01 May 2014
Bikini Brouhaha: Calculating damages for copyright infringement
by Dean Gerakiteys
Copyright infringers may be liable for damages for lost profits, reputational loss, additional damages and in more limited circumstances even conversion damages.
The recent Federal Court decision in Seafolly Pty Limited v Fewstone Pty Ltd  FCA 321 provides an overview of the way in which damages are calculated and awarded where one party is found to have infringed another party's copyright.
Two swimwear manufacturers, three fabric patterns
The applicant, Seafolly Pty Limited, designs, manufactures and sells swimwear and beachwear. The defendant, Fewstone Pty Ltd trading as City Beach Australia, also designs, manufactures and sells swimwear and beachwear.
Seafolly alleged that City Beach had infringed Seafolly's copyright in three artistic works which Seafolly used in the manufacture of its swimwear. The works in questions were:
1. Seafolly’s English Rose artworks which it says City Beach’s Rosette prints were a substantial reproduction of:
2. Seafolly's Covent Garden artworks which it says City Beach's Sienna prints were substantial reproductions of:
3. Seafolly's Senorita artwork which it says City Beach's Fiesta Richelle embroidery was substantial reproduction of:
Seafolly alleged that a substantial part of each of its artistic works was reproduced by a corresponding print or embroidery used to manufacture various City Beach beachwear garments.
City Beach conceded that it used the Seafolly garments bearing the relevant works as "inspiration" to create the three corresponding City Beach prints, but it denied infringement, contending that there was no sufficient objective similarity between the works and the prints used in the City Beach garments. Further, City Beach denied that a substantial part of each work had been reproduced.
Justice Dodds-Streeton held that City Beach had infringed, or authorised its contract manufacturer's infringement of, Seafolly's copyright in each of the artistic works.
The damages Seafolly sought…
In addition to declarations, injunctive relief and orders for delivery up, Seafolly sought damages of over $800,000, comprising:
- compensatory damages under section 115(2) of the Copyright Act for lost profits in the sum of $240,999.18, calculated by multiplying the number of infringing garments sold by City Beach by Seafolly's average wholesale profit margin (across the relevant garments manufactured by Seafolly) and reducing that amount by 25%;
- $70,000 in compensatory damages under section 115(2) of the Act for damage to its reputation in the Australian swimwear market;
- $300,000 additional damages under section 115(4) of the Act on the basis that, inter alia:
- the infringement was flagrant – it was done purposefully with knowledge of the copyright works and knowing that the conduct was sailing close to the wind;
- City Beach had copied not only one but three of Seafolly’s designs;
- City Beach had continued to sell City Beach’s garments long after being put on notice of Seafolly’s copyright claims;
- City Beach had accrued a great benefit as a result of the infringement;
- an award of additional damages would likely deter similar infringements of copyright;
- City Beach had failed to identify itself as the correct respondent in the dispute until after proceedings were issued;
- City Beach had failed to disclose that it had made reference to the relevant Seafolly copyright works which Seafolly claimed had been infringed; and
- $211,753.34 in conversion damages under section 116 of the Act, and additional amounts for any further sales made since City Beach gave evidence as to its sales.
…and the damages Seafolly got
The Court ordered that City Beach pay the lower, but still significant, sum of $250,333.06 as damages:
- compensatory damages in the sum of $80,336.06 (not $240,999.18). Despite the fact that the Seafolly garments were significantly more expensive than the City Beach garments, Justice Dodds-Streeton found that a significant discount was appropriate because of the difference in sale prices between Seafolly's and City Beach's garments and the difference in target demographics between Seafolly's and City Beach's customers. Accordingly, the damages figure requested by Seafolly was discounted by 75%.
- compensatory damages in the sum of $20,000 (not $70,000). Notwithstanding there was no evidence of confusion it was accepted City Beach's sale of the garments would damage Seafolly's reputation for originality and exclusivity and could decrease consumers' willingness to buy Seafolly's garments at the higher prices charged. Justice Dodds-Streeton however thought that this damage would only be modest.
- additional damages of $150,000 (not $300,000) were warranted because:
- City Beach had continued to sell its infringing garments after it was put on notice of Seafolly's copyright claims and after the proceedings were issued;
- a number of City Beach's lay witnesses were evasive and non-responsive;
- City Beach obtained the considerable benefit of sales of 11,638 products that incorporated the infringing designs and avoided some of the design costs incurred by Seafolly in developing original designs;
- City Beach initially failed to disclose, in its fast-track response, that it had reference to Seafolly's relevant garments; and
- this amount would act as a general deterrent within the industry and a specific deterrence for City Beach from further infringing conduct.
Justice Dodds-Streeton refused to grant conversion damages, which are discretionary. In this case they were inappropriate as the damages for lost profit, damage to reputation and additional damages would sufficiently compensate Seafolly.
Lessons of the Seafolly / City Beach case
The case demonstrates the way in which the Court will approach the calculation of damages for copyright infringement and the various heads of damage for which a copyright infringer may be liable, including compensatory damages for lost profits and loss of reputation, and additional damages where the infringer's conduct is flagrant and ought be deterred.
It is also a stark reminder to designers and manufacturers of the risks of using another copyright owner's artworks as inspiration in the design and manufacture of goods.
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