Chappell & Co Ltd v. The Nestlé Co Ltd [1960] AC 87, House of Lords

The plaintiffs were the owners of the copyright in a musical work entitled ‘Rockin’ Shoes’. The defendants offered to supply gramophone records which included Rockin’ Shoes to anyone sending in a postal order for 1s 6d together with three wrappers from bars of Nestlé milk chocolate. The plaintiffs alleged that the manufacture and sale of this record amounted to an infringement of their copyright in the song. The defendants relied by way of defence on section 8 of the Copyright Act 1956 which, in essence, permitted the making of records of a musical work that the manufacturer intended to sell by retail provided that he gave the owner of the copyright prior notice and paid a royalty of 6¼ per cent of the ‘ordinary retail selling price’ of the record. The defendants notified the plaintiffs that the ordinary retail selling price of the records would not be greater than 1s 6d.

The plaintiffs submitted that this notice did not satisfy the requirements of section 8 because it did not take into account the three wrappers from the chocolate bars. They accordingly sought an injunction to restrain the defendants from infringing their copyright. The defendants denied that the wrappers were part of the consideration and they pointed to the fact that the wrappers, when received, were worthless and were in fact thrown away. The House of Lords held by a bare majority (Viscount Somervell and Lord Keith of Avonholm dissenting) that the sending of the wrappers was not simply a condition which had to be fulfilled before a copy of the record could be obtained: it was part of the consideration for the sale of the record. The defendants had therefore not complied with the requirements of section 8 and the plaintiffs were entitled to an injunction restraining the defendants from infringing their copyright.

Viscount Simonds [dissenting]

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 [the trial judge] 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 Nestlés 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 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.

Lord Reid

To determine the nature of the contract one must fi nd the intention of the parties as shown by what they said and did. The Nestlé Co’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 Nestlé records and it may have other advantages. But the reader of the Nestlé 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 the 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 Nestlé Co; 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 Nestlé Co, 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 Nestlé Co 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 am of opinion that the . . . 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 Somervell of Harrow

The question . . . is whether the three wrappers were part of the consideration or, as Jenkins LJ held, a condition of making the purchase, like a ticket entitling a member to buy at a cooperative 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 such new record is to send three wrappers from Nestlé’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 Nestlés. 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 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.

Lord Tucker delivered a speech in which he concluded that the defendants had not complied with the requirements of section 8 so that the plaintiffs were entitled to an injunction in the term sought. Lord Keith of Avonholm dissented.