Chappell & Co Ltd v Nestlé Co Ltd

For the compulsory recording licence under section 8 of the Copyright Act 1956, the ordinary retail selling price must be a money sum representing the whole consideration for the record. The statutory protection does not apply where the purchaser must provide additional consideration which cannot be included in the royalty calculation.

An act or item stipulated by the seller may constitute consideration even though it has no intrinsic value and is discarded after delivery. Its value lies in being the stipulated price of the promise. Accordingly, wrappers required to obtain a record formed part of the consideration because their acquisition and delivery promoted the seller’s chocolate business.

The appellants owned or exclusively licensed the copyright in the musical work “Rockin’ Shoes”. Nestlé offered a recording of the work to anyone sending a postal order for 1s. 6d. and three wrappers from its chocolate bars. The manufacturers claimed protection under section 8 of the Copyright Act 1956, having notified 1s. 6d. as the ordinary retail selling price without mentioning the wrappers.

Upjohn J granted an injunction for infringement. A majority of the Court of Appeal reversed that decision and dismissed the action, Romer LJ dissenting. The central issue before the House was whether the transaction had an ordinary retail selling price on which the statutory royalty could be calculated, or whether the wrappers formed additional consideration which placed the transaction outside section 8.

1. By a majority of three to two, the appeal was allowed. Lord Reid, Lord Tucker and Lord Somervell held that the respondents did not satisfy section 8 of the Copyright Act 1956. The manufacture of the record therefore infringed the appellants’ copyright. Viscount Simonds and Lord Keith would have dismissed the appeal.

2. Per Lord Reid, the compulsory licence protects both public access to recordings and the copyright owner’s financial interest. Its royalty is calculated as a percentage of the ordinary retail selling price. That expression could not cover every transaction, irrespective of its conditions, collateral advantages or whether the stated money price comprised the whole consideration. The wrappers were acquired and delivered as part of an advertising scheme intended to increase chocolate sales. Their provision was therefore part of the consideration, rather than a mere qualification identifying persons entitled to buy.

3. Per Lord Tucker, an ordinary retail selling price envisaged a money sum constituting the entire consideration. Otherwise, the statutory percentage could not be calculated where additional consideration lacked an ascertainable money value. The statutory notice disclosed only the monetary part of the consideration and was defective. The protection of section 8 was consequently lost.

4. Per Lord Somervell, a contracting party may stipulate for whatever consideration it chooses. An item does not cease to be good consideration merely because the promisee does not value it intrinsically or intends to discard it. Since the object of the scheme was to increase chocolate sales, the stipulated evidence of those sales formed part of the consideration. Parliament could not have intended a royalty based on the money component alone where the consideration was partly non-monetary.

5. Viscount Simonds and Lord Keith dissented. They regarded the wrappers as a qualification for purchasing the record rather than part of its price. On their view, the transaction was a retail sale at an ordinary retail selling price of 1s. 6d., regardless of the seller’s advertising motive.

1. House of Lords: By a majority of three to two, allowed the appeal and restored the conclusion that the manufacture and sale infringed copyright: [1960] AC 87.

2. Court of Appeal: By a majority comprising Jenkins and Ormerod LJJ, with Romer LJ dissenting, reversed Upjohn J and dismissed the action.

3. High Court: Upjohn J held that the respondents were not protected by section 8 of the Copyright Act 1956 and granted an injunction.