Property in the proceeds of infringement
In a decision which no doubt has some further distance to run, Newey J (sitting in the Chancery Division of the High Court in England) has ruled that the owner of copyright does not have a proprietary interest in the proceeds (read profits) made by an infringer of the copyright.
Harris et al. are alleged to be the person (or persons) behind the Newzbin file sharing sites which, amongst other things, have been found to infringe the movie studios’ copyrights in a range of films (here and here, where Arnold J ordered the ISPs to block access).
In December last year, the Newzbin sites appear to have closed down, claiming they had run out of money.
Having obtained freezing orders (formerly called Mareva injunctions) against the assets of the defendants (such as the house in which Mr Harris lives and the Maclaren car he parks in its driveway), the movie studios sought “proprietary injunctions” over the assets as well. This seems to involve a court determination that the assets in question were the property of the movie studios rather than the defendants. For example, Newey J explained the difference between the (already in place) freezing order and the injunctions now sought by reference to Millett LJ’s description:
“The courts have always recognised a clear distinction between the ordinary Mareva jurisdiction and proprietary claims. The ordinary Mareva injunction restricts a defendant from dealing with his own assets. An injunction of the present kind, at least in part, restrains the defendants from dealing with assets to which the plaintiff asserts title. It is not designed merely to preserve the defendant’s assets so as to be available to meet a judgment; it is designed to protect the plaintiff from having its property expended for the defendant’s purposes”.
The movie studios based their argument on observations in the Spycatcher cases that Peter Wright may have held the rights in Spycatcher on constructive trust for the Crown in view of his breaches of duties of confidence and fidelity.
Newey J seems to have rejected this claim partly on the basis that there were cases binding on him (albeit apparently disapproved by the Privy Council) ruling that there was no such proprietary interest and partly on the basis that s 18 of the Copyright Act 1956 had expressly deemed the copyright owner to be the owner of infringing copies and provided remedies in conversion and detention. That remedy, however, had been repealed by the Copyright Design and Patents Act 1988 as unjust and unfair.
There are some interesting issues for Australians.
First, the conversion/detention remedy on the basis of deemed ownership has not been repealed (but is now discretionary) – see s 116 (but the Full Court may not be too keen on the remedy – see  of French and Kiefel JJ (as their Honours then were).
Secondly, in Lenah Game Meats, Gummow and Hayne JJ did say at :
A cinematograph film may have been made, as in Lincoln Hunt, in circumstances involving the invasion of the legal or equitable rights of the plaintiff or a breach of the obligations of the maker to the plaintiff. It may then be inequitable and against good conscience for the maker to assert ownership of the copyright against the plaintiff and to broadcast the film. The maker may be regarded as a constructive trustee of an item of personal (albeit intangible) property, namely the copyright conferred by s 98 of the Copyright Act. In such circumstances, the plaintiff may obtain a declaration as to the subsistence of the trust and a mandatory order requiring an assignment by the defendant of the legal (ie statutory) title to the intellectual property rights in question. Section 196(3) of the Copyright Act provides that an assignment of copyright does not have effect unless it is in writing signed by or on behalf of the assignor.
Gaudron and Callinan JJ also agreed.
Newey J considered, however, that:
i) The point under consideration (viz. whether copyright in a film made unlawfully was subject to a trust) was rather different to that with which I am concerned (viz. whether a copyright owner has a proprietary claim to the fruits of infringement); and
ii) The Australian approach to constructive trusts is by no means the same as that in this jurisdiction. In particular, as the Full Court of the Federal Court of Australia noted in Grimaldi v Chameleon Mining NL (No. 2)  FCAFC 6 (in paragraph 574)
His Lordship’s second point may be thought to be a second factor why an Australian court might take a different approach to his Lordship’s conclusion.
As to the first point, one might well think, if such a constructive trust arose, that the trustee would have to account for the fruits of the use of the trust property and possibly even handover such fruits as were still in his possession.
Finally, the Privy Council’s rejection of the authority binding on Newey J (and the determination of the movie studios) may well indicate that Newey J’s decision is just the first step in the war.
Twentieth Century Fox Film Corporation v Harris  EWHC 159
Lid dip: Fiona Phillips