HC-2013-000089 - [2025] EWHC 2376 (Ch)

Merck’s pleaded claim is for licence fee damages, on the basis of a notional licence willingly negotiated by the parties, permitting MSD to perform acts otherwise prohibited by contract or by Merck’s trade mark rights. No other basis for the assessment of damages is pleaded, and Merck therefore properly accepted that its damages claim stood or fell with its claim for licence fee damages.

MSD contended that the circumstances of the present case are such that there is no juridical basis for the assessment of damages on the basis of a notional licence fee. That proposition was advanced in various different ways.

First, MSD contended that the availability of licence fee damages, as a means of quantifying an infringement of an intellectual property right, differs as between patents (where licence fee damages are a typical basis for a damages quantification) and trade marks. The high point of MSD’s submission in this regard was the following passage in the judgment of Jacob LJ in Reed Executive v Reed Business Information [2004] EWCA Civ 159, [2004] RPC 40, §165:

“I am by no means convinced that the ‘user’ principle automatically applies in trade mark or passing-off cases, especially where the ‘mark’ concerned is not the sort of mark available for hire. The ordinary case is one that just protects goodwill. For damages to be awarded on the user principle is close to saying there is no damage so some will be invented. It is not the same sort of thing as having to pay for use of an invention (the basis of the user principle in patents).”

That statement must, however, now be read in light of the judgment of Lord Reed in Morris-Garner v One Step, making clear that the licence fee approach to quantification of damages will in principle be an appropriate approach where the loss can be defined as the economic value of the right which has been breached, considered as an asset. As Lord Reed repeatedly noted, this will typically be the case for breaches of intellectual property rights, as well as breaches of agreements concerning intellectual property rights.

There is no reason, in principle, why that should not apply to trade mark rights. Indeed, in Easygroup v Easy Live (Services) [2023] EWCA Civ 1508, [2024] FSR 15, in relation to a passing off action, Arnold LJ stated at §49 that “[g]iven that the juridical basis of the action is invasion of property, it naturally follows that damages assessed according to the user principle should be available”. That must apply equally to the infringement of a trade mark right.

Mr Brandreth acknowledged that there might be cases where the very nature of the right infringed was such that a licence would be entirely unrealistic, such that they fell into the category of cases described by Leggatt J in Marathon where any negotiation would be “fictional in the stronger sense that it lacks any verisimilitude”, or as Lord Reed put it in Morris-Garner, “where any reasonable person in the claimant’s position would have been unwilling to grant a release”. But that is (as Mr Brandreth pointed out) not the position for Merck’s trade mark rights in the present case, which are quintessential commercial property rights, for which a licence presents no inherent difficulty.

The second strand of MSD’s argument was that by licensing the Merck mark to MSD, Merck would have created a situation where the use of the mark misled the public, such as to render the trade mark liable to result in revocation of the registration of the licensed trade mark under s. 46(1)(d) of the Trade Marks Act 1994. On that basis, MSD contended that Merck could not realistically have granted a licence to MSD.

That argument is misconceived. Section 46(1)(d) covers the situation where, in consequence of the use made of the trade mark by the proprietor or with the proprietor’s consent in relation to the goods or services for which it is registered, it is liable to mislead the public, particularly as to the nature, quality or geographic origin of those goods or services. In so far as that provision covers deception as to trade origin at all, it cannot be interpreted so as to preclude, entirely, all licensing of the trade mark at all, not least given that the provision itself recognises the possibility of use of the mark with the consent of the proprietor.

Indeed, as Mr Brandreth pointed out, Merck’s own evidence from Mr Koelle was that Merck did grant licences to use the Merck mark “in a wide variety of situations”, which included not only licensing within the Merck group, but also licences to unaffiliated companies in different contexts including collaboration with third parties on product development, agreements on sponsorship, contract manufacturing and advertising, and transitional arrangements on divestments of businesses by Merck. Mr Hobbs notably did not explain, in his submissions on this point, how his submissions on s. 46(1)(d) were to be reconciled with that evidence.

Nor did Mr Hobbs attempt to reconcile his submissions on s. 46(1)(d) with the fact that the effect of the 1955 and 1970 Agreements was to permit MSD to use the names Merck & Co and Merck Sharp & Dohme in territories where the parties had agreed that Merck had the exclusive rights to the use of the Merck trade mark. As Nugee J commented at §90 of the preliminary issue judgment, the agreement by E. Merck to permit Merck & Co to do certain things which it might otherwise have been able to stop was not conceptually any different from a licence.

The third strand of MSD’s argument referred to Merck’s evidence that it would not in practice have licensed the Merck brand to MSD, to cover the uses which amounted to trade mark infringements and breaches of the 1970 Agreement. Mr Koelle’s evidence was that Merck would not have done so because of the risk to its reputation and identity. Ms Vittinghoff likewise said in her oral evidence that the Merck umbrella brand would not “generally” be granted to an unaffiliated third party. On the basis of that evidence, Mr Hobbs argued that this was a case where no reasonable person in Merck’s position would have been willing to license MSD to use the Merck mark.

I do not accept that argument. Merck’s evidence was, undoubtedly, that it would not in practice have granted a licence to MSD to permit the conduct impugned in the present case. As set out above, however, it is not a bar to the assessment of damages on a licence fee basis that one or even both of the parties in question would not actually have granted the sort of licence that is postulated in the hypothetical negotiation. Rather, the question is whether the hypothetical negotiation couldreasonably have taken place between the parties.

In the present case, given the evidence that Merck could and did license the Merck mark to a wide variety of affiliated and unaffiliated companies, in different situations, and the fact that the 1955 and 1970 Agreements specifically permitted MSD to use the Merck mark in territories where the parties had agreed that Merck had exclusive rights to that mark, it is clear that the parties could in principle have negotiated a licence of the Merck mark to cover MSD’s acts of infringement and breach. The evidence before the court was that Merck would not itself have done so; but there was no evidence suggesting that the negotiation of such a licence would have been unrealistic for any reasonable person in Merck’s position.

Finally, MSD sought to rely on the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides in Article 21 that the compulsory licensing of trade marks is not permitted. It was very difficult to understand this point, given that there is no question of a compulsory licence in the present case. Rather, all that is said by Merck is that a notional licence can be postulated as a conceptual tool to provide a framework for the quantification of the loss of a valuable asset created by its trade mark rights and the 1970 Agreement.

I do not, therefore, accept MSD’s submission that the award of licence fee damages is in principle inappropriate in the circumstances of the present case. The relevant question is rather whether there is before the court a reliable basis for the assessment of quantum on that basis.