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CD WOW! fined for contempt of court

Grey skies turn black for music retailer

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A group of record labels has won its High Court case against online music retailer CD WOW!, which was found to have infringed copyright and been in contempt of court over an earlier order.

That offence is called parallel importing and involves a breach of copyright. CD WOW! had previously promised to a court not to engage in parallel importing.

"This judgment confirms that CD WOW have not only consistently flouted the law in their business practices, but have flagrantly ignored the undertakings that they themselves gave to the Court that they would trade legally," said BPI general counsel Roz Groome.

The case, which has been running for six years, centred on CD WOW!'s sale of CDs and DVDs for significantly less than High Street prices. The company sold its CDs from a warehouse in Hong Kong, where CDs are sold for less than they are in Europe.

The recordings were not pirated discs but their sale in the UK broke copyright law. Record labels typically create regional companies to whom they licence the copyright in music for sale in those regions. Those companies can then match their prices to particular market conditions, and through copyright law the parent label can ensure that those markets which can bear a higher price are forced to pay that.

Though CD WOW! maintains that it has never deliberately engaged in parallel importing, it promised a court in 2004 that it would not conduct parallel importing in the future in order to settle its case with the BPI.

The High Court has found that it broke that agreement and breached copyright law. It has ordered it to pay a fine to the Crown and damages for copyright infringement and legal costs to the record labels and the BPI.

CD WOW! had claimed that it was a coincidence that the discs bought by the BPI happened to be parallel imports. It said that this was a result of human error and not a company policy.

Justice Evans-Lombe in the High Court "unhesitatingly rejected" the claims that only human error was at fault. He said there was "strong evidence that CD WOW! was committing widespread breach of the undertakings... when the contempt application was launched" and that "CD WOW! had taken no effective steps to ensure compliance with the undertakings even after an application for contempt had been served".

Evans-Lombe said 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".

"The Court has now given a clear message to CDWOW – stop infringing copyright and pay for your past misdemeanours or face serious consequences," said Groome. "The BPI will be using this judgment to ensure that no other company unfairly undermines legitimate retailers in the UK that are trading successfully and respecting the law."

CD WOW! said that the ruling was harder on it than it had expected. "We knew the verdict was always going to be a negative one because we held our hands up to a number of incidents where we could be deemed to have breached our contract, even though it was not intentional," said CD WOW! founder Henrik Wesslen. "However, this is a harsher verdict than we would have hoped for and we will be taking this further to fight this injustice.

"At a time when the record industry is losing vast revenue to piracy, it seems ludicrous that they can set out to destroy a section of the market that is actually making them money," said Wesslen. “This battle has highlighted the failings of certain aspects of the copyright laws and hopefully we can use the attention this hearing has generated to continue our campaign for change."

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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