Case No. CC-12-P-01174

paid by Design & Display to some of its employees, together with consequential national insurance contributions. (2)Some of the costs of hired and recharged labour. (3)Directors’ national insurance contributions. (4)Minor dividends paid to the manufacturing director and to the technical sales estimating director as part of their remuneration. Wages and salaries 9.In the First Account Judgment I pointed out (at [42]) that Design & Display had not attempted to show that any of its costs were attributable solely to the infringing business. All its deductible costs were presented as proportions of general overheads, calculated by reference to the revenue generated by the infringing business as a proportion of the whole. However, in cross-examination Godfrey Chasmer, the Second Claimant, who gave evidence for Abbott, volunteered the concession that labour costs incurred in cutting the slots in MDF panels to accommodate the infringing inserts would have been solely attributable to Design & Display’s infringing business. Mr Chasmer calculated that the relevant cost came to £7,018 (see the First Account Judgment at [49]). This was the only head of costs deducted from Design & Display’s profits without prior apportionment. 10.In the Second Account Judgment I referred to this and said: “My finding in respect of these labour costs was not disturbed by the Court of Appeal and so they should be directly deducted from the profits from infringement. Abbott has speculated that other costs could also be better characterised as directly attributable costs rather than general overheads, but I am not satisfied of this. I am here just concerned with the general overheads, as required by the Court of Appeal. It should go without saying – though late submissions from the parties suggest that it may need spelling out – the labour costs to be directly deducted from Design & Display’s profits cannot also form part of the general overheads.” 11.Abbott had speculated that costs were in principle directly deductible, arguing that such further heads of cost should be disallowed altogether since Design & Display had not provided any evidential basis on which to calculate what such costs should be. 12.The costs incurred by Design & Display were divided into two parts: ‘cost of sales’ and ‘administrative expenses’. Clive Lloyd, a director of Design & Display, explained the two categories in his second witness statement. Costs of sales included “…costs such as material costs, packaging, haulage and transport, manufacturing wages and repair to plant.” Administrative expenses included “…costs such as overhead wages (eg office staff), sales and technical wages, repairs to premises, and office expenses (eg computers).” 13.Costs identified as ‘wages and salaries’ appeared under both heads. In his third witness statement Mr Lloyd distinguished them as follows. He said that wages and salaries treated as costs of sales were those of “…manufacturing staff for instance warehouse staff, labourers, yardmen, drivers, production staff and management.” Wages and salaries treated as administrative expenses were “…for office staff including accounts, drawings, wages invoicing, filing, purchasing, estimating sales and business generation necessary to win, take and process orders as well as to support the manufacturing side.” 14.For both, Design & Display apportioned part of the wages and salaries to the infringing business and treated the apportioned sum as a cost to be deducted from the profits of that business. 15.The wages and salaries falling within ‘cost of sales’ included the labour costs incurred in cutting the slots in MDF panels to accommodate the infringing inserts – the one item treated as a directly deductible expense. These costs were therefore deducted from the total wages and salaries under ‘cost of sales’ before apportionment was carried out. 16.Abbott made no complaint in its submissions for the present hearing about the means of apportionment, i.e. how it was calculated. Nor was there criticism of any of the deductions made by Design & Display in respect of costs which fell within the category ‘administrative expenses’. Abbott’s objection in relation to wages and salaries concerned only the deductions made under ‘costs of sales’. 17.Abbott argued that there should have been no deduction whatever for these wages and salaries. The reason given was that they had not been shown to be costs exclusively made up of general overheads which supported both the infringing business and Design & Display’s non-infringing business. There should therefore be no deduction in the form of apportioned overheads. Moreover, no unapportioned sum could be deducted as a direct expense incurred solely in relation to the infringing business because there was no evidence from Design & Display from which it was possible to calculate what that sum was. 18.This same point was put by Abbott in alternative ways, which I will summarise. First, since Design & Display bore the burden of proof and in the absence of evidence that the wages in question could be better characterised as costs which should be apportioned, the court should have treated them as directly attributable costs. 19.Secondly, it was not sufficient for Design & Display to identify costs and then assign them to whichever category it wished. This allowed Design & Display to apportion costs in the same way as other overheads when in fact they were incurred disproportionately in relation to the non-infringing business. 20.Thirdly, having failed to identify these wages as directly attributable costs, they should have formed no part of the deductions from profits. This was because it was possible that the relevant deductions, had they been identified, would have been significantly less than the apportioned part of the wages which had been deducted as costs. 21.In my view Abbott’s argument is one of form over substance. In the course of calculating a defendant’s costs in an account of profits, the defendant may in his pleadings and evidence identify a cost either as being solely associated with his acts of infringement (what Abbott calls a ‘directly attributable’ cost) or alternatively as being a general overhead, i.e. a cost which was incurred in the conduct of the infringing business and one or more other non-infringing businesses. The defendant will go for either of these as he chooses, not because he is entitled to select one or the other as a matter of law but because in practice it will initially fall to the defendant to identify his costs and to characterise them. 22.Generally it will be in the interest of the defendant to maximise its directly attributable costs since the whole cost can be deducted from his profits. But, as Abbott points out, that may not be the case, depending on how apportionment is done and – this is Abbott’s real point – how much of that cost was genuinely incurred in relation to the infringing business. 23.After the defendant has set out his case on costs it is open to the claimant to challenge that case. Without intending to give an exhaustive list, it is apparent that in relation to any cost the claimant could dispute (a) whether it was incurred at all, (b) the quantum of the cost claimed and (c) whether it was a directly attributable cost incurred solely in relation to the infringing business, or an overhead incurred also in relation to other businesses. 24.Abbott’s challenge here is only in relation to (c). Abbott’s case is that Design & Display was required to prove on the evidence that the wages in issue were an overhead. In my view, Design & Display did exactly that. I have quoted parts of Mr Lloyd’s evidence above. Mr Lloyd also said in his third witness statement: “The cost of sales and administrative expenses are not dependent on the types of insert sold.” 25.‘Overheads’ is not a term of art strictly defined in law. It is nothing more than the word which has been used in earlier judgments to refer to those costs which cannot easily be ascribed uniquely to the infringing or a non-infringing business. This is a question of practicalities, not pedantic characterisation. For instance, Abbott does not dispute that the wages paid to employees who carried out invoicing for Design & Display are overheads. Yet the job of invoicing presumably involves at one moment processing an invoice concerning goods of the infringing business and at the next moment dealing with an invoice for goods of the non-infringing business. Taken overall, however, the job supports both the infringing and non-infringing business. As Abbott has accepted, as a matter of practical reality it was not appropriate for Design & Display to identify wages for the job of dealing with paperwork uniquely concerning the infringing business and to claim that as a directly attributable cost. 26.Design & Display’s clearly stated case was that the same applied to the wages of warehousemen, drivers and the like. Their tasks supported both the infringing and non-infringing businesses. Mr Lloyd said expressly that the level of these wages was not dependent on which of those businesses was being supported. So as a practical matter, it was easier to treat the wages as ‘overheads’ and to apportion part of them to the infringing business. 27.It is true that Design & Display’s evidence on this was neither extensive nor detailed. Mr Lloyd was cross-examined only briefly about it. He maintained that it would have been very costly to calculate the costs directly attributable to the infringing business. I accept that evidence. Mr Lloyd even cast doubt on the accuracy of Mr Chasmer’s possibly over-generous concession that £7,018 was the directly attributable cost of machining slatted panels. But that sum was accepted. 28.The evidence at trial did not support either of Abbott’s contentions, namely (a) that wages paid in relation solely to the infringing business could have been calculated at proportionate cost or (b) those wages were lower than the relevant sum apportioned to the infringing business by Design & Display. 29.Abbott argued by way of alternative that Design & Display’s evidence was thin and therefore, self-evidently, it can be concluded that the relevant wages should not have been treated as an ‘overhead’. 30.I disagree. Design & Display’s approach to the relevant wages as a deductible cost was on its face a practical approach. There was evidence in support of it. Had Abbott successfully challenged that evidence at trial, the position would have been different. As it is, Design & Display was entitled to apportion part of the relevant wages and salaries to the infringing business and to deduct that part from its profits.