Costs
(5)Costs were wrongly awarded on the basis that the claim had always been in the Small Claims Track. Until 28 May 2015 it was in the Multi-Track and costs up to then should have been awarded accordingly. 17.There was no Respondent’s Notice. Liability of Central Moves18.Mr Miller, who appeared for NGRS, had an overarching argument based on a passage taken Spencer Bower & Handley, Actionable Misrepresentation, 5th ed., at 8-10: “The general principle that no-one can profit from the fraud of another emerged in equity. Lord Eldon said in Huguenin v Baseley that ‘it was against conscience, that one person should hold a benefit, which he derives through the fraud of another’”. 19.In my view this observation of Lord Eldon’s has no application to the present appeal. Of course, in certain contexts it will be important to consider whether a benefit held by a party has been derived through the fraud of another. The topic in hand is not that; it is whether Central Moves is liable in law for passing off within the meaning of that tort as defined and developed by the courts over the years, mostly since the early 19th century, as it happens by Lord Eldon among others, see Hogg v Kirby (1803) 8 Ves Jun 215; 32 ER 336 and Lord Byron v Johnston (1816) 2 Merivale 29; 35 ER 851. 20.Mr Miller had a more specific argument. It was accepted by Mr Rust that he had been the controlling mind behind CMUK and from January 2009 became the controlling mind behind Central Moves. The District Judge found CMUK liable for passing off and, because Mr Rust was its controlling mind, found Mr Rust to be jointly liable. Mr Miller submitted that when Mr Rust stopped controlling CMUK and began controlling Central Moves, he was the same man with the same knowledge. Mr Miller said that the District Judge should have looked more carefully at Mr Rust’s knowledge and its relevance to Central Moves’ liability. 21.Mr Miller drew attention to the contact details on CMUK’s entry on the Loadup website, which changed from ‘[email protected]’ to ‘http://centralmovesuk.co.uk’ between 2011 and 2012. He submitted that this must have been done at the instigation of Mr Rust. Therefore Mr Rust knew about Central Moves’ entry on the Loadup website and was liable for it until the entry was removed in December 2012. In addition, Central Moves was jointly liable with Mr Rust. The District Judge had failed to appreciate that tortious liabilities could transfer to Central Moves from CMUK because they shared the same controlling mind, that of Mr Rust. 22.I think that this is to approach liability the wrong way around. A joint tortfeasor cannot transfer primary liability for a tort from a first party to a second just by ending his joint design with the first and taking up an activity with the second, even a similar one. Mr Miller did not take me to any authority which supported such a proposition. 23.When considering whether the second party is liable as a primary tortfeasor, the only question is whether any act done by the second party satisfies the requirements of the relevant tort. 24.In argument Mr Miller moved away from his initial submission of primary tortfeasance caused by transferred liability to an alternative one: on the facts Central Moves should have been found directly liable for passing off – its acts had satisfied the relevant requirements. 25.I doubt that it was open to NGRS to run this new argument. But for understandable reasons Mr Rust raised no objection to it and the point was debated, so I will consider it. 26.The District Judge held that there was an actionable misrepresentation by CMUK on the Loadup website and that Mr Rust was jointly liable as the controlling mind of CMUK. There appears to be no barrier in law to a finding that a party to an action is liable as joint tortfeasor in respect of a tort committed by a non-party, the primary tortfeasor. By implication this was the view of the House of Lords in CBS Song Ltd v Amstrad Consumer Electronics plc [1988] AC 1013. Amstrad was found not to be jointly liable for infringing acts done by purchasers of Amstrad’s audio systems, but not because no infringing member of the public had been joined as a defendant. 27.Had there been the necessary evidence, it would have been open to the District Judge to go on to make findings of fact that would have resulted in Central Moves also being liable. I have in mind findings that when members of the trade clicked on the link from January 2009 onwards and thereby found Central Moves’ website, a substantial proportion of such persons would believe that Central Moves was member of NGRS because of the link, even though there was no reference of any kind to NGRS on Central Moves’ website. On those hypothetical facts, Central Moves would have been liable for passing off as a primary tortfeasor. 28.It seems from the judgment that NGRS did not even argue that there was evidence to support such findings. Mr Miller did not appear below, so he did not know. 29.Mr Miller instead directed my attention to this paragraph of the judgment: “[42] I also do not consider that Central Moves’ use of the www.centralmovesuk.com domain name of itself could result in a misrepresentation. A domain name is akin to an address. It tells a user’s web browser where certain information can be found on a network, much as a business’ street address indicates to a user where business may be found in a town. Consider the situation where an NGRS member placed advertisements which included the street address of his business premises. If the NGRS member then sold the premises to a purchaser who was not an NGRS member, would the purchaser become liable for passing off merely by operating from that street address? It seems unlikely.” 30.Mr Miller criticised the accuracy of the District Judge’s analogy with a street address and said that a correct understanding of the position led to the conclusion that Central Moves should have been found liable. 31.Even if the District Judge’s analogy were inexact it would not matter. In this paragraph the District Judge undoubtedly concluded that Central Moves did not pass itself off as a member of NGRS. No reason was advanced why the District Judge was wrong to reach that conclusion given that NGRS, which bore the legal and evidential burden, had not established the facts necessary to show that Central Moves committed an act of passing off. 32.In my judgment there is no basis for criticising the finding by the District Judge that Central Moves was not liable for passing off, whether as a primary or joint tortfeasor. Extended liability of Mr Rust 33.NGRS’s alternative ground of appeal on liability was that CMUK’s passing off did not end just because it stopped trading in December 2008. Neither, therefore, did Mr Rust’s joint liability. 34.Passing off has been authoritatively analysed in terms of a misrepresentation by a trader. In the well-known passage of Lord Diplock’s speech in Erven Warnink BV v J. Townend & Sons (Hull) Ltd [1979] AC 731, at 742, Lord Diplock stated five characteristics of passing off, including “(1) a misrepresentation (2) made by a trader in the course of trade”. Lord Fraser’s alternative five conditions for passing off (at 755-6) also treat passing off as a wrong confined to traders. It has been made clear subsequently that ‘trader’ is to be given a broad meaning and may include, for instance, charities and churches (see British Diabetic Association v Diabetic Society Ltd [1996] FSR 1) and political parties (see Burge v Haycock [2001] EWCA Civ 900; [2002] RPC 28.) 35.That leaves open the question whether a dormant company, even on the loosest interpretation not a trader, can be liable for passing off in the circumstances of CMUK after December 2008. 36.Mr Miller did not pursue the law on this question. Nor will I. Certainly, if active trading is not a prerequisite to liability for passing off, there would be no reason why CMUK did not continue to pass off after December 2008 until it was dissolved. But I think the District Judge had his eye on a different point. He gave no express reason why he adopted the cut-off date of December 2008, but referred to it (at [75]) in the context of damages, to which I now turn. Damages 37.The foundation of Mr Miller’s argument on damages was the speech of Lord Wilberforce in General Tire Co v Firestone Tyre Co. Ltd. [1975] 1 W.L.R. 819, in particular the identification (at 824-7) by Lord Wilberforce of three alternative approaches to the calculation of damages in an inquiry in a patent case: (1) loss of profit to the patentee resulting from loss of sales due to competition from sales of infringing products, (2) loss of licence royalties where the patentee exploits the patent by granting licences and there is an established royalty rate, and (3) according to the user principle, i.e. damages are equivalent to the royalties that would have been paid by the infringer had the patentee and infringer agreed a licence as willing licensor and willing licensee. Lord Wilberforce indicated that the third approach is to be adopted where either of the first two is not available (at 826). 38.The District Judge adopted the third approach, the user principle, referring to and following my judgment in NGRS v Statham [2014] EWHC 3572 (IPEC). 39.Mr Miller argued that by adopting the user principle the District Judge had wrongly ignored the hierarchy implicit in the three approaches to damages set out by Lord Wilberforce. NGRS licensed the use of its name and therefore the District Judge should have adopted the second approach and awarded damages based on the standard licence agreement, in particular the post-termination rates or the ‘run-off fee’ applicable under an NGRS membership agreement. Mr Miller submitted further that this what HH Judge Birss QC correctly did in NGRS v Silveria [2010] EWPCC 015, resulting in damages of £633.33 per month for an early period of infringement, rising to £733.33 per month for a later period. By way of a secondary argument, Mr Miller said that if I were to reach the view that calculating damages this way resulted in too high a figure, I should at least use the run-off fee as the critical starting point and mark it down a bit as Judge Birss had done in NGRS v Jones [2011] EWPCC 004. Even with a mark-down, the damages awarded in Jones came to £650 per month for the early period, rising to £866.67 per month for the later period. 40.Mr Miller submitted that the District Judge had been led astray from the correct application of law by the judgment in Statham. In Statham, he said, quite aside from the error of adopting the user principle at all, I had been wrong in several ways. To begin with, I had not based the hypothetical royalty on the run-off fee. Thereafter, having decided to use the annual membership fee, I had gone on to make further mistakes. First, I had ignored the headline annual membership fee of £5,200 and used the rate that NGRS charged its members in practice which, on the evidence, was between £1,500 and £1,800. (I used the higher figure of £1,800, so £150 per month). Secondly, I had wrongly assessed royalty on the hypothesis that the parties had negotiated a fee for use of the NGRS name only on the website on which the infringement had taken place. Thirdly, I had wrongly assumed that the negotiations would have been for a licence only for the period during which the infringing sign had appeared on that website, as opposed to the considering the number of full years into which the infringement fell. 41.Mr Miller made no bones about submitting that I had been wrong on all five counts. I had strayed from the correct guidance provided by the judgments in Silveria and Jones. 42.The difficulty with criticising my judgment in Statham is that after it was given NGRS applied to the Court of Appeal for permission to appeal. Shortly before the hearing of the present appeal, the solicitors for the defendants sent me a copy of the Order dated 17 March 2015 made by Floyd LJ in Statham, refusing NGRS permission to appeal. The reasons given by Floyd LJ were these: “I do not think there is a real prospect that the Court of Appeal would interfere with the decision of a specialist judge on the assessment of damages (necessarily an imprecise operation), given the following: 1)The judge awarded the claimants damages of £5,400 which is based on the generous assumption that the defendants would have paid the highest figure which the evidence showed that they actually charged for full membership in a situation where the defendants had made extremely limited and inadvertent use of the logo. He could equally well have chosen a much lower figure for annual membership, increased it by reference to the run off rates and arrived at a figure of the same order. 2)It is not arguable that the hypothetical negotiation would yield a figure based on the run-off rates (£26,866.77) and the claimants rightly no longer contend for this figure. Instead the claimants now seek a figure of £10,500 (not contended for below and coincidentally £500 in excess of the open offer made by the defendants at the time the defence was filed). It is not clear to me on what basis they calculate this figure. 3)Overall, it is not clear to me that £10,500 is any more clearly justified than the figure at which the judge arrived.” 43.Mr Miller did not say that NGRS took its application to appeal any further. He had no answer to the obligation on me to be consistent with Floyd LJ’s reasons, an obligation which I raised at the hearing. 44.Given those reasons and the refusal of permission to appeal, save for one matter I believe that I am entitled to assume that the approach taken in Statham was correct in law. 45.The one matter is the question whether the user principle was appropriate to the assessment of damages in the first place. That was not an issue raised in Statham. 46.I therefore turn back to Lord Wilberforce’s judgment in General Tire. In his discussion of the second approach to assessing damages, appropriate where the patentee exploits the patent by the granting of licences, Lord Wilberforce referred to the judgment of Sargent J in AG für Autogene Aluminium Schweissung v London Aluminium Co. Ltd. (1923) 40 R.P.C. 107 and said this: “These are very useful guidelines, but the principle of them must not be misapplied. Before a ‘going rate’ of royalty can be taken as the basis on which an infringer should be held liable, it must be shown that the circumstances in which the going rate was paid are the same as or at least comparable with those in which the patentee and the infringer are assumed to strike their bargain.” 47.Thus, a successful claimant in an inquiry as to damages cannot claim damages equivalent to the royalty charged under his standard licensing terms if the terms give the licensee the right to carry out acts significantly broader in scope than those which were unlawfully carried out by the infringer. The fact that the rightholder grants licences is not a trump card allowing him to fasten on to Lord Wilberforce’s second approach and to require the infringer to pay the rightholder’s usual royalty rate, whatever it may be and whatever may be the acts licensed for payment of the usual royalties. 48.Lord Wilberforce made this clear again when he turned to consider the third approach to assessing damages, i.e. the user principle at p.826 (he referred to the approaches here as 1, 2 and 3): “3 In some cases it is not possible to prove either (as in 1) that there is a normal rate of profit, or (as in 2) that there is a normal, or established, licence royalty. Yet clearly damages must be assessed. In such cases it is for the plaintiff to adduce evidence which will guide the court. This evidence may consist of the practice, as regards royalty, in the relevant trade or in analogous trades; perhaps of expert opinion expressed in publications or in the witness box; possibly of the profitability of the invention; and of any other factor on which the judge can decide the measure of loss. Since evidence of this kind is in its nature general and also probably hypothetical, it is unlikely to be of relevance, or if relevant of weight, in the face of the more concrete and direct type of evidence referred to under 2. But there is no rule of law which prevents the court, even when it has evidence of licensing practice, from taking these more general considerations into account. The ultimate process is one of judicial estimation of the available indications. The true principle, which covers both cases when there have been licences and those where there have not, remains that stated by Fletcher Moulton L.J. in Meters Ltd. v. Metropolitan Gas Meters Ltd. (1911) 28 R.P.C. 157, 164–165: though so often referred to it always bears recitation. ‘There is one case in which I think the manner of assessing damages in the case of sales of infringing articles has almost become a rule of law, and that is where the patentee grants permission to make the infringing article at a fixed price — in other words, where he grants licences at a certain figure. Every one of the infringing articles might then have been rendered a non-infringing article by applying for and getting that permission. The court then takes the number of infringing articles, and multiplies that by the sum that would have had to be paid in order to make the manufacture of that article lawful, and that is the measure of the damage that has been done by the infringement. The existence of such a rule shows that the courts consider that every single one of the infringements was a wrong, and that it is fair — where the facts of the case allow the court to get at the damages in that way — to allow pecuniary damages in respect of every one of them. I am inclined to think that the court might in some cases, where there did not exist a quoted figure for a licence, estimate the damages in a way closely analogous to this. It is the duty of the defendant to respect the monopoly rights of the plaintiff. The reward to a patentee for his invention is that he shall have the exclusive right to use the invention, and if you want to use it your duty is to obtain his permission. I am inclined to think that it would be right for the court to consider what would have been the price which — although no price was actually quoted — could have reasonably been charged for that permission, and estimate the damage in that way. Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. But I am not going to say a word which will tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reason of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully.’” (Italics added) 49.Mr Miller emphasised the first sentence from the Meters case quoted by Lord Wilberforce. It cannot be isolated from the whole passage I have set out above, not least the two sentences from Lord Wilberforce’s speech which I have italicised. 50.It was not in dispute that the rights granted under NGRS’s membership scheme went much wider than the right to refer to ‘Guild’ on a single website – not even one used by the public. That being so and following the guidance provided by Lord Wilberforce, it was not appropriate to adopt the second approach to the assessment of damages unconditionally. Once turning to the user principle, the full annual membership fees, for instance, could have served as a starting point when assessing the hypothetical royalty. But necessarily the assessment would move on to a consideration of how much the annual membership fee should be marked down to take into account the limited nature of CMUK’s use of ‘Guild’. It is hard to see how that could have been better approached than by assessing what the parties would have agreed as willing licensor and willing licensee. In my view, the District Judge was correct to take such an approach. 51.There is a final matter to consider under this head, namely the period for the hypothetical licence that would have negotiated between NGRS and Mr Rust. The District Judge said that this was from 30 July 2007 to December 2008. As I discussed above, on one view of the law the presence of ‘Guild’ on the Loadup website continued to be a misrepresentation after December 2008 even though CMUK had ceased trading. But the specific issue is how NGRS and Mr Rust would have dealt with this period in the hypothetical negotiations. 52.It is in the nature of hypothetical negotiations in an inquiry as to damages that they may throw up matters unlikely to occur in real life. The present case provides an example: would the parties have agreed a royalty fee for the period from January 2009 until CMUK was dissolved in April 2011, during which period CMUK was dormant? The two key considerations in my view would have been (a) that such a licence would be of no benefit at all to CMUK and (b) that the presence of ‘Guild’ on the Loadup website in that period could cause no possible loss of business to other NGRS members since CMUK was not trading. Although he did not spell it out, in my view the District Judge was entitled to conclude, as he appears to have done, that the parties would have agreed that no royalty was payable for that period. Costs 53.The District Judge awarded NGRS its costs on the small claims track scale, for the reasons he gave in his paragraphs 26-35. NGRS argued that it was entitled to its costs on the multi-track scale for the period between the start of the action and my order of 28 May 2015 which stated that the case should be ‘transferred’ from multi-track to the small claims track. The District Judge rejected the argument. NGRS renewed it in this appeal. 54.Part 63.27(1) and (3) provide: