File-sharing and Norwich Pharmacal: Court Supervision of Letter of Claim

March 26, 2012

The ghost of Andrew Crossley and the lingering odour arising from the volume litigation which he pursued on behalf of his clients can be detected in an extraordinary judgment in the High Court concerning file-sharing and porn. Golden Eye (International) Ltd v Telefonica UK Ltd (Consumer Focus intervening) [2012] EWHC 723 (Ch) concerns an application for a Norwich Pharmacal order in favour of Golden Eye and 13 other claimants (all of whom are the owners of copyright in pornographic films, including the wonderfully named Ben Dover Productions). The order was sought against O2 (which is a Telefonica company). O2 is one of the largest six UK ISPs. The claims at the root of the application for the Norwich Pharmacal order concern alleged infringements of copyright through peer-to-peer file-sharing using the BitTorrent protocol. While the object of the claim was merely to obtain disclosure of the names and addresses of customers of O2 who are alleged to have committed infringements, the claim raises fundamental questions as to the operation of the Norwich Pharmacal regime, the legitimacy of so-called ‘speculative invoicing’ and how to balance the rights of copyright owners and consumers.

O2 did not object to the making of a Norwich Pharmacal order – they had reached agreement with the claimants on terms which included the payment of £2.20 for each name and address requested and £2,500 as security for costs. So the real issue was whether the court would resist the order because of any unfairness to prospective defendants and, with that possibility in mind, Mr Justice Arnold had made directions which enabled Consumer Focus (the trading name of the National Consumer Council) to intervene. Consumer Focus undertook the task of presenting adversarial argument on behalf of the intended defendants, rather than merely assisting the court with legal submissions.

While there were a number of issues concerning expert evidence, the main points of interest concern the court’s comments and views on the proposed letter of claim (a draft being attached to the draft Norwich Pharmacal order). The letter included the following:

‘We have obtained the services of a forensic computer analyst to search for and identify internet addresses from which out copyright works (including the Work) are being made available on so called ‘peer to peer’ (P2P) internet sites for the purposes of making them available for download by third parties without our client’s consent or licence.


GEIL’s forensic computer analyst has provided us with evidence that the following UK date and time, [B] [C], all or part of the Work was made available from the internet protocol (or IP) address [Applicant], specifically for the purpose of downloading by third parties. We attach a copy of his report. We showed this evidence to your internet service provider Telefonica UK Limited (‘O2’) who would not supply us with any information without a Court order. We therefore made an application to Court asking for an Order against O2 that they disclose the names and addresses associated with the IP address on the date and time in question. On 2011 Mr Justice , sitting in the High Court, ordered O2 to give us disclosure of your name and address for the purpose of this letter. For your information we enclose a copy of that Order. In accordance with that Order, O2 identified you as the subscriber noted in their systems as on their network associated with the IP address on the date and at the time in question. Please be assured that we have stringent security measures in force to ensure that, so far as is humanly possible, the data we hold is fully protected.

Infringing Acts

The act of file sharing the Work without the consent of GEIL is unlawful and, in particular, has caused damage to our business. In effect, every copy of the Work that is downloaded represents a potential lost sale. Whenever the Work is made available for download to other parties there is the opportunity for multiple downloads to take place resulting in lost revenue. In addition to GEIL selling direct, we also enter into licensing agreements for third party organisations to distribute our content. File sharing also results in lost royalty revenue and weakening of the brands saleability.

We have set out below the infringing acts you are liable for to GEIL:

1. either for copying the Work on to the hard drive of your personal (or office) computer (‘PC’) (pursuant to the sections 16(1)(a) and 17 of the Copyright Designs and Patents Act 1988) (‘The Act’); and/or for

2. making the Work available to third parties for downloading (pursuant to sections 16(1)(d) and 20 of the Act). Please note that such making available can be caused simply by a person connected to your internet connection downloading the Work, during the course of which the part downloaded is then made available to other third parties connected to the network in question.

In the event that you were not responsible for the infringing acts outlined above, you should make full disclosure to us of the other parties at your residence using your internet connection to make the Work available for download.

Legal Consequences

As we have stated above, the extensive file sharing activity is causing damage to GEIL’s business. We are therefore left with no alternative but to monitor carefully its intellectual property rights and enforce them against infringers.

In the event that this matter cannot be resolved, it may become necessary for GEIL to being a claim against you for copyright infringement. This claim would be brought in the civil court, where liability is determined on the balance of probabilities. In that event, we must make you aware that if successful, we will be entitled to recover from you damages and possibly a contribution towards the legal costs if you choose to instruct lawyers. If GEIL secures a judgment, and in the event that you were not able to pay whatever sums the court may order you to pay, we would have no option but to take steps to enforce the debt against you.

Proposed Settlement

GEIL is prepared to give you the opportunity to avoid legal action by proposing a settlement offer, the details of which are set out below. Our offer to resolve the claim against you is intended, on this occasion, to focus your attention on the potentially serious consequences of your actions (or inaction, by permitting a third party to use your internet connection). We also trust that these actions will not be repeated. Our offer is that you:

1. promise in a written undertaking not to upload, download, make available or otherwise share the Work or any of GEIL works (or other intellectual property) and/or permit others to do the same using your internet connection, at any time in the future, either from the above IP address or any other;

2. agree to delete any copies of the Work (and any other intellectual property of GEIL from your hard drive and/or operating system and/or any copies saved to disk (or other media), other than those that were purchased by you from a legitimate source; and

3. pay £700.00 as compensation to GEIL for its losses.’

Consumer Focus contended that this was ‘speculative invoicing’, ie sending thousands of letters before action to alleging small-scale copyright infringement without seeking confirm whether the internet subscriber was the person actually responsible for the uploading/downloading of the copyright work that has been detected. The subscriber is then requested to pay a substantial sum which has no relation to the actual damage caused by the alleged copyright infringement or the costs incurred. The tactic is to scare people into paying the sums by threatening to issue court proceedings. If this does not work, proceedings are not normally issued. This is because the economic model for speculative invoicing means that it is more profitable to collect monies from those who pay rather than incur substantial costs in pursuing those who do not pay in court. Where proceedings are issued, they are not pursued if a default judgment cannot be obtained.

Consumer Focus advocated the view that Golden Eye were set to embark on speculative invoicing in a way similar to that which had drawn the disapproval of HHJ Birss in the Media CAT litigation associated with Andrew Crossley. Consumer Focus cited the following similarities:

·        Golden Eye had entered into agreements with other claimants under which it was licensed only to act for them in relation to any alleged breaches of copyright arising out of P2P filesharing

·        those agreements typically provided for Golden Eye to receive 75% of the revenue

·        Golden Eye intended to send letters of claim to up to 9,124 people

·        the draft letter of claim was similar to the letters of claim sent by ACS:Law, and included some (though not all) of the objectionable features commented on by HHJ Birss QC

·        the letter claimed £700 by way of compensation without any attempt at justifying that figure – if all that sum, the revenue generated would be £6,386,000

·        the conduct of the three claims brought by Golden Eye against alleged infringers as a result of earlier Norwich Pharmacal orders suggested a desire to avoid judicial scrutiny of such claims.

Golen Eye stressed the differences, including the fact that ACS: Law was not involved and that copyright owners have been joined as claimants from the outset. Arnold J also thought it relevant that Golden Eye were taking a ‘less ambitious approach’. 

Although hesitant about the champerty issue and troubled by the nature of the agreement between Golden Eye and most of the other claimants (Ben Dover was more closely linked to Golden Eye), Arnold J was not sufficiently troubled to feel that either issue was a bar to a Norwich Pharmacal order. But on the issue of proportionality, he felt that the nature of those agreements was such that making an order for Golden Eye in respect of breaches affecting the other claimants (bar Ben Dover) ‘would be tantamount to the court sanctioning the sale of the Intended Defendants’ privacy and data protection rights to the highest bidder… such an order would not proportionately and fairly balance the interests of the Other Claimants with the Intended Defendants’ interests. … If the Other Claimants want to obtain redress for the wrongs they have suffered, they must obtain it themselves.

But a Norwich Pharmacal order was made in favour of Golden Eye in respect of alleged infringement of its own copyright and that of Ben Dover. Arnold J felt that that was proportionate as long as the safeguards he specified were put in place. In particular, he required (at [123]) a number of changes to the draft letter of claim, as follows:

123.      Although it is not normally the role of the courts to supervise pre-action correspondence, the draft order requires the letter of claim to be in the form set out in Schedule 2 and which I have reproduced above. In my view the ACS:Law/Media CAT episode shows very clearly why that this is an appropriate course to take, and why a court being asked to make a Norwich Pharmacal order in circumstances such as these needs carefully to consider the terms of the draft letter of claim. Once again, as HHJ Birss QC pointed out, the court needs to consider the impact of the letter of claim upon ordinary consumers who may not have access to specialised legal advice, who may be innocent of what is alleged against them and who may be embarrassed and/or distressed by being alleged to have been involved in filesharing involving pornography.

124.      Considered in that light, and leaving aside the claim for £700 for the moment, I consider that the draft letter is objectionable in a number of respects. First, the reference to the Code of Practice is inappropriate both for the reasons given by HHJ Birss QC and because it was not designed for letters to ordinary consumers.

125.      Secondly, the draft letter does not make it clear that the fact that an order for disclosure has been made does not mean that the court has considered the merits of allegation of infringement against the Intended Defendant.

126.      Thirdly, the draft letter asserts under the heading “Infringing Acts” that the Intended Defendant is liable for infringement. Although the last paragraph under that heading implicitly acknowledges the possibility that the Intended Defendant may not be the person who was responsible for the infringing acts, this acknowledgement is not sufficiently explicit. Furthermore, the reference under the heading “Proposed Settlement” to “inaction, by permitting a third party to use your internet connection” undermines the effect of the implicit acknowledgement. As HHJ Birss QC has explained, nothing less than authorisation suffices for infringement, at least in the context of a claim for damages.

127.      Fourthly, the second paragraph under the heading “Legal Consequences” is too one-sided in that it sets out the consequences to the Intended Defendant of a successful claim without acknowledging the consequences to the relevant Claimant of an unsuccessful one.

128.      Fifthly, the reference to “other intellectual property” under the heading “Proposed Settlement” is unjustified. There is no evidence that any other intellectual property rights of the Claimants have been infringed.

129.      Sixthly, I consider that requiring a response within 14 days is unreasonable given that the Intended Defendants are consumers and that there is no urgency in the matter. 28 days would be reasonable.

130.      Lastly, the threat to make “an application to your ISP to slow down or terminate your internet connection” is unjustified. Counsel for the Claimants accepted that the word “application” was inappropriate, and said that “request” would better convey what was intended. I do not agree that a threat even of that nature is justified in a letter of this kind, however.

The claim for £700

131.      As noted above, counsel for Consumer Focus attacked the claim for £700 made in the draft letter as unsupported and unsupportable. In the draft letter no attempt is made to explain or justify this sum whatsoever. It is simply demanded “as compensation to GEIL for its losses”. Counsel for Consumer Focus submitted that it was inconceivable that every Intended Defendant could have caused the relevant copyright owner(s), or Golden Eye in the case of films covered by the Ben Dover Agreement, loss of £700. He submitted that the most that could be reasonably demanded was a figure an order of magnitude lower i.e. around £70.

132.      Counsel for the Claimants in his submissions, and Mr Becker in second witness statement, sought to justify the figure by reference to the following points. First, the Claimants are not pursuing people who are mere downloaders. Each of the IP addresses in question has been used for seeding/uploading. Thus the Claimants contend that the loss of revenue that they have suffered is not merely that associated with a download by the infringer in question, but with an unknown number of downloads by other infringers. The Claimants contend that damages for this should be quantified on a reasonable royalty basis. Secondly, the Claimants contend that they are likely to obtain additional damages under section 97(2)(a) of the CDPA 1988, particularly on the ground of flagrancy.

133.      I agree with counsel for Consumer Focus that the figure of £700 is unsupportable. My reasons are as follows. First, the Claimants know that an unknown percentage of the Intended Defendants are not infringers at all. Intended Defendants who have not in fact committed any infringements are not liable to pay any sum.

134.      Secondly, in the case of those Intended Defendants who are infringers, the Claimants have no idea about the scale of the infringements committed by each infringer. Some might have infringed on a very substantial scale indeed, while others might only have infringed to a minor extent. In intellectual property cases, it is usual for the claimant to seek disclosure from the defendant pursuant to Island Records Ltd v Tring International plc [1996] 1 WLR 1256 before electing between inquiry as to damages and an account of profits, let alone before seeking to quantify his damages. If the Claimants were genuinely interested in seeking accurately to quantify their losses, then it seems to me that they would wish to seek some form of disclosure at least in the first instance. I appreciate that it may not be cost-effective for disclosure to be pursued if the Intended Defendant is unwilling to cooperate, but I do not consider that that justifies demanding an arbitrary figure from all the Intended Defendants in the letter of claim.

135.      Thirdly, Mr Becker suggests that the reasonable royalty should be assessed on the basis of a “time limited license [sic] to exploit a work by providing copies of it on an unlimited worldwide basis”. This assumes that infringement by making available to the public occurs at the place where the uploading/seeding takes place, but that is not necessarily correct: see Dramatico v BSkyB at [67].

136.      Fourthly, I do not think it can be assumed that additional damages will necessarily be awarded. Again, this may well turn on the extent of the infringement.

137.      Fifthly, I think that Mr Becker’s response in his second witness statement to the point made by counsel for Consumer Focus referred to in sub-paragraph 60(v) above is telling:

“… it assumes that £700 will be successfully obtained from each of the 9000, when that is plainly wrong. In fact, it is likely that only a small proportion will result in a successfully obtained payment of any sum.”

This comes quite close to an admission that the figure of £700 has been selected so as to maximise the revenue obtained from the letters of claim, rather than as a realistic estimate of the damages recoverable by the relevant Claimant from each Intended Defendant. In any event, that is the inference I draw in the light of the matters discussed above and in the absence of any disclosure of the information referred to in paragraph 88 above.

138.      Accordingly, I do not consider that the Claimants are justified in sending letters of claim to every Intended Defendant demanding the payment of £700. What the Claimants ought to do is to proceed in the conventional manner, that is to say, to require the Intended Defendants who do not dispute liability to disclose such information as they are able to provide as to the extent to which they have engaged in P2P filesharing of the relevant Claimants’ copyright works. In my view it would be acceptable for the Claimants to indicate that they are prepared to accept a lump sum in settlement of their claims, including the request for disclosure, but not to specify a figure in the initial letter. The settlement sum should be individually negotiated with each Intended Defendant.