Society of Composers, Authors and Music Publishers of Canada v. Kicks Roadhouse Inc., 2005 FC 528

Date: 20050419

Docket: T-1716-01

Citation: 2005 FC 528

Ottawa, Ontario, this 19th day of April, 2005

PRESENT:                  THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE

BETWEEN:

                                           SOCIETY OF COMPOSERS, AUTHORS

AND MUSIC PUBLISHERS OF CANADA

                                                                                                                                               Plaintiff

                                                                         - and -

                                  KICKS ROADHOUSE INC., c.o.b. as HOW-DEE'S,

and ANDREW CZARNOGORSKI

                                                                                                                                         Defendants

                                            REASONS FOR ORDER AND ORDER

O'KEEFE J.

[1]                The plaintiff, Society of Composers, Authors and Music Publishers of Canada ("SOCAN"), is a not-for-profit corporation incorporated under the laws of Canada, with its head office in the City of Toronto, in the Province of Ontario. SOCAN carries on the business of granting licences for the public performance and communication to the public by telecommunication in Canada of dramatico-musical and musical works.

[2]                The defendant, Kicks Roadhouse Inc., ("KICKS") is a corporation incorporated under the laws of the Province of Ontario. It has its principal place of business at 2200 Rymal Road East (Gateway Plaza), Hamilton, Ontario (the "premises") where, under the name and style of HOW-DEE'S, it carries on the business of a restaurant, bar, nightclub or similar establishment. The defendant presents to the public at the premises, performances of musical works by means of recorded music for dancing.

[3]                The defendant, Andrew Czarnogorski, ("Czarnogorski") resides in the Province of Ontario and is and was at all times the president and a director and officer of the defendant, KICKS. At all material times since at least 1997, Czarnogorski has operated and managed or directed the operation and management of the business described in paragraph 2 above.

[4]                The plaintiff is a collective society under section 67 of the Copyright Act, R.S.C. 1985, c. C-42. By virtue of subsection 68.2(1) of the Copyright Act, supra, the plaintiff is entitled to collect the royalties specified in its approved statement of royalties, or in default of their payment, recover them in a court of competent jurisdiction, without prejudice to any other rights available to it. Such royalties have been approved by the Copyright Board from year to year in accordance with the provisions of the Copyright Act, supra. The plaintiff is the owner and proprietor in Canada of the exclusive right of public performance, the right to authorize such performances and the cause of action for copyright infringement by means of violations of such rights (collectively "performing rights") in virtually all popular musical works incurrent use in Canada.

[5]                The plaintiff in its statement of claim, seeks the following:

1.          A declaration that the defendants have infringed the copyrights of the plaintiff;

2.          Damages, including exemplary damages, for copyright infringements and a reference to determine the amounts of such damages;

3.          An account of the profits made by the defendants through their infringement of the plaintiff's copyrights, such profits to be determined at a reference;

4.          An injunction restraining the defendants, themselves or through their officers, servants, agents, workmen or otherwise, either directly or indirectly, from performing, authorizing or causing to be performed on premises under their control musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts;

5.          An injunction restraining the defendants, themselves or through their officers, servants, agents, workmen or otherwise, either directly or indirectly, from permitting, for their private profit, a place of entertainment to be used for the performance in public of musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts;

6.          In the alternative to items 1 through 5 above, as the plaintiff may elect, in respect of any performance or performances described below, the royalties to which the plaintiff is entitled pursuant to section 68.2 of the Copyright Act, supra;

7.          Pre-judgment and post-judgment interest; and

8.          Costs of this action on such basis and scale as to this Court may seem just.

[6]                The defendant, KICKS, was purchased by the defendant, Czarnogorski and others who renamed it HOW-DEE'S and operated it as a nightclub.

[7]                HOW-DEE'S opened in May 1997 and operated until approximately May 2001.

[8]                HOW-DEE'S played recorded music for dancing.

[9]                The plaintiff claims that the defendant, KICKS failed to obtain a licence to play the recorded music to the public for dancing. The plaintiff stated that KICKS did not pay the royalties which were due as a result of the performance of the music to the public.

[10]            The plaintiff claims the defendant, Czarnogorski is also liable for permitting or authorizing the playing of the recorded music.

Issues

[11]            The issues as stated by the plaintiff are:

1.          Were the plaintiff's musical works performed in public at HOW-DEE'S without the plaintiff's consent?

2.          Did either or both of Czarnogorski and KICKS "authorize" those public performances, contrary to subsection 3(1) and 27(1) of the Copyright Act, supra, and thereby infringe the plaintiff's copyrights?

3.          Did either or both of Czarnogorski and KICKS permit for profit a "place of entertainment" to be used for the performance in public of the musical works at issue, contrary to subsection 27(5) of the Copyright Act, supra, and thereby infringe the plaintiff's copyrights?

4.          In respect of any or all of KICKS' infringements, did Czarnogorski, in his capacity as a director of that corporation, engage in a deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute an infringement of the plaintiff's copyrights, or which reflected an indifference to the risk of it?

Relevant Statutory Provisions

[12]            The relevant sections of the Copyright Act, supra state:

Analysis and Decision

[13]            Issue 1

Were the plaintiff's musical works performed in public at HOW-DEE'S without the plaintiff's consent?

I am satisfied that the plaintiff's musical works were performed in public at HOW-DEE'S without the plaintiff's consent. The defendants have admitted in their response to the request to admit that the plaintiff is the owner of the exclusive right of public performance in the musical works listed in paragraph 13 of the statement of claim. The defendants have also admitted that the plaintiff's musical works were played in public at HOW-DEE'S between 1997 and 2001 (paragraph 1 of the response to the request to admit). The testimony of the plaintiff's field representative established that all of the songs listed in paragraph 13 of the statement of claim were played at HOW-DEE'S. The evidence of Paula Shallow at trial established that the music was played without any licence from the plaintiff.

[14]            Issue 2

Did either or both of Czarnogorski and KICKS "authorize" those public performances, contrary to subsection 3(1) and 27(1) of the Copyright Act, supra, and thereby infringe the plaintiff's copyrights?

On this issue, I am of the opinion that KICKS infringed the plaintiff's copyright by playing the recorded music in public without a licence to do so. There is also no doubt that KICKS authorized the playing of the recorded music in public without the consent of the plaintiff. Again, this is an infringement of the plaintiff's copyright pursuant to subsections 3(1) and 27(1) of the Copyright Act, supra. The defendants admitted that the recorded music in question was played at HOW-DEE'S as early as 1997 through to May 2001. The defendants also admitted that the recorded music was played by disc jockeys hired by and paid by KICKS, or employed and paid by KICKS.

[15]            With respect to the defendant, Czarnogorski, the plaintiff agrees that this defendant did not actually play the recorded music, however, the plaintiff submitted that this defendant, by his conduct and involvement with KICKS authorized the playing of the recorded music. Czarnogorski did not appear, from the evidence, to play a role in the day-to-day management of the business.

[16]            The evidence shows that there were different managers who were responsible for the day-to-day management of the business. The owners did not have access to the computers or the cash. As well, there was a general manager for the business.

[17]            There is no doubt that Czarnogorski knew that recorded music was being played at HOW-DEE'S, but there is also evidence that he believed his general manager, Mr. Sharpe, had looked after the SOCAN matters. The testimony of Czarnogorski at pages 417 and 418 of the transcript read as follows:

A.            That's not how he asking me.

He asked me whether I know anything about live-to-air licence fees to licencing SOCAN or I don't even know how he phrased that.

And I said that he has to contact somebody maybe in Buffalo, they may know more about it. Or contact directly SOCAN, that's what I suggested.

Q.            Did he mention anything else to you about SOCAN at this point?

A.            No.

Q.            Or at any other time?

A.            Further down towards December, I recall another             conversation and I remember that when I ask, "How did you resolve it with this live-to-air bit, did you resolve with SOCAN?"

And the answer was, "I'm dealing with it."

Q.             So, by December he's dealing with it?

A.             Either November or December.

Q.            And again, what's he dealing with?

A.             With the issue of this payable.

Q.            So, at this point you realize, you know there's a payable?

A.             Well, obviously there is a payable, yes.

Q.             When did you find out there was a payable?

A.             At the time when Sharpe approached me pertaining to this live-to-air.

Q.             And this was around October 30, 1997?

A.             It was sometimes in October or November.

Q.             I don't see anything in this letter about live-to-air, do you?

A.             Neither do I.

Q.             Did you ever talk to Mr. Sharpe again after December with respect to this outstanding payable that you described?

A.             No, only one time when he said that he's dealing with that.

Mr. Sharpe, in his testimony, confirmed that he was dealing with the same issue.

[18]            Based on this evidence, I am of the view that Czarnogorski did not authorize the public performances contrary to subsections 3(1) and 27(1) of the Copyright Act, supra.

[19]            Issue 3

Did either or both of Czarnogorski and KICKS permit for profit a "place of entertainment" to be used for the performance in public of the musical works at issue, contrary to subsection 27(5) of the Copyright Act, supra, and thereby infringe the plaintiff's copyrights?

For the same reasons as listed in paragraphs 14 through 17 of these reasons, I am of the view that the defendant, KICKS, but not the defendant, Czarnogorski did permit for profit, a "place of entertainment" to be used for the performance in public of the musical works at issue contrary to subsection 27(5) of the Copyright Act, supra, and did thereby infringe the plaintiff's copyrights.

[20]            Issue 4

In respect of any or all of KICKS' infringements, did Czarnogorski, in his capacity as a director of that corporation, engage in a deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute an infringement of the plaintiff's copyrights, or which reflected an indifference to the risk of it?

The plaintiff submitted that it has proved that Czarnogorski as a directing mind of the corporation he, as a director, participated in and should be liable for the infringing acts of the corporate defendant, KICKS.

[21]            The law with respect to director's liability for the infringing acts of the corporation has been set out in Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co. (1978), 40 C.P.R. (2d) 164 (F.C.A.). The Court stated at paragraphs 17 to 19:

The trial Judge found that "Goldenberg and Berkowitz imparted the practical, business, financial and administrative policies and directives which ultimately resulted in the assembling and selling of some goods (in National's over-all stock of goods) which I have found infringed the plaintiff's rights", but that this was not enough to make Goldenberg personally liable for the infringement. He expressed the test to be applied in the following passage from his reasons for judgment:

In my opinion, there must be some evidence of intention (or evidence from which a reasonable inference can be drawn) that Goldenberg (or Goldenberg and Berkowitz jointly) deliberately or recklessly embarked on a scheme, using the company as a vehicle, to secure profit or custom which rightfully belonged to the plaintiffs. I add that I make a distinction between the intention I have referred to in dealing with the liability of a person as a director and the overall matter of intention in respect to infringement generally. The latter aspect is dealt with in Fox, supra, at p. 381:

. . . The intention of an infringer is immaterial. Infringement is committed as much in ignorance as with actual intent. Everyone is presumed to have notice of a patent and, therefore, a patent may be infringed by one who is ignorant of its existence. As stated in Stead v. Anderson, the question of infringement depends not upon what the defendant intends, but upon what he does. Thus, in Young v. Rosenthal, Grove J. said: 'Intention is not a part of infringement. A man may infringe a patent although he does not know how he has infringed it, as a patentee may claim as a novelty that which is not a novelty. But then, if it is not a novelty, he must suffer; and if a man infringes he must suffer, whether he intentionally infringes or whether he does not intentionally infringe.'

The trial Judge concluded that the evidence was insufficient to warrant the inference that Goldenberg "deliberately or recklessly embarked on a scheme, using the company as a vehicle, to secure profit or custom which rightfully belonged to the plaintiffs".

The appellants contend that the trial Judge erred in law in applying the test he did, but that if the test be correct he was clearly wrong in finding that the evidence did not support such an inference.

And at paragraph 21:

The learned trial Judge referred to the applicable law as follows:

The law in respect of the liability of directors or officers for tortious acts committed by the company is, to my mind, best stated by Atkin, L.J., in Performing Right Society, Ltd. v. Ciryl Theatrical Syndicate, Ltd., [1924] 1 K.B. 1 at pp. 14-5:

Prima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done. That is authoritatively stated in Rainham Chemical Works v. Belvedere Guano Co., [1921] 2 A.C. 465, where it was sought to make a company liable for an explosion upon their works in the course of manufacturing high explosives. The company were held liable on the principle of Rylands v. Fletcher. It was also sought to charge two directors with liability. They were eventually held responsible because they were in fact occupiers of the works. It was contended that they were liable on the ground that they were managing directors of the company, that the company was under their solecontrol as governing directors, and that they were responsible for the work done by their servants. Lord Buckmaster said: 'I cannot accept either of these views. If the company was really trading independently on its own account, the fact that it was directed by Messrs. Feldman and Partridge would not render them responsible for its tortious act unless, indeed, they were acts expressly directed by them. If a company is formed for the express purpose of doing a wrongful act or if, when formed, those in control expressly direct that a wrongful thing be done, the individuals as well as the company are responsible for the consequences, but there is no evidence in the present case to establish liability under either of these heads.' Perhaps that is put a little more narrowly than it would have been if it had been intended as a general pronouncement without reference to the particular case; because I conceive that express direction is not necessary. If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly.

Further, at paragraphs 23 to 25 and 28:

What is involved here is a very difficult question of policy. On the one hand, there is the principle that an incorporated company is separate and distinct in law from its shareholders, directors and officers, and it is in the interests of the commercial purposes served by the incorporated enterprise that they should as a general rule enjoy the benefit of the limited liability afforded by incorporation. On the other hand, there is the principle that everyone should answer for his tortious acts. The balancing of these two considerations in the field of patent infringement is particularly difficult. This arises from the fact that the acts of manufacture and sale which are ultimately held by a Court to constitute infringement are the general business activity of a corporation which its directors and officers may be presumed to have authorized or directed, at least in a general way. Questions of validity and infringement are often fraught with considerable uncertainty requiring long and expensive trials to resolve. It would render the offices of director or principal officer unduly hazardous if the degree of direction normally required in the management of a corporation's manufacturing and selling activity could by itself make the director or officer personally liable for infringement by his company.

This is a principle that should apply, I think, not only to the large corporation but also to the small, closely held corporation as well. There is no reason why the small, one-man or two-man corporation should not have the benefit of the same approach to personal liability merely because there is generally and necessarily a greater degree of direct and personal involvement in management on the part of its shareholders and directors. This view finds support, I believe, in the cases. It has been held that the mere fact that individual defendants were the two sole shareholders and directors of a company was not by itself enough to support an inference that the company was their agent or instrument in the commission of the acts which constituted infringement or that they so authorized such acts as to make themselves personally liable: see British Thompson-Houston Co., Ltd. v. Sterling Accessories, Ltd. (1924), 41 R.P.C. 311; Prichard & Constance (Wholesale), Ltd. v. Amata, Ltd. (1924), 42 R.P.C. 63. It is the necessary implication of this approach, I think, that not only will the particular direction or authorization required for personal liability not be inferred merely from the fact of close control of a corporation but it will not be inferred from the general direction which those in such control must necessarily impart to its affairs. I, therefore, have no difficulty in concluding, with respect, that the learned trial Judge was correct in holding that the fact "Goldenberg and Berkowitz imparted the practical, business, financial and administrative policies and directives which ultimately resulted in the assembling and selling of some goods (in National's overall stock of goods) which I have found infringed the plaintiffs' rights" was not by itself sufficient to give rise to personal liability.

What, however, is the kind of participation in the acts of the company that should give rise to personal liability? It is an elusive question. It would appear to be that degree and kind of personal involvement by which the director or officer makes the tortious act his own. It is obviously a question of fact to be decided on the circumstances of each case. I have not found much assistance in the particular case in which Courts have concluded that the facts were such as to warrant personal liability. But there would appear to have been in these cases a knowing, deliberate, wilful quality to the participation: . . .

I do not think we should go so far as to hold that the director or officer must know or have reason to know that the acts which he directs or procures constitute infringement. That would be to impose a condition of liability that does not exist for patent infringement generally. I note such knowledge has been held in the United States not to be material where the question is the personal liability of directors or officers: see Deller's Walker on Patents, 2nd ed. (1972), vol. 7, pp. 117-8. But in my opinion there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it. The precise formulation of the appropriate test is obviously a difficult one. Room must be left for a broad appreciation of the circumstances of each case to determine whether as a matter of policy they call for personal liability. Opinions might differ as to the appropriateness of the precise language of the learned trial Judge in formulating the test which he adopted -- "deliberately or recklessly embarked on a scheme, using the company as a vehicle, to secure profit or custom which rightfully belonged to the plaintiffs" -- but I am unable to conclude that in its essential emphasis it was wrong. Nor am I able to conclude that the facts of this case are such as clearly to give rise to personal liability on a proper application of the law. . . .

[22]            When this jurisprudence is applied to the facts of this case, I am of the view that Czarnogorski, as a director of KICKS, is not personally liable for the infringing conduct of the corporate defendant, KICKS. Czarnogorski testified that the company was set up with managers and general managers and that the SOCAN fees matter was, according to his general manager, being dealt with by the general manager.. The company was in the business of making money as a dance club and bar. It was not set up to embark on a course of conduct that would cause infringement of the plaintiff's copyrights. In fact, if Czarnogorski's involvement in the operation of the company is compared to that of the directors in Mentmore, supra, it would appear to be much less.

[23]            In dealing with the personal liability of the defendant, Czarnogorski, I attributed more weight to the oral testimony of both Czarnogorski and Mr. Sharpe (as it related to Czarnogorski's involvement in the SOCAN licencing matter), than to the evidence contained in the telephone logs and the reports, assuming that these logs and reports were admissible.

[24]            In summary, the plaintiff's claim is allowed as follows:

1.          A declaration that the defendant, KICKS has infringed the copyrights of the plaintiff will issue.

2.          The plaintiff is granted damages for copyright infringements and a reference to determine the amounts of such damages.

3.          There will be an account of the profits made by the defendant through its infringement of the plaintiff's copyrights, such profits to be determined at a reference.

4.          The plaintiff is granted an injunction restraining the defendant, KICKS, itself or through its officers, servants, agents, workmen or otherwise, either directly or indirectly, from performing, authorizing or causing to be performed on premises under their control musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts.

5.          The plaintiff is granted an injunction restraining the defendant, KICKS, itself or through its officers, servants, agents, workmen or otherwise, either directly or indirectly, from permitting, for their private profit, a place of entertainment to be used for the performance in public of musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts.

6.          In the alternative to items 1 through 5 above, as the plaintiff may elect, in respect of any performance or performances described below, the royalties to which the plaintiff is entitled pursuant to section 68.2 of the Copyright Act, supra.

7.          The plaintiff is allowed pre-judgment and post-judgment interest.

[25]            The plaintiff's claims against the defendant, Czarnogorski are dismissed.

[26]            There shall be no order for costs as success was divided.

                                               ORDER

[27]            IT IS ORDERED that:

1.          A declaration that the defendant, KICKS has infringed the copyrights of the plaintiff is issued.

2.          The plaintiff is granted damages for copyright infringements and a reference to determine the amounts of such damages.

3.          There will be an account of the profits made by the defendant through its infringement of the plaintiff's copyrights, such profits to be determined at a reference.

4.          The plaintiff is granted an injunction restraining the defendant, KICKS, itself or through its officers, servants, agents, workmen or otherwise, either directly or indirectly, from performing, authorizing or causing to be performed on premises under their control musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts.

5.          The plaintiff is granted an injunction restraining the defendant, KICKS, itself or through its officers, servants, agents, workmen or otherwise, either directly or indirectly, from permitting, for their private profit, a place of entertainment to be used for the performance in public of musical works in which the plaintiff owns the performing rights unless they have first obtained and complied with the terms of a licence from the plaintiff authorizing such acts.

6.          In the alternative to items 1 through 5 above, as the plaintiff may elect, in respect of any performance or performances described below, the royalties to which the plaintiff is entitled pursuant to section 68.2 of the Copyright Act, supra.

7.          The plaintiff is allowed pre-judgment and post-judgment interest.

8.          The claim against the defendant, Czarnogorski is dismissed.

9.          There shall be no order for costs as success in the claim was divided.

                                                                               "John A. O'Keefe"              

                                                                                                   J.F.C.                     

Ottawa, Ontario

April 19, 2005

                                     FEDERAL COURT

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                  T-1716-01

STYLE OF CAUSE: SOCIETY OF COMPOSERS, AUTHORS

AND MUSIC PUBLISHERS OF CANADA

- and -

KICKS ROADHOUSE INC., c.o.b. as HOW-DEE'S,

and ANDREW CZARNOGORSKI

                                                     

PLACE OF HEARING:                                 Toronto, Ontario

DATE OF HEARING:                                   October 18, 19 and 20, 2004

REASONS FOR ORDER AND ORDER OF O'KEEFE J.

DATED:                     April 19, 2005

APPEARANCES:

Mr. A. Kelly Gill

Mr. Kevin Sartorio

FOR PLAINTIFF

Mr. Ray Di Gregorio

FOR DEFENDANTS

SOLICITORS OF RECORD:

Gowling Lafleur Henderson LLP

Toronto, Ontario

FOR PLAINTIFF

Camporese & Associates

Hamilton, Ontario

FOR DEFENDANTS