CHAPPELL & CO., LTD. AND OTHERS v. THE NESTLE CO., LTD. AND
OTHERS.
HOUSE OF LORDS
[1960] AC 87, [1959] 2 All ER 701, [1959] 3 WLR 168
HEARING-DATES: 27, 28, 29 April, 18 June 1959
18 June 1959
CATCHWORDS:
Copyright -- Infringement -- Music -- Record -- Manufacture of records for chocolate manufacturers' advertising
campaign -- Records to be sold by chocolate manufacturers each for sum of money to a purchaser tendering three wrappers from manufacturers' chocolate bars -- Sales at that price showed profit -- Whether sale by "retail" -- Whether price
"ordinary retail selling price" as defined -- Copyright Act, 1956 (4 & 5 Eliz. 2 c. 74), s. 8 (1), (2) -- Copyright Royalty
System (Records) Regulations, 1957 (S.I. 1957 No. 866), reg. 1 (1) (f), reg. 3.
HEADNOTE:
In consequence of the Copyright Act, 1956, s. 8 (1) (b) *, manufacturers of records gave to the owners of copyright
in a musical work notice of their intention to make records of the work. By reg. 1 (1) (f) of the Copyright Royalty System (Records) Regulations, 1957 n+, the notice was required to state the ordinary retail selling price (which was defined in reg. 3 n++) at which the records were to be sold to the public, and this was stated by the notice to be 1s. 6d. The
manufacturers made the records and sold them to chocolate manufacturers for 4d. each, knowing the use to which the
chocolate manufacturers intended to put the records. The chocolate manufacturers advertised them for sale at 1s. 6d.
each, with a stipulation that an intending purchaser must also send three wrappers from their milk chocolate bars. The
object of the chocolate manufacturers was to advertise their milk chocolate, but the price enabled them to make a reasonable profit on the sale of a record. The wrappers when received had no value and were thrown away. Unless the sales
of the records to the chocolate manufacturers were for the purpose of the records being sold "by retail" within the meaning of s. 8 (1) © of the Act *, the manufacture of the records and their distribution were infringements of copyright under s. 2 (5) (a) and s. 5 (3) of the Act of 1956. The exclusive licensees and the owners of the copyright brought an action against the chocolate manufacturers and the record manufacturers for an injunction to restrain them from infringing
copyright in the musical work on the ground that the transaction was not within s. 8 of the Act of 1956.
* The relevant terms of s. 8 are set out at p. 706, letter H, to p. 707, letter B, post.
n+ Regulation 1, so far as relevant, provides: "The notice required by sub-s. (1) and sub-s. (5) of s. 8 of the Act shall contain the following particulars: --... (f) the ordinary retail selling price (as hereinafter 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".
n++ Regulation 3 provides: "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 ordi narily to be sold to the public, exclusive of purchase tax in either case".
Held (VISCOUNT SIMONDS and LORD KEITH OF AVONHOLM dissenting): there was no ordinary retail selling price within s. 8 of the Copyright Act, 1956, because money did not constitute the entire consideration for the sales
of records some part of which was the benefit to the chocolate manufacturers from the sales of chocolate which they
would not otherwise have sold, and, further, the notice given under reg. 1 (1) (f) of the Copyright Royalty System (Records) Regulations, 1957, was defective because it did not disclose the additional non-pecuniary consideration; therefore, the conditions of s. 8 were not satisfied and the chocolate manufacturers and the record manufacturers were not protected by s. 8 from liability for infringement of copyright.
Decision of the COURT OF APPEAL ([1958] 2 All E.R. 155) reversed.
NOTES:
As to copyright in musical works and records thereof, see 8 HALSBURY'S LAWS (3rd Edn.) 378, 381, paras. 694,
697; and for cases on the subject, see 13 DIGEST (Repl.) 68, 69, 140-147.
For the Copyright Act, 1956, s. 8, see 36 HALSBURY'S STATUTES (2nd Edn.) 86.
INTRODUCTION:
Appeal. Appeal by Chappell & Co., Ltd. and Winneton Music Corporation from an order of the Court of Appeal
(JENKINS, ROMER and ORMEROD, L.JJ.), dated Mar. 19, 1958, and reported [1958] 2 All E.R. 155, reversing an order of UPJOHN, J., dated Nov. 14, 1957, in an action by the appellants for an injunction to restain the respondents, The
Nestle Co., Ltd. and Hardy Record Manufacturing Co., Ltd., from infringing by their servants or agents or otherwise the
copyright in the musical work entitled "Rockin' Shoes', under which the appellants, Chappell & Co., Ltd., had been
granted an exclusive licence and any other musical work of which the appellants were the owners of the copyright or
under which they had been granted an exclusive licence. The facts appear in the opinion of VISCOUNT SIMONDS.
COUNSEL:
K. E. Shelley, Q.C., and P. J. S. Bevan for the appellants. G. T. Aldous, Q.C., and J. N. K. Whitford for the respondents, The Nestle Co., Ltd. J. M. Cope for the respondents, Hardy Record Manufacturing Co., Ltd.
JUDGMENT-READ:
Their Lordship took time for consideration. June 18. The following opinions were read.
PANEL: Viscount Simonds, Lord Reid, Lord Tucker, Lord Keith of Avonholm and Lord Somervell of Harrow
JUDGMENTBY-1: LORD REID
JUDGMENT-1:
LORD REID: My Lords, the respondents The Nestle Co., Ltd. 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 Britains newest stars all exclusive to Nestle's."
Any member of the public could obtain as many records as he wished by sending 1s. 6d. and three wrappings for each
record. One of these records was a reproduction of a dance tune "Rockin' Shoes" of which the copyright belonged to
the appellants, Winneton Music Corporation, the other appellants, Chappell & Co., Ltd., 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 appellants because they were authorised to do so by s. 8 of the Copyright
Act, 1956. The relevant part of that section is as follows: -"(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; © the manufacturer intends to sell the record by retail, or to supply it for the surpose 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 para. (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 s. 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 s. 8 of the Act of 1956.
The respondents Hardy Record Manufacturing Co., Ltd. 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 respondents Hardy sold to the respondents Nestle a large number of these recordings at 4d. each. The respondents Nestle then had them mounted on cardboard
mounts which also carried advertisements for their chocolate. The respondents Hardy informed the Mechanical Copyright Protection Society of the project in June, 1957. They said that the retail price of records was to be 1s. plus three
wrappers. The society staed that the proposal did not constitute a sale by retail and, in consequence, the proposed records could not be made under the provisions of s. 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 procucts
of another company. After some correspondence, the respondents Hardy gave a notice purporting to be under the Act
of 1956 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 3/4d. exclusive of purchase tax and
not greater than 1s. inclusive of purchase tax."
On July 25, 1957, these figures were altered to 1s. 1 1/2d. 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 s.
8 of the Act or the regulations.
The scheme of s. 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; © 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 sub-s. (2) provides for the amount of the royalty. Condition (b) refers to the prescribed notice, and sub-s. (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 s. 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 © , he is not entitled to make them for any other purpose. And if later someo-
ne 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 sel ling price" within the meaning of s. 8? That involves two questions, what was the nature of the contract between the respondents Nestle 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 ther intention of the
parties as shown by what they said and did. The respondents Nestle'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 givers much longer playing time than the Nestle records and it may have other advantages. But the
reader of the respondents Nestle's 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 seems 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 respondents Nestle; 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 respondents Nestle 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 respondents Nestle 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 something 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, e.g., 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 respondents Nestle, and required expediture 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 s. 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 sub-s. (1) and sub-s. (2) must be read together in light of the appearent 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 dif-
ferent business from selling records, the protection of the copyright owner is not at all secure. In such a case, the retailer will get the manufacturer to fix much 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 however valuable. It is true
that the price of 1s. 6d. left the respondents Nestle 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 originall proposal
in this case was to sell at 1s. plus three wrappers, and it might have suited the respondents Nestle to sell at 9d. or 6d.
plus six wrappers. It might even suit a particular advertiser to sell at less than the price which he paid to 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 respondents Hardy'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 s. 8. They were, therefore, infringements of the appellants' copyright and, in my
judgment, this appeal should be allowed.
JUDGMENTBY-2: LORD TUCKER
JUDGMENT-2:
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 manufacturers "for the purpose of being sold by retail" within the meaning of s. 8 (1) © of the Copyright Act, 1956. I think the
contrast throughout the section is between retail and wholesale sale, 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 sub-s. (2), to be calculated on the basis of the "ordinary retail selling price".
This does not mean the price prevailing on an ordinary retail sale but the ordinary price obtainable on a retail sale, and I
think the ordinary price so obtainable envvisages a money sum constituting the entire consideration 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 reg. 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 stars record is to send three wrappers from Nestle's 6d. milk chocolate bars together with postal order for 1s. 6d."
Under reg. 1 (1) (f), the notice required by sub-s. (1) of s. 8 must state the ordinary retail selling price as defined by reg.
3. In the present case, the notice, as amended, stated that
"The ordinary retail selling price of each record will be not 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 sub-s. (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 reg. 1 (1) (f) is defective, the protection of s. 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 re quirement 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.
JUDGMENTBY-3: LORD SOMERVELL OF HARROW
JUDGMENT-3:
LORD SOMERVELL OF HARROW: My Lords, s. 8 of the Copyright Act, 1956, provides for a royalty of an
amount, subject to a minimum, equal to 6 1/4 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 the money 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 JENKINS, L.J., held, a condition of making the purchase, like a ticket entitling a member to buy at a co-operative store. I think that 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 [such new] record is to send three wrappers from Nestle's 6d. milk chocolate bars together
with postal order for 1s. 6d."
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 the respondents The Nestle Co., Ltd. This I would have thought to be 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 promisee 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.
DISSENTBY-1: VISCOUNT SIMONDS
DISSENT-JDGMT-1:
VISCOUNT SIMONDS: My Lords, this appeal raises a question of construction of the Copyright Act, 1956, on
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 on 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 & Co., Ltd., their exclusive licensees, of the copyright in a musical work entitled "Rockin' Shoes". The question is whether the respondents
The Nestle Co., Ltd. and Hardy Record Manufacturing Co., Ltd. (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 s. 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. [HIS LORDSHIP read sub-s. (1) and sub-s. (2) which are printed at pp. 706, 707,
post, and continued:] Regulations were made under the Act *, of which I think it necessary only to mention reg. 1 (1)
(f), which provides that the notice required by sub-s. (1) and sub-s. (5) of s. 8 shall contain the ordinary retail selling price (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 reg. 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 sold to the public, exclusive of purchase
tax in either case.
* The Copyright Royalty System (Records) Regulations, 1957 (S.I. 1957 No. 866).
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 on cards supplied by the latter. A
film so mounted is sold by the respondents Nestle to any member of the public who sends to them a postal order for 1s.
6d. with three wrappers from 6d. bars of Nestle's Milk Chocolate. A typical offer appeared in the "Daily Mirror" of
Sept. 11, 1957, in the words -"Here's how to get each new stars record. Collect three 6d. wrappers from Nestle's Milk Chocolate. Fill in the coupon and send it with a postal order for 1s. 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 1s. 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 Nestle's Milk Chocolate, and no one can doubt that the respondents Nestle'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 the respondents Nestle, whose name appears prominently on 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 Nestle's 6d. milk chocolate bars together with postal order for 1s. 6d. and stating which record you want to Nestle Record Offer P.O. Box 14
Hayes, Middlesex. Don't forget, three wrappers and postal order for 1s. 6d."
Before, however, making or permitting a public offer such as I have referred to, it was necessary that the notice prescribed by s. 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, Ltd. who were, as I assume, acting
on behalf of the appellants. In the first letter which passed between them, dated June 19, 1957, but referring to other
musical works than "Rockin' Shoes", the respondents Hardy stated -"The retail price of the record, and they are being sold individually, not collectively, is 1s. plus three wrappers.
Wrappers are valueless and are normally thrown away."
In the ensuing correspondence the society objected that the proposal made by the respondents Hardy did not constitute a
sale by retail and that, therefore, the proposed records could not be made under the provisions of s. 8 of the Act. The respondents Hardy nevertheless, on July 17, 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 3/4d. exclusive of purchase tax and not
greater than 1s. inclusive of purchase tax."
By a subsequent letter those figures were amended to 1s. 1 1/2d. and 1s. 6d. respectively. No mention was made of any
wrappers. The respondents 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 s. 8. UPJOHN, J., 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
may own conclusion.
It appears to me that, in order to comply with the provisions of s. 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 retailing selling price" of it, for if there is not, an essential part of the prescribed notice cannot
be given.
On 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 Lordship's 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 on 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, on 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 on such a sale. The problem,
therefore, and the only problem, is whether there is retail sale with a retail selling price within the meaning of the section. The contention that it is not is stated in various ways. UPJOHN, J., in a passage cited with approval by ROMER,
L.J. ([1958] 2 All E.R. at p. 166) says:
"The vital part of this transaction is to get in three wrappers and that represents a great deal of value to [the respondents Nestle], 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, i.e., 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 [the respondents
Nestle]."
ROMER, L.J., himself states the proposition thus (ibid.):
"I cannot help thinking that the owner of the copyright was entitled, under s. 8, to a royalty assessed on the full purchase price of each record sold by retail. Under [the respondents Nestle's] method of selling them, the copyright owner
gets a royalty assessed on 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 recrived by the [respondents Nestle]..."
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, viz., 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 on which
the 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 UPJOHN, J., 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 the respondents Nestle 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 ano-
ther 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 UPJOHN, 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 fulfil 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 ensure 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 appears 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 s. 8 constitutes an exception on 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.
DISSENTBY-2: LORD KEITH OF AVONHOLM
DISSENT-JDGMT-2:
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., 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 s. 8 of the Copyright Act, 1956, 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 sub-s. (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 sub-s. (1). As JENKINS, L.J.,
points out ([1958] 2 All E.R. at p. 161), 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 as "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 6d. 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 the respondents The Nestle Co., Ltd. these pieces
of paper are worthless. The respondents 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 the respondents 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., the respondents Nestle are bound to sell the
record. But that is because the offer they have made has been accepted by a member of the public. If it be said that the
sale of the record is of value to the respondents 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 the respondents 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 busi-
ness proposition and they chose so to encourage the sale of the 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 1s. 6d., the price of the
record, and your three wrappers" and on the cardboard mount of the record "Send three wrappers from Nestle's 6d. milk
chocolate bars, together with postal order for 1s. 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.
DISPOSITION:
Appeal allowed.
SOLICITORS:
Syrett & Sons (for the appellants); McKenna & Co. (for the respondents, The Nestle Co., Ltd.); Howe & Rake (for
the respondents, Hardy Record Manufacturing Co., Ltd.).