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Chappell and Company Limited and Others Vs. the Nestle Company Limited - Court Judgment

LegalCrystal Citation
CourtHouse of Lords
Decided On
Case NumberNo.
Judge
AppellantChappell and Company Limited and Others
RespondentThe Nestle Company Limited
Excerpt:
viscount simonds my lords, this appeal raises a question of construction of the copyright act, 1956, upon which there has been a difference of opinion in the courts below, the court of appeal by a majority (jenkins and ormerod, l.jj., romer, l.j. dissenting) having reversed the decision of upjohn, j. the facts are not in dispute and the action was tried without pleadings upon an interlocutory motion which by consent was treated as the trial of the action. the appellants winneton music corporation are the owners, and the appellants chappell and company limited their exclusive licensees, of the copyright in a musical work entitled "rockin' shoes". the question is whether the respondents the nestle company limited and hardy record manufacturing company limited (whom i will call the.....
Judgment:

Viscount Simonds

My lords,

This appeal raises a question of construction of the Copyright Act, 1956, upon which there has been a difference of opinion in the Courts below, the Court of Appeal by a majority (Jenkins and Ormerod, L.JJ., Romer, L.J. dissenting) having reversed the decision of Upjohn, J.

The facts are not in dispute and the action was tried without pleadings upon an interlocutory motion which by consent was treated as the trial of the action. The Appellants Winneton Music Corporation are the owners, and the Appellants Chappell and Company Limited their exclusive licensees, of the copyright in a musical work entitled "Rockin' Shoes". The question is whether the Respondents The Nestle Company Limited and Hardy Record Manufacturing Company Limited (whom I will call the Respondents Nestle and the Respondents Hardy ") have infringed this copyright. It is common ground that they have done so unless they are protected by section 8 of the Copyright Act, 1956. I will therefore set out that section and then state such further facts as appear to be relevant. Section 8 is as follows: —

"8.—(1) The copyright in a musical work is not infringed by a person (in this section referred to as ' the manufacturer') who makes a record of the work or of an adaptation thereof in the United Kingdom, if—

(a) records of the work, or, as the case may be, of a similar adaptation of the work, have previously been made in, or imported into, the United Kingdom for the purposes of retail sale, and ere so made or imported by, or with the licence of, the owner of the copyright in the work ;

(b) before making the record, the manufacturer gave to the owner of the copyright the prescribed notice of his intention to make it;

(c) the manufacturer intends to sell the record by retail, or to supply it for the purpose of its being sold by retail by another person, or intends to use it for making other records which are to be so sold or supplied ; and

(d) in the case of a record which is sold by retail, the manufacturer pays to the owner of the copyright, in the prescribed manner and at the prescribed time, a royalty of an amount ascertained in accordance with the following provisions of this section.

(2) Subject to the following provisions of this section, the royalty mentioned in paragraph (d) of the preceding subsection shall be of an amount equal to six and one-quarter per cent, of the ordinary retail selling price of the record, calculated in the prescribed manner:

Provided that, if the amount so calculated includes a fraction of a farthing, that fraction shall be reckoned as one farthing, and if, apart from this proviso, the amount of the royalty would be less than three-farthings, the amount thereof shall be three-farthings."

Regulations were made under the Act, of which I think it necessary only to mention Regulation 1 (1) (f), which provides that the notice required by subsections (1) and (5) of section 8 shall contain the ordinary retail sellingprice (as thereinafter defined) of the records, or, where it is intended to reproduce the work on more than one type of record, the ordinary retail selling price of each type of record, the manufacturer intends to make and the amount of the royalty payable on each record ; and Regulation 3, which provides that the ordinary retail selling price of any record shall be calculated at the marked or catalogued selling price of single records to the public, or, if there is no such marked or catalogued selling price, at the highest price at which single records are ordinarily to be sold to the public exclusive of purchase tax in either case.

The Respondents Hardy are manufacturers of records, the Respondents Nestle are manufacturers of chocolate. The Respondents Hardy make use of a process by which a recording can be produced on a thin film of cellulose acetate at a cost enabling them to sell records at a wholesale price of 4d. each. By this process they have produced film records of the musical work Rockin' Shoes" and sold them to the Respondents Nestle mounted upon cards supplied by the latter. A film so mounted is sold by Nestle to any member of the public who sends to them a postal order for 1s. 6d. with three wrappers from 6d. bars of Nestlé’s Milk Chocolate. A typical offer appeared in the "Daily Mirror" of 11th September, 1957, in the words: Here's how to get each new stars record. Collect three 6d. wrappers from Nestlé’s Milk Chocolate. Fill in the coupon and send it with a Postal Order for l/6d., the price of the record, and your three wrappers. You may order as many records as you like on this coupon, but for each record you must send three wrappers and l/6d. P.O., crossed, payable to the Nestle Co. Ltd. Next to the script that I have cited was a coupon containing the names of a number of musical works including Rockin' Shoes. All this was part of a full page advertisement of Nestlé’s Milk Chocolate and no one can doubt that Nestlé’s interest in the sale of records was in order to promote the sale of their chocolate, but presumably they were not averse from making such profit as they seem to have made from the sale of records also. The film, as I have said, was mounted on a card supplied by Nestle, whose name appears prominently upon it. On the back were the words: Remember, all you have to do to get each NEW STARS record is to send three wrappers from Nestlé’s 6d. Milk Chocolate bars, together with Postal Order for l/6d., and stating which record you want to Nestle Record Offer, P.O. Box14, Hayes, Middlesex. Don't forget, 3 wrappers and Postal Order for l/6d."

Before, however, making or permitting a public offer such as I have referred to, it was necessary that the notice prescribed by section 8 of the Act should be served. This duty falls on the manufacturer, and accordingly the Respondents Hardy entered into correspondence with the Mechanical Copyright Protection Society Limited, who were, as I assume, acting on behalf of the Appellants. In the first letter which passed between them, dated the 12th September, 1957, but referring to other musical works than " Rockin' Shoes ", Hardy stated: "The retail price of the record, and they are being sold individually, not collectively, is one shilling plus 3 wrappers. Wrappers are valueless and are normally thrown away. In the ensuing correspondence the Society objected that the proposal made by Hardy did not constitute a sale by retail and that therefore the proposed records could not be made under the provisions of section 8 of the Act. Hardy nevertheless on the 17th July, 1957, proceeded in relation to Rockin' Shoes to give a notice which purported to be the statutory notice. In it they said: The ordinary retail selling price of each record will be not greater than 8 3/4 d. exclusive of purchase tax and not greater than 1s. inclusive of purchase tax. By a subsequent letter those figures were amended to 1s. 1 1/2 d. and 1s. 6d. respectively. No mention was made of any wrappers. Nestle then proceeded to put the proposal into effect and sold the record to members of the public who sent a postal order for 1s. 6d. together with three chocolate wrappers. Forthwith the Appellants challenged the validity of their claim to be protected by section 8. Mr. Justice Upjohn supported their contention and granted the appropriate injunction. The Court of Appeal, on the other hand, taking by a majority the view that the Respondents had complied with the section, allowed the appeal and dismissed the action.

Faced by this conflict of opinion among learned Judges, from any of whom I am reluctant to differ, I feel at liberty to say that I have found unusually great difficulty in reaching ray own conclusion.

It appears to me that, in order to comply with the provisions of section 8 and thus obtain its protection, there are three relevant conditions to be satisfied by the manufacturer of an article which would otherwise be an infringement of copyright. By relevant conditions I mean those conditions about which an issue arises in this case. First, there must be a sale of the article in question: secondly, the sale must be a retail sale: thirdly, it must be possible to predicate of it that there is an ordinary retail selling price of it, for if there is not, an essential part of the prescribed notice cannot be given.

Upon the first point I cannot feel any doubt. It had not been contended in the course of the case that there was not a sale, until during the debate in your Lordships' House that suggestion was made, and I think that, beyond doubt, anyone, who in answer to the advertisement acquired a record, would say that he had bought it and would be surprised that any doubt should be cast upon what he regarded as an obvious fact. Whether the consideration or the price that he paid was 1s. 6d. only or 1s. 6d. and three wrappers is a matter not for him but for your Lordships to determine.

Secondly, I think it is clear that the sale is a retail sale. It is a sale to a consuming member of the public, and I know of no other factor which distinguishes a retail sale from other sales. Put negatively, it is not a sale wholesale to a purchaser who proposes himself to sell it retail. In considering this second point, I do not ignore the argument that in its context in the section retail sale means only what was sometimes called an ordinary retail sale, by which, as I understood, was meant a sale in which there was no other element than on the one side an article sold and on the other a payment of money made, and that the transaction was not an ordinary retail sale if the purchaser was required to produce three chocolate wrappers in addition to his postal order. This argument is so closely linked with the third condition that there must be an ordinary retail selling price that I will consider the two points together.

I think, my Lords, that upon this last matter some confusion has arisen from treating the word ordinary as if it qualified retail rather than price. If there is no retail sale, there can, of course, be no ordinary or other retail selling price. But, given a retail sale, there is no difficulty in ascertaining the ordinary selling price upon such a sale. The problem, therefore, and the only problem, is whether there is a retail sale with a retail selling price within the meaning of the section. The contention that it is not is stated in various ways. Mr. Justice Upjohn in a passage cited with approval by Lord Justice Romer says: "The vital part of this transaction is to get in three wrappers, and that represents a great deal of value to Nestlé’s, because it is evidence of an advertising campaign pushing up their sales. That is the value to them. This bears no resemblance at all to the transaction to which, in my judgment, the section is pointing, that is, an ordinary retail sale with an ordinary retail selling price. I think it is quite wrong to suppose that the retail selling price here is 1s. 6d. The purchaser has to purchase three bars of chocolate and that is the real value of this transaction to Nestlé’s. Lord Justice Romer himself states the proposition thus: I cannot help thinking that the owner of the copyright was entitled, under section 8, to a royalty assessed upon the full purchase price of each record sold by retail. Under Nestlé’s method of selling them the copyright owner gets a royalty assessed upon the cash part only of each sale and he gets nothing in respect of the consideration which, although indirect, passes from the customers and is received by the Company. There are here two somewhat different conceptions. First, the transaction is not such an ordinary retail sale as is contemplated by the section, because the vendor gets something of value, namely, the evidence of an advertising campaign pushing up the sales: secondly, it is not within the section, because the vendor gets from the purchaser a consideration for the sale of the record which the copyright owner does not share, for it is not included in the retail selling price upon whichthe royalty is based. In the latter case the wrappers are treated as part of the consideration moving from the purchaser, in the former as evidence of a collateral advantage which has already accrued to the vendor. It is necessary to distinguish these two aspects of the matter. In the contention that the sale is not an ordinary retail sale and therefore not within the section because the vendor gets not only the cash price but also evidence of an advantage already accrued, I see no merit. It is irrelevant what is the vendor's motive for selling a record for 1s. 6d. if that is the selling price. It may be part of an advertising campaign for the sale of other goods: but there is nothing in the Act which impels me to read into the section a qualification that the selling price is to be disregarded and the article denied protection if the vendor's motive in fixing it is anything but to obtain the maximum amount commercially possible. The alternative view is that the production of three chocolate wrappers is part of the price of the record and that, as it is incapable of valuation, the necessary particulars cannot be given and the statutory requirements satisfied. This view is to some extent supported by the fact that in the advertisement and offer, to which I have already referred, the postal order for 1s. 6d. and three wrappers are in one passage included in a single demand. But in the same document the postal order for 1s. 6d. alone is referred to as the price of the record. I cannot draw any safe conclusion from the documents: the question remains open whether the wrappers are part of the selling price.

In my opinion, my Lords, the wrappers are not part of the selling price. They are admittedly themselves valueless and are thrown away, and it was for that reason, no doubt, that Mr. Justice Upjohn was constrained to say that their value lay in the evidence they afforded of success in an advertising campaign. That is what they are. But what, after all, does that mean? Nothing more than that someone, by no means necessarily the purchaser of the record, has in the past bought not from Nestlé’s but from a retail shop three bars of chocolate and that the purchaser has thus directly or indirectly acquired the wrappers. How often he acquires them for himself, how often through another, is pure speculation. The only thing that is certain is that, if he buys bars of chocolate from a retail shop or acquires the wrappers from another who has bought them, that purchase is not, or at the lowest is not necessarily, part of the same transaction as his subsequent purchase of a record from the manufacturers.

I conclude, therefore, that the objection fails, whether it is contended that (in the words of Romer, L.J.) the sale bears no resemblance at all to the transaction to which ... the section is pointing, or that the three wrappers form part of the selling price and are incapable of valuation. Nor is there any need to take what, with respect, I think is a somewhat artificial view of a simple transaction. What can be easier than for a manufacturer to limit his sales to those members of the public who fufil the qualification of being this or doing that? It may be assumed that the manufacturer's motive is his own advantage. It is possible that he achieves his object. But that does not mean that the sale is not a retail sale to which the section applies or that the ordinary retail selling price is not the price at which the record is ordinarily sold, in this case 1s. 6d.

An argument was addressed to the House by counsel on either side which appeared to be based on the difficulties that are likely to ensue if the one contention or the other is accepted. It may be so. It is probable that the draftsman of the Regulations foresaw some of them and did his best to avoid them. But these are not considerations that have weighed with me in interpreting the words of a section which appear to be written in plain English. Nor do I need to have recourse to the principle that since the Act takes away something heretofore of common right, it must be strictly and narrowly construed, nor to the principle that, since section 8 constitutes an exception upon a general grant, it is the exception which is to be narrowly construed. These are maxims to which it is necessary to have recourse as a last resort. In the present case, though I take a different view from your Lordships with great diffidence, I do not find it necessary to do so.

I would dismiss the appeal.

Lord Reid

MY LORDS,

The Respondents, the Nestle Company, manufacture chocolate, including wrapped bars of milk chocolate, which are sold to the public at 6d. per bar. As an advertising scheme to promote the sale of their chocolate they published advertisements in September, 1957, in which they offered to supply any one of six named gramophone records in return for a postal order for 1s. 6d. and three wrappers. The advertisement produced said: " Save the wrappers from 6d. blocks. They will help you to get smash-hit recordings of skiffle, calypso, swing and ballad by Britain's newest stars, all exclusive to Nestlé’s. Any member of the public could obtain as many records as he wished by sending 1s. 6d. and three wrappers for each record.

One of these records was a reproduction of a dance tune, Rockin' Shoes, of which the copyright belonged to the Appellants the Winneton Corporation, the other Appellants, Chappell and Company, being sole licensees under the copyright. The Appellants maintain that the manufacture and sale of this record was an infringement of their copyright and they seek an injunction and damages. The Respondents maintain that they were entitled to supply records in this way without the permission or licence of the Apellants because they were authorised to do so by section 8 of the Copyright Act, 1956. The relevant part of that section is as follows:

“8.— (1) The copyright in a musical work is not infringed by a person (in this section referred to as' the manufacturer') who makes a record of the work or of an adaptation thereof in the United Kingdom, if—

(a) records of the work, or, as the case may be, of a similar adaptation of the work, have previously been made in, or imported into, the United Kingdom for the purposes of retail sale, and were so made or imported by, or with the licence of, the owner of the copyright in the work;

(b) before making the record, the manufacturer gave to the owner of the copyright the prescribed notice of his intention to make it;

(c) the manufacturer intends to sell the record by retail, or to supply it for the purpose of its being sold by retail by another person, or intends to use it for making other records which are to be so sold or supplied ; and

(d) in the case of a record which is sold by retail, the manufacturer pays to the owner of the copyright, in the prescribed manner and at the prescribed time, a royalty of an amount ascertained in accordance with the following provisions of this section.

(2) Subject to the following provisions of this section, the royalty mentioned in paragraph (d) of the preceding subsection shall be of an amount equal to six and one-quarter per cent, of the ordinary retail selling price of the record, calculated in the prescribed manner:

Provided that, if the amount so calculated includes a fraction of a farthing, that fraction shall be reckoned as one farthing, and if, apart from this proviso, the amount of the royalty would be less than three-farthings, the amount thereof shall be three-farthings.

Before dealing with these provisions it may be helpful to state briefly the history behind them and the steps which the Respondents took to comply with them. Before 1911 it had been held that the reproduction of copyright musical works by mechanical means such as rolls for player pianos was not an infringement of copyright, and gramophone records had been manufactured on a considerable scale and sold without licence or payment of royalty. By the Copyright Act, 1911, it was enacted that copyright included the sole right to make any record or other contrivance by means of which a work might be mechanically performed. But it was provided by section 19 of the Act that making any such contrivance should not be an infringement if the maker inter alia gave the prescribed notice and paid royalties calculated in accordance with the section in respect of all such contrivances sold by him. The provisions of this section are broadly similar to the provisions of section 8 of the 1956 Act.

The Respondents, the Hardy Company, operate a novel process whereby records which play for about 1 3/4 minutes are made on thin films of cellulose acetate. These films can then be suitably mounted and played in the ordinary way on gramophones. The process is inexpensive and the Hardy Company sold to the Nestle Company a large number of these recordings at 4d. each. The Nestle Company then had them mounted on cardboard mounts which also carried advertisements for their chocolate.

The Hardy Company informed the Mechanical Copyright Protection Society of the project in June. 1957. They said that the retail price of the records was to be one shilling plus three wrappers. This society stated that the proposal did not constitute a sale by retail and in consequence the proposed records could not be made under the provisions of section 8 of the Copyright Act, 1956: they further stated that they could not countenance the reproduction of their members' copyright music on records for the purpose of advertising the products of another company. After some correspondence the Hardy Company gave a notice purporting to be under the 1956 Act and Regulations made under it. This notice included a paragraph: F. The ordinary retail selling price of each record will be not greater than 8 3/4 d. exclusive of purchase 'tax and not greater than 1 s. inclusive of purchase tax. On 25th July, 1957, these figures were altered to 1s. l 1/2 d. exclusive of purchase tax and 1s. 6d. inclusive of purchase tax. The society maintained their views and the Appellants now contend that this notice was not a valid notice under section 8 of the Act or the Regulations.

The scheme of section 8 appears to me to be clear. To avoid infringement four conditions must be complied with. Condition (a) limits the class of works for the reproduction of which the manufacturer can rely on this section and I need not further consider it: (b) requires notice to be given: (c) requires that the manufacturer shall intend the records which he makes to be dealt with in one or other of three ways: and (d) requires that if the intention is to deal with them in either of the first two of these ways a royalty shall be paid. Then subsection (2) provides for the amount of the royalty. Condition (b) refers to the prescribed notice and subsection (2) refers to royalty calculated in the prescribed manner. Prescribed means prescribed in Regulations made by the Board of Trade, and the Copyright Royalty System (Records) Regulations 1957 have been so made. On the view which I take of the case it is unnecessary to base my judgment on the terms of these Regulations. One argument submitted for the Respondents would, if correct, mean that some of them are ultra vires. My view of the section does not involve any such result in the present case, and it would not be right to speculate whether in some other case some inconsistency might emerge between the provisions of the Act and those of the Regulations.

It appears to me that all four statutory conditions are intended to be complied with before a record is made or anything is done which apart from section 8 would amount to an infringement. Otherwise it could not be known when the record was made and sold by the manufacturer whether making the record was an infringement or not: that would depend on whether the condition was subsequently complied with or not. The Respondents constructed a powerful argument on the basis that condition (d) only comes into operation after a record has been sold by retail and that no royalty is payable until then. But I do not so read the section. I think that the Regulations rightly provide that in his notice under (b) the manufacturer must state what is to be the ordinary retail selling price of the record and that determines the amount of the royalty And again I think that the Regulations rightly provide for the manufacturer paying the royalty at a much earlier stage than after sale by retail. The manufacturer pays royalty on records which he intends to be sold by retail. Apart from the last purpose set out in Condition (c) he is not entitled to make them for any other purpose. And if later some-one disposes of a record in some other way no part of the royalty can be recovered.

I can now turn to what appears to me to be the crucial question in this case: was the 1s. 6d. an ordinary retail selling price within the meaning of section 8? That involves two questions, what was the nature of the contractbetween the Nestle Company and a person who sent 1s. 6d. plus three wrappers in acceptance of their offer, and what is meant by ordinary retail selling price in this context.

To determine the nature of the contract one must find the intention of the parties as shown by what they said and did. The Nestle Company's intention can hardly be in doubt. They were not setting out to trade in gramophone records. They were using these records to increase their sales of chocolate. Their offer was addressed to everyone. It might be accepted by a person who was already a regular buyer of their chocolate; but, much more important to them, it might be accepted by people who might become regular buyers of their chocolate if they could be induced to try it and found they liked it. The inducement was something calculated to look like a bargain, a record at a very cheap price. It is in evidence that the ordinary price for a dance record is 6s. 6d. It is true that the ordinary record gives much longer playing time than the Nestle records and it may have other advantages. But the reader of the Nestle offer was not in a position to know that.

It seems to me clear that the main intention of the offer was to induce people interested in this kind of music to buy (or perhaps get others to buy) chocolate which otherwise would not have been bought. It is, of course, true that some wrappers might come from chocolate which had already been bought or from chocolate which would have been bought without the offer, but that does not seem to me to alter the case. Where there is a large number of transactions—the notice mentions 30,000 records—I do not think we should simply consider an isolated case where it would be impossible to say whether there had been a direct benefit from the acquisition of the wrappers or not. The requirement that wrappers should be sent was of great importance to the Nestle Company: there would have been no point in their simply offering records for 1s. 6d. each. It seems to me quite unrealistic to divorce the buying of the chocolate from the supplying of the records. It is a perfectly good contract if a person accepts an offer to supply goods if he (a) does something of value to the supplier and (b) pays money: the consideration is both (a) and (b). There may have been cases where the acquisition of the wrappers conferred no direct benefit on the Nestle Company, but there must have been many cases where it did. I do not see why the possibility that in some cases the acquisition of the wrappers did not directly benefit the Nestle Company should require us to exclude from consideration the cases where it did. And even where there was no direct benefit from the acquisition of the wrappers there may have been an indirect benefit by way of advertisement.

I do not think that it matters greatly whether this kind of contract is called a sale or not. The Appellants did not take the point that this transaction was not a sale. But I am bound to say that I have some doubts. If a contract under which a person is bound to do something as well as to pay money is a sale, then either the price includes the obligation as well as the money, or the consideration is the price plus the obligation. And I do not see why it should be different if he has to show that he has done something of value to the seller. It is 'to my mind illegitimate to argue—this is a sale, the consideration for a sale is the price, price can only include money or some-thing which can readily be converted into an ascertainable sum of money therefore anything like wrappers which have no money value when delivered cannot be part of the consideration.

The Respondents avoid this difficulty by submitting that acquiring and delivering the wrappers was merely a condition which gave a qualification to buy and was not part of the consideration for the sale. Of course, a person may limit his offer to persons qualified in a particular way for example, members of a club. But where the qualification is the doing of something of value to the seller, and where the qualification only suffices for one sale and must be re-acquired before another sale, I find it hard to regard the repeated acquisitions of the qualification as anything other than parts of the consideration for the sales. The purchaser of records had to send three wrappers for each record, so he had first to acquire them. The acquisition of wrappers by him was, at least in many cases, of direct benefit to the Nestle Company, andrequired expenditure by the acquirer which he might not otherwise have incurred. To my mind the acquiring and delivering of the wrappers was certainly part of the consideration in these cases, and I see no good reason for drawing a distinction between these and other cases.

Is such a transaction within the contemplation of section 8? I proceed on the view that it was a sale, and, if so, it was a sale by retail and not by wholesale. But subsections (1) and (2) must be read together in light of the apparent object of the section. Its object appears to me to be twofold, to benefit the public and to protect the financial interest of the owner of the copyright. The section makes it possible for records to be available to the public for the manufacture of which the owner might not have granted a licence. And it protects the copyright owner by requiring royalties to be paid on the ordinary retail selling price. Where records are sold in the ordinary way of business it can be assumed that in his own interest 'the manufacturer will fix a full price to cover not only the cost of production and his own profit but also the profit required by retailers. But where there is a special order and none of the records made are to be sold in the ordinary way but all are to be sold, as here, in an unusual way in order to promote a scheme for advertising quite a different business from selling records, the protection of the copy-right owner is not at all secure. In such a case the retailer will get the manufacturer to fix such a retail selling price as will best suit him, and this may be something quite different from an ordinary economic price.

If the Respondents are right, the owner of the copyright gets nothing in respect of the advantage to the retailer arising from the requirement that wrappers must be acquired and delivered, and he would get nothing in respect of any collateral advantage accruing to an advertiser however clear or how-ever valuable. It is true that the price of 1s. 6d. left the Nestle Company with a profit after paying the cost of mounting, postage, and other expenses, though we do not know whether the profit was as great as retailers normally require.

But the original proposal in this case was to sell at 1s. plus three wrappers, and it might have suited the Nestle Company to sell at 9d. or 6d. plus six wrappers. It might even suit a particular advertiser to sell at less than the price he paid the manufacturer.

In its context I cannot interpret the phrase ordinary retail selling price as applying to all sales however extraordinary in character and as meaning whatever money price may be charged irrespective of the type of transaction or of conditions attached to the sale or of collateral advantages accruing to the seller or of whether the money price is really the whole consideration for the sale. I am of opinion that the Hardy Company's notice that the ordinary retail selling price was 1s. 6d. was invalid, that there was no ordinary retail selling price in this case and that the Respondents' operations were not within the ambit of section 8. They were therefore infringements of the Appellants' copyright, and in my judgment this appeal should be allowed.

Lord Tucker

MY LORDS,

This case has in its course through the Courts resulted in a very narrow division of judicial opinion which shows that the point in issue, though short, is one of considerable difficulty. The conclusion which I have reached can, however, be stated quite shortly. I do not doubt that these records were supplied by the manufacturer for the purpose of being sold by retail within the meaning of section 8 (1) (c) of the Copyright Act, 1956. I think the contrast throughout the section is between retail and wholesale sales, and I can find no justification for limiting the sales to ordinary retail sales, nor do I find it easy to define what is an ordinary retail sale, but this does not, in my opinion, conclude the matter. The royalty has, by subsection (2), to be calculated on the basis of the ordinary retail selling price. This does not mean the price prevailing on an ordinary retail sate but the ordinary price obtainable on a retail sale, and I think the ordinary price so obtainable envisages a money sum constituting the entireconsideration for the sale. Otherwise it would be impossible to calculate the royalty percentage payable in cases where the money value of the additional consideration is incapable of valuation. The fact that the retailer may choose to sell at a loss cannot affect the proper interpretation of the section or justify a sale by him for a sum of money plus the delivery of a number of wrappers or other articles which he desires to obtain for reasons which he considers beneficial to his trade. The ordinary retail selling price as prescribed by Regulation 3 of the Copyright Royalty System (Records) Regulations, 1957, provides that it is to be calculated at the marked or catalogued selling price of single records to the public. The records in question are marked as follows: — Remember, all you have to do to get each NEW STAR'S record is to send three wrappers, from Nestlé’s 6d. Milk Chocolate bars, together with postal order for 1/6. Under Regulation 1 (1) (f) the notice required by subsection (2) of section 8 must state the ordinary retail selling price as denned by Regulation 3. In the present case the notice, as amended, stated that the ordinary retail selling price of each record will not be greater than 1s. 1 1/2d. exclusive of purchase tax and not greater than 1s. 6d. inclusive of purchase tax. This statement does not disclose the entire consideration but only that part of it that is expressed in terms of money and is therefore, in my opinion, defective. It is necessarily defective because it is impossible to state the ordinary retail selling price " envisaged by subsection (2) if the money price is only part of the consideration.

If this is not the correct view it follows that there would be no infringement if the retailer sold each record for a penny plus one hundred wrappers, and I cannot believe that this could have been intended by those who framed this section and fixed the percentage of royalty on the basis of the ordinary retail selling price which must, I think, envisage a retail sale where the whole consideration is a sum of money.

It being conceded that if the notice given under Regulation 1 (1) (f) is defective the protection of section 8 is lost and the notice given being, in my view, necessarily defective in view of the nature of the consideration, it follows that there has in this case been an infringement of the Appellants' copyright.

I should add that I do not feel able to accept the view that the requirement with regard to the wrappers merely constituted a limited class of the public who having qualified for inclusion in the class then became entitled to purchase for 1s. 6d. This seems to me an unnecessarily artificial description of what is on its face one indivisible transaction.

For these reasons I would allow the appeal.

Lord Keith of Avonholm

MY LORDS,

Were it not that a majority of your Lordships think differently I would have contented myself with expressing my complete concurrence with the judgment of Jenkins, L.J. (as he then was) in the Court of Appeal.

I find the Appellants' case somewhat elusive as it seems to oscillate between considering whether the sale of the record here is an ordinary retail sale and considering whether there is an ordinary retail selling price of the record. I can find no warrant in section 8 of the statute for the view that it contemplates two kinds of retail sale, ordinary retail sale and some other kind of retail sale which is not ordinary. Subsection (1) of the section refers four times to retail sales, and when in subsection (2) reference is made to ordinary retail selling price the only meaning I can take from that is a reference to the ordinary selling price of the retail sales mentioned in subsection (1) As Jenkins, L.J. points out, this is also the view taken in the Regulations made under the Act where, in the absence of a marked or catalogued selling price, the phrase is defined the highest price at which single records are ordinarily to be sold to the public. In my opinion, there is or is intended to be a sale of the record here and it is a retail sale. The only question, as I see it, is: Is there an ordinary retail selling price on which the royalty can be calculated?

As I agree with Jenkins, L.J. that the production of three wrappers of three sixpenny bars of chocolate is merely a qualification for purchasing the record, I will say only a few words on the contrary view that it is part of the consideration for the purchase of the record incapable of monetary assessment. To Nestle these pieces of paper are worthless. Nestle are no doubt pleased to see that somebody has been buying their chocolate. They would know that anyhow, without the production of chocolate wrappers, from the figures of their turnover. The wrappers represent a liability to Nestle rather than an extra consideration if it be assumed, as I think it must, that on presentation of the wrappers and the tender of 1s. 6d. Nestle are bound to sell the record. But that is because of the offer they have made accepted by a member of the public. If it be said that the sale of the record is of value to Nestle because it promotes the sale of their chocolate, the same can be said of advertising their chocolate in the Press or in a number of other ways. Such overheads, like other overheads, go to increase the cost of production and, unless compensated by increased sales, may go to increase the price of the chocolate. But the retail price of 6d., or whatever it is, is just the price of the chocolate and nothing else. In the present case there is no reason for assuming that the price paid by the purchaser is paid for anything but the chocolate. As the facts show, there is ample profit to Nestle in the sale of the record alone and no reason to attribute something extra in the sale of the chocolate.

It was suggested that for six wrappers and 1s. 3d. they might sell the record for 1s. 3d. They might if it was a business proposition and they chose so to encourage the sale of their chocolate. That would leave the problem as before. If for some reason which it is difficult to imagine they were to make alternative offers of a record for 1s. 6d. on production of three wrappers or for 1s. 3d. on production of six wrappers, that might suggest that the wrappers for some reason were worth one penny each. But that would certainly not mean that someone could compel a sale of a record for 1s. 9d. and no wrappers. The suggestion that these wrappers represent some intangible consideration seems to be entirely unreal. It only makes sense if it be assumed that in the sale of the chocolate the purchaser was paying something less than 1s. 6d. for the chocolate and the balance towards the purchase of the record. I have already dealt with that argument. I would only add that the purchase of the chocolate is (or would normally be) a contract with the retailer and there is nothing to suggest that the 1s. 6d. is anything more than the ordinary retail selling price of the chocolate sold, as other chocolate and other comestibles often are, in wrappers to keep them clean or to identify them or for advertising purposes. There may be some cases where containers have some intrinsic value which increase the selling price, but that is not this case. I agree with Jenkins, L.J. that the price of 1s. 6d. was wholly attributable to and exhausted by the purchase of the chocolate.

The letterpress in the advertisement, Fill in the coupon and send it with a Postal Order for l/6d., the price of the record, and your three wrappers, and on the cardboard mount of the record, Send three wrappers from Nestles 6d. Milk Chocolate bars, together with postal order for 1 /6d., is, in my opinion, entirely consistent with, indeed, in my opinion, goes to support, the view that the ordinary retail selling price of the record is 1s. 6d.

I would dismiss the appeal.

Lord Somervell of Harrow

MY LORDS,

Section 8 of the Copyright Act, 1956, provides for a royalty of an amount, subject to a minimum, equal to 61/4 per cent, of the ordinary retail selling price of the record. This necessarily implies, in my opinion, that a sale to be within the section must not only be retail but one in which there is no other consideration for the transfer of property in the record but themoney price. Parliament would never have based the royalty on a percentage of a money price if the section was to cover cases in which part, possibly the main part, of the consideration was to be other than money. This is in no sense a remarkable conclusion as in most sales money is the sole consideration, It was not argued that the transaction was not a sale.

The question, then, is whether the three wrappers were part of the consideration or, as Lord Jenkins held, a condition of making the purchase, like a ticket entitling a member to buy at a co-operative store.

I think they are part of the consideration. They are so described in the offer. They, the wrappers, will help you to get smash-hit recordings. They are so described in the record itself— all you have to do to get each NEW STARS record is to send three wrappers from Nestlé’s 6d. Milk Chocolate bars, together with postal order for 1/6. This is not conclusive but, however described, they are, in my view, in law part of the consideration. It is said that when received the wrappers are of no value to Nestlé’s. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promise does not like pepper and will throw away the corn. As the whole object of selling the record, if it was a sale, was to increase the sales of chocolate, it seems to me wrong not to treat the stipulated evidence of such sales as part of the consideration. For these reasons I would allow the appeal.


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