Long Player: Five-Year Dispute Ends Successfully For BPI against CD Wow!

IBLS Editor — Tue, 19 Jun 2007 16:31:00 GMT

IBLS Contributor: Chris Scroggs, Wards Solicitors, United Kingdom, chris.scroggs@wards.uk.com, writes:

Last month saw the conclusion (or did it…?) of a long running battle between the BPI, on behalf of record companies, and CD Wow!, effectively fighting on behalf of consumers everywhere.

The story behind the dispute

The case had its genesis in 2002, when the BPI issued proceedings against CD Wow!, alleging that it had illegally imported discs into the UK, from Asia. That case was settled in January 2004, when CD Wow! gave undertakings to the court.

The allegation was that CD Wow! was buying discs in the Far East and selling them to consumers in the UK. CD Wow! accepted that it was selling cut-price CDs but claimed that they were all licensed to sell in the UK and that there was nothing improper, let alone illegal, about what they were doing. Not so, said the BPI, who felt it was a clear case of “parallel importing”.

Parallel importing is what happens when copyright material that is intended for a market outside the EEA (European Economic Area) is introduced for sale in Europe without the consent of the copyright owner. Such a practice contravenes UK and also European copyright law and is therefore illegal.

There was then a further flurry of proceedings in September 2005, when it became apparent to the BPI that the illegal importation of CDs – in particular the Live Aid DVD – by CD Wow! was still happening. In that particular case, the charity had been deprived of income.

The BPI spent some time gathering further information and then brought contempt of court proceedings against both CD Wow! and its principal share holder, Philip Robinson, in October 2006.

That case was due to come to court in July 2007 but in fact the court short-circuited that process and dealt with the case in mid May. That followed a four day hearing in March when the High Court ruled that CD Wow! was in breach of the 2004 agreement and CD Wow! was ordered to pay £37 million damages plus costs and interest, altogether totalling £41 million.

In the hearing, CD Wow! admitted to breaches of copyright law but put them down to human error in its despatch process. The court would have none of it and that evidence was unhesitatingly rejected.

The court said there was clear evidence that CD Wow! was committing widespread breaches of the undertakings that it gave in 2004. In fact, not only was it in breach, but even after the application for contempt of court had been pursued, in September 2005, the court found evidence that even then, CD Wow! had taken no effective steps to ensure compliance with the 2004 undertakings.

Trial Judge, Justice Evans-Lombe continued in his ruling that in “meeting the criminal burden of proof” the BPI had established “beyond reasonable doubt” that CD WOW!'s actions were a “substantial breach of the court order” and that it had “no tenable ground of defence to the claimants' claim for damages for primary infringement of the claimants' copyright”.

Although the damages enquiry was due to take place in July 2007, the court felt the matter was so serious it could not wait until then. In particular, given CD Wow!’s alleged failure to co-operate with the court orders for disclosure of documentation and for payment of security, the court assessed damages in May 2007. The BPI had then already obtained a freezing order against CD Wow!’s assets and bank account in Hong Kong.

The arguments for and against

The BPI’s case was quite simple: the record industry is a business like any other. Artists need to be paid and record companies need to receive a return on their investment. CD Wow! said (in effect) fine, all well and good. But…..you should be targeting pirates, in particular, in the Far East rather than us. All we are doing is selling a licensed product, at a discount. You still get your royalty payments from all the discs we ship.

The difficulty is that although it was part of the CD Wow! case that it was simply selling in the UK discs that it was entitled to sell, where royalties still went to the record company in question, an anonymous survey by the BPI and random purchases that it carried out, showed that the reality was somewhat different.

The BPI had made repeated test purchases of albums from CD Wow! Discs such as Robbie Williams’ “Greatest Hits” and the Live Aid DVD that were being despatched from Hong Kong to UK consumers, were not discs that were licensed to be sold in the UK.

Those were the instances that CD Wow! referred to as “a little human error”. Unfortunately for them, the court found that though one or two incidences of human error could be excused, the same could not be said where it happened, as it did, on a wholesale basis (the BPI produced evidence to show 33 instances in total).

On a wholesale basis, selling in the UK albums that were despatched from Hong Kong but that were licensed to be sold in the UK, contravened the relevant legislation and was a clear case of parallel importing. Whereas CD Wow!’s initial purchase of the CDs i.e. the bulk purchase, was legitimate, even though it happened outside of the EEA, when it resold that CD in the UK, it did so illegally.

CD Wow!’s argument was simplicity in itself. It was a Hong Kong based company. It purchased its products in Hong Kong and distributed from there. If, from Hong Kong, it sold a product to a customer in the UK, that sale was a personal import by that customer. That, it claimed, was not parallel importing.

The implications

The BPI disagreed and sued and the court in May 2007 resoundingly came down in the BPI’s favour.

Interestingly, the Consumer Association described the initial CD Wow! settlement as a “sad day for consumers and a sad day for e-commerce”. It felt that the whole purpose of the Internet and Internet shopping would be circumvented, if customers in the UK were not allowed to use the Internet to buy goods from abroad.

The BPI’s case is that there is no objection to that conduct, in principle. Its objection however is to customers buying whatever they like and ignoring the law of copyright. We do have some sympathy for the statement by CD Wow!’s founder, Henrick Wesslen, who condemned the BPI’s pursuit of its company. He said that at a time when the record industry was losing out vastly to piracy, it seemed ludicrous that the BPI could set out to destroy a section of the market that was actually making it money.

So where does this all leave us? Five years down the line we have a substantial judgement and an authoritative statement of the law on parallel importing and copyright laws. But… we are left with the uncomfortable feeling that free trade or, at least, healthy competition has been suppressed. If nothing else, we are still left feeling that consumers in the UK are still paying far too much for their music, now as much as ever. However, we may not have heard the end yet, as CD-Wow! says it will fight the High Court judgement in the European Courts if it can.

Should We Go To War Over A Massive Cyber-Attack?

Maricelle Ruiz — Mon, 21 May 2007 10:23:00 GMT

Estonia is doing it again. The tiny Eastern European nation – holder of the first Internet election – is pushing the boundaries to set another legal precedent. But this time around, a change in the law could entail serious international consequences.

It all started a few weeks ago. Weary of Russian attempts to reportedly meddle in its internal affairs, the former Soviet satellite state decided to relocate a Soviet war memorial from the center of its capital Tallinn to a cemetery. The action angered Russians living in Estonia and beyond. Among the actions taken against Estonia was a massive cyber-attack, lasting weeks, which Estonian public officials and business executives claim originated at the top levels of the Russian government.

Estonia may be small in territorial size, but when it comes to its former handlers, it’s ready to display a big attitude. The country’s top public officials went straight to the European Union and the North Atlantic Treaty Organization (NATO) to report the attacks, which disabled the sites of ministries and political parties, as well as of some of the largest newspapers, banks and businesses in the country.

“Attacking one member state means an attack against the entire European Union,” Estonian Prime Minister Andrus Ansip alleged. “We have turned to the European Union and we ask them to take immediate action.”

Prime Minister Ansip and other Estonian public officials alluded to Article V of the NATO Treaty, which states that an attack on one of its members shall be considered an attack against all and enables these nations to exercise the right of self-defense recognized by Article 51 of the Charter of the United Nations. Most EU member states – including Estonia – also belong to NATO.

Estonian Defense Minister Jaak Aaviksoo, meanwhile, discussed the situation with NATO officials and later stated the following during an interview with British newspaper The Guardian: “At present, NATO does not define cyber-attacks as a clear military action. This means that the provisions of Article V of the North Atlantic Treaty, or, in other words collective self-defense, will not automatically be extended to the attacked country. Not a single NATO defense minister would define a cyber-attack as a clear military action at present. However, this matter needs to be resolved in the near future.”

NATO cyber-terrorism experts have traveled to the country to assist Estonians in determining the source of the attack and boosting the country’s electronic defenses. The attack has been described as a distributed denial of service attack. A denial of service attack is defined as an attack against a computer or network that attempts to limit access to the Internet by flooding it with requests for a webpage or emails. A more sophisticated variant of this attack is said to be the distributed denial of service attack, where hackers rely on viruses to take over multiple computers to engage in the attack, thus increasing the amount of malicious traffic and decreasing the ability of the owners of the victim machine or network to defend themselves. In the Estonian case, the IT experts prevented foreign Internet addresses from accessing the sites under attack until the situation was under control.

The President of the European Council, German Chancellor Angela Merkel and Commission President José Manuel Barroso, meanwhile, were scheduled to discuss the cyber-attack issue during a recent EU summit with Russia, which judging by their grave faces during the final press conference, did not seem to yield positive results. In the past, Russia and China have been linked to electronic espionage. Now, it may be wise to admit that governments must evaluate measures to effectively handle countries that decide to engage in this novel type of warfare.

IBLS Speaker's Corner : China

Long Player: Five-Year Dispute Ends Successfully For BPI against CD Wow!

Should We Go To War Over A Massive Cyber-Attack?