Principle are available for a variety of intellectual property infringement matters, including those involving copyright, trademark and patent infringement matters.

The decision of Universal v Palmer resolves previous uncertainty of applying the User Principle following the decision in Aristocrat.

Links and further references

Legislation

Copyright Act 1968 (Cth)

Cases

Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564

Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434 (30 April 2021)

Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) (2015) 241 FCR 271

Further information about copyright and patent infringement

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Paragraph [13] Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) (2015) 241 FCR 271.

[2] Section 115(4)(a) and (b) of the Copyright Act 1968.

[3] Paragraph [45] Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564.

[4] Paragraph [450] Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434 (30 April 2021).

[5] Para 400 Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434 (30 April 2021).

[6] Para 420 – Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434 (30 April 2021).

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