Have you infringed copyright? Spotlight on what you need to prove if you're an innocent infringer

Infringers of copyright have no liability for damages if they can establish the so-called "innocent infringement" defence. While copyright owners can still claim an account of profits, the unavailability of damages can make a large difference in the copyright infringer's monetary liability. This article provides guidance on when the innocent infringer defence applies, in light of a recent case.

What is the innocent infringer defence?

A copyright owner may claim either damages or an account of profits, in the event of copyright infringement. The difference between damages and an account of profits is that the purpose of damages is to compensate the copyright owner for the loss it has suffered (this could extend to things such as lost profits, lost royalty/licence fees and loss of reputation), whereas the purpose of an account of profits is to "strip" the infringer of the profits which it has wrongfully gained as a result of its infringing conduct. A copyright owner must elect between the two remedies, and cannot claim both.

Section 115(3) of the Copyright Act provides a defence to a claim for damages where the infringer can show that it was an "innocent infringer". If successful, the copyright owner is not entitled to any damages from the infringer, but is entitled to an account of profits.

To successfully establish the defence, the infringer must show:

• an active subjective lack of awareness that the act constituting the infringement was an infringement of copyright; and
• that objectively considered, the infringer had no reasonable grounds for suspecting that the act constituted an infringement.This requires showing, amongst other things, that the infringer made reasonable enquiries as to the source of the material being copied.

The Spotlight case: How Spotlight got out on the wrong side of the bed

In The Dempsey Group Pty Ltd v Spotlight Pty Ltd [2018] FCA 2016, Dempsey (who sells bed linen under the "Morgan and Finch" brand through its Bed Bath N' Table stores) sued Spotlight for copyright infringement in relation to the surface designs of three of its quilt cover and pillow sets.

Both Dempsey and Spotlight had for many years used a company called Yantai Pacific Home Fashions to manufacture their products. During a meeting between Spotlight and Yantai, it was alleged by Dempsey that Spotlight saw particular products displayed under a "Bed Bath N' Table sign (which included the relevant designs alleged to have been infringed) and ordered three products to be manufactured by Yantai based on those designs. Spotlight's evidence was that its buyers had no knowledge or reason to suspect that the selected design samples were based on artistic works in which Dempsey owned the copyright.

The infringing products were displayed on Spotlight's website (with one displayed in a Spotlight catalogue) and were later sold at Spotlight stores in Australia.

On 29 November 2016, Dempsey contacted Spotlight in relation to its conduct and on 2 December 2016 emailed documents proving its ownership of the relevant artistic works. Following further correspondence, Spotlight commenced a recall of the infringing products on 29 December 2016.

What the Court found

Spotlight was found to have infringed copyright in Dempsey's works. However, in respect of its conduct prior to 2 December 2016, it successfully established that it was an innocent infringer.

The Court held that in circumstances where Spotlight had a long established business relationship with Yantai, it was reasonable for Spotlight to rely on Yantai to advise it on which samples could or could not be used. Spotlight had no reasonable grounds for suspecting that the sale of the Spotlight products in Australia constituted an infringement of Dempsey's copyright until 2 December 2016 (ie. when Spotlight became aware that Dempsey was the owner of copyright in the relevant works).

Practical tips to avoid, and address, copyright infringement

• Businesses should be vigilant in ensuring they do not accidently infringe copyright in other people's works.Steps should be taken to ascertain the source of the material being used, including whether it is protected by copyright and whether permission from the owner is needed to use the material.
• The innocent infringer defence is not available to someone who is simply ignorant of copyright ownership rights.For example, it is not available to an infringer who can show no more than a lack of awareness that copyright was owned by the plaintiff.
• If copyright infringement has accidently occurred, take steps immediately to cease the infringing conduct and ensure that it does not occur in the future.This could include having policies and procedures in place to ensure proper checks are being conducted as to the source of the material being used and training staff in relation to basic copyright principles.

Thanks to Julie Wong for her help in writing this article.