Case No. EWHC-932-(IPEC)

7.The Court of Appeal set out the overall task of a court when deciding which part of the profits made by the infringer in the course of his infringing business fall due to the patentee. Lewison LJ, with whom the Chancellor of the High Court and Tomlinson LJ agreed, said:“[7] Section 61(1)(d) of the Patents Act 1977 entitles a patentee to claim against an infringer an account of the profits ‘derived by him from the infringement’. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent his unjust enrichment. The underlying theory is that the infringer is treated as having carried on his business (to the extent that it infringes) on behalf of the patentee. The broad principle is that the patentee is entitled to profits that have been earned by the use of his invention. If the patentee does not recover those profits, the infringer will have been unjustly enriched. So the purpose of the account is to quantify the extent to which the infringer would be unjustly enriched if he were to retain the profits derived by him from the infringement. That requires the fact finder first to identify the patentee’s invention and second to decide what (if any) profits the infringer derived from the use of that invention. The second of these questions may give rise to difficulty where the infringer sells products associated with the subject matter of the patent (often called ‘convoyed goods’) or products into which the subject matter of the patent is incorporated. The court must determine what profit has been earned, in a legal sense, by the infringer’s wrongful acts. It is clear, then, that an account of profits looks at the facts through the lens of what the infringer has done; and what the patentee might have suffered by way of loss in the real world is irrelevant.”8.Thus, there are broadly two steps:(1)Identify the invention.(2)Identify the profits (if any) made by the defendant from his use of the invention, taking into account convoyed goods and/or products into which the subject matter of the invention is incorporated. Identifying the invention 9.I begin with section 125(1) of the Patents Act 1977:“125(1) For the purposes of this Act an invention for a patent for which an application has been made or for which a patent has been granted shall, unless the context otherwise requires, be taken to be that specified in a claim of the specification of the application or patent, as the case may be, …”10.Generally speaking, an invention disclosed in a patent will be that which is set out in a claim. All the claims of the Patent are product claims for “A display panel…” with stated characteristics of the panel including the presence of an insert which itself has stated features. All the claims after claim 1 are dependent upon claim 1.11.At first glance the answer to the first issue remitted by the Court of Appeal is self-evident. The inventions claimed are panels and panels are what Design & Display sold, so it should account for its profits on panels, including the inserts. However, in an inquiry as to damages or an account of profits it is necessary to focus on the ‘invention’ in a narrower sense.12.In the first account judgment I discussed the relationship with the invention as claimed and an account of profits (at [19]-[21]. I suggested that looking at the claims was not useful. I therefore distinguished the invention from the inventive concept:“[26] Abbott claim the profit made by Design & Display from the sale of panels in which infringing inserts were incorporated. There is no doubt that such panels were infringing products – see claim 1 of the Patent. But as I have said, that is not a useful guide to the scope of the account. I must consider the inventive concept.”13.In the present judgment, like the Court of Appeal I will for brevity use the word ‘invention’ to mean the narrower idea of the inventive concept.14.Generally, as one progresses down the list of claims in a patent the matter set out in each claim becomes successively more extensive and the scope of the monopoly correspondingly more confined. Lewison LJ referred (at [8]) to Laddie J’s example of a new form of tin whistle in Celanese International Corp v BP Chemicals Ltd [1999] RPC 203. Laddie J hypothesised at [51]: “Claim 1 is for the tin whistle. Claim 10 is for a funnel to which the new tin whistle is connected. Claim 15 is for a battleship with a funnel to which the tin whistle is connected.”15.The invention in Laddie J’s example is neither a battleship, nor a funnel, nor even a tin whistle. It would probably be some aspect of the tin whistle – in the first account judgment I pursued the example (at [20]) by suggesting that it could be a new shape of part of the interior of the whistle which makes it louder.16.In every real case the invention, in this precise sense, must be identified. Identifying the profits made by the defendant from his use of the invention 17.In his paragraph 7 (see above) Lewison LJ pointed out why the identification of relevant profits may not be straightforward, given that the invention may form only part of the articles sold by the infringer and/or because it may be that convoyed goods must be considered.18.Lewison LJ said that this part of the court’s task turned on causation:“[14] Having identified the inventive concept of the patent, it is then necessary to address the question of causation. It has been consistently said that an assessment of damages for patent infringement and the taking of an account of profits proceed on a common principle of legal causation: Celanese International Corp v BP Chemicals at [37] (citing Imperial Oil v Lubrizol [1966] 71 CPR (3d) 26). But the question whether an infringement has caused a loss (in the legal sense) and the question whether the infringer has derived a profit from the infringement are different questions. Mr Cuddigan QC submitted that the question of causation was to be answered as a matter of common sense, relying on Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 . However, as Lord Hoffmann pointed out in Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 , at 29: ‘… common sense answers to questions of causation will differ according to the purpose for which the question is asked. Questions of causation often arise for the purpose of attributing responsibility to someone, for example, so as to blame him for something which has happened or to make him guilty of an offence or liable in damages.’[15] Having given examples he said at 31: “These examples show that one cannot give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule.’19.Lewison LJ went on to consider causation as discussed by the Court of Appeal in Gerber Garment Technology Inc v Lectra Systems Ltd [1997] R.P.C. 443 and in Meters Ltd v Metropolitan Gas Meters Ltd (1910) 27 RPC 721 (Eve J.) and (1911) 28 RPC 157 (CA). He emphasised that both were concerned with an inquiry as to damages, not an account of profits (at [17] and [20]). I understand Lewison LJ to have meant that the reasoning on causation in cases concerning an inquiry cannot be assumed to apply in relation to an account of profits.20.Lewison LJ next considered earlier cases dealing with an account of profits:“[21] In Gerber Garment Technology v Lectra Systems [1997] RPC 443 Staughton LJ referred to Dart Industries Inc v Decor Corp Pty Ltd [1994] FSR 567 with apparent approval on the question of the scope of an account of profits; and part of the reasoning in that case has also been expressly approved by the Court of Appeal in Hollister Inc v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419; [2013] FSR 24 . I begin with Dart Industries v Decor Corp [1994] FSR 567 which deals with both the issues that arise in our case, although in the opposite order. [22] Decor was a manufacturer of plastic kitchen canisters. The canisters had lids incorporating a press-button seal. The seal infringed Dart’s patent. In giving directions for the taking of an account the primary judge ruled that only costs which were directly attributable to manufacture or sale of the infringing product should be taken into account. He also directed that the profits for which Decor had to account were the profits from the manufacture and sale of the complete canisters, including the press-button seals. The intermediate appeal court (the Full Court) reversed the primary judge on the first of those directions, holding that Decor would be at liberty to show that various categories of overhead costs contributed to the obtaining of the relevant profit, and to show how and in what proportion they should be allocated in the taking of the account of profits. However they upheld the primary judge on the second direction. Dart appealed to the High Court on the first direction and Decor sought leave to cross-appeal on the second.[23] The High Court refused leave to cross-appeal against the second direction because there were concurrent findings of fact against Decor by both the primary judge and the Full Court. But as I read their judgment they approved the way in which the Full Court described the question to be answered: ‘The respondent cannot gainsay that it is only entitled to the profits obtained by the infringement. If, for example, a patented brake is wrongfully used in the construction of a motor car, the patentee is not entitled to the entire profits earned by sales of the motor car. He must accept an appropriate apportionment. But the question is how that principle shall be applied to a situation where the patent relates to the essential feature of a single item … it seems to us that it was open to the judge to find, and he correctly found, that what characterised the infringing product was the press button lid, without which this particular container would never have been produced at all.’[24] The High Court went on to approve the statement of Windeyer J in Colbeam Palmer v Stock Affiliates Pty [1972] RPC 303 at p.315: [25] On the facts, as shown by the quotation from the Full Court, Dart Industries v Decor Corp [1994] FSR 567 was a case in which but for the invention the canister ‘would never have been produced at all’. ” An essential feature of the goods and a feature of the goods without which the goods would not have existed 21.In the part of his judgment just quoted Lewison LJ identified two circumstances in which a losing defendant in a patent action should also account for profits from sales of goods other than those in which precisely embody the invention:(1)Where the invention relates to an essential feature of those goods.(2)Where those goods would not have existed had the defendant not infringed the claimant’s patent.22.Mr St Quintin, who appeared for Design & Display, submitted that these were in fact alternative characterisations of the same thing: a patented feature of a product is an essential part of the product if, without that feature, the product would never have been produced. Mr Aikens, who appeared for Abbott, argued that this was not so and pointed to paragraph 28 of the Court of Appeal’s judgment in which Lewison LJ referred to what Laddie J had said in Celanese about Dart:“[28] Thus he, too, concluded that an apportionment would be inappropriate where without the infringement the infringing articles would not have existed or where the invention was an essential ingredient in the creation of the infringer’s whole product.”23.I think that Mr Aikens is right. On a fair reading of paragraph 28 the two criteria are alternatives. If either is satisfied, apportionment is not appropriate. In the passage from the judgment of the Australian Full Court in Dart, quoted and approved by Lewison LJ in his paragraph 23, it appears that the Full Court found that the lid with a press-button seal was the essential feature of the canister and that without such lids the canisters would not have been produced at all. This means that the two criteria are not mutually exclusive alternatives.24.Since the two tests do not amount the same thing, it is necessary for me to indicate my understanding of what the Court of Appeal had in mind when he referred to an ‘essential feature’ of a product.25.The principle that an infringer must compensate a patentee in relation to lost sales of entire products where the embodiment of the invention is an ‘essential feature’ of those products seems to have had its origin in the judgment of Eve J in Meters Ltd v Metropolitan Gas Meters Ltd (1910) 27 RPC 721, approved by the Court of Appeal (1911) 28 RPC 157. This related to an inquiry as to damages. Meters was not referred to by the High Court of Australia in Dart Industries Inc v Decor Corp Pty Ltd [1994] F.S.R. 567, but either independently or by indirect influence the same idea was adopted by the High Court in the context of an account of profits.26.Lewison LJ summarised the relevant facts in Meters:“[19] Meters v Metropolitan Gas Meters was another case of the assessment of damages for patent infringement. The patented article was a mechanism for controlling the supply of gas in a pre-paid gas meter. The patentee was a manufacturer of gas meters, and claimed damages representing lost sales of gas meters. It did not claim an account of profits. The defendant had sold 19,500 gas meters incorporating the patented article. However, the patentee claimed the profit on sales which it claimed that it would have made if the defendant had not infringed. It did not claim the profit that the infringer had made. The number of lost sales on which damages were awarded was assessed by the Master at 5,000 meters, although on appeal Eve J reduced that number to 3,500. It was in that context that the judge had to decide whether the damages should be assessed as the whole of the profit that the patentee would have made on the lost sales, or only such part of that profit was attributable to the patented article, which represented approximately 1/44th of the whole profit. It was in that context that Eve J said: ‘… the parts incorporating the invention, are, in my opinion, component and essential parts of the meter regulating and controlling – from the Gas Company’s point of view – the most important functions of the meter, that is to say the supply of the exact amount of gas to which the consumer is entitled having regard to the amount he has paid and the current price of gas. In my opinion, the mechanism protected by these Patents is of the very essence of the meter; … and … it is no answer to the Plaintiffs whose invention has been infringed to say that similar results could have been achieved without infringing the Patent. In this case I think that the inclusion in the Defendants’ meter of the infringement results in the meter itself being an infringement … and that the Master has rightly held that the profit on the meters is a proper factor to be taken into the calculation and not the profit only on those parts of the inventions.’ ” 27.As Lewison LJ explained, in Dart the judge at first instance found as a fact that what characterised the plastic kitchen canister was the patented press-button lid, without which the canisters would never have been produced. The Full Court endorsed this finding and the further finding that this qualified the lid as the essential feature of the canister.28.I think that what unites these cases is that the protected feature of the product was functionally and/or commercially the most significant part of the whole. It was in that sense essential. I include the possibility of its being commercially the most significant part because in Dart it might well have been said that the most important function of a plastic kitchen container is to contain its contents and for the most part that is performed by the body of the container. However, it was presumably the lid which gave the canister in question its commercial advantage over competitors and was thus, commercially, the most important part.29.Neither test for whether apportionment is appropriate is binary. It could be that from the point of view of some purchasers the relevant feature is essential but from the point of view of others it is not. Similarly, it is possible that if the protected feature had not been available for use, some of the entire goods would have come into existence, but fewer of them. In my view, in such cases the court should make a partial apportionment: the infringer must account for the profit on a proportion of the entire articles. The sale of goods or services are driven by the sale of infringing goods 30.There is a third test identified by Lewison LJ. If satisfied, it requires an infringer to pay over profits on non-infringing goods or services, i.e. convoyed goods or services. Lewison LJ approved the unchallenged proposition contained in the first account judgment that if sales of the products embodying the patent infringed ‘drove’ the sales of other goods, the latter qualified as sales of convoyed goods and the defendant was accountable for profits on those sales, see [29]-[30] and [36]. 31.I first used the criterion of one set of sales ‘driving’ another in Alfrank Designs Ltd v Exclusive (UK) Ltd [2015] EWHC 1372 (IPEC), at [29]-[34]. That was a judgment in an inquiry as to damages. There, I stated that I was using the term to mean that there was a causative link in the mind of the purchaser between his decision to purchase the goods protected by the claimant’s right and a consequential decision also to buy the convoyed goods.32.The inquiry in Alfrank followed the admission by the first defendant, a furniture wholesaler, that it had infringed unregistered design rights in the design of two dining room tables. The rights were owned by the claimant, a competing furniture wholesaler. The evidence was that consumers in the market for new household furniture characteristically decide first on the dining room table they like. Having done so, they buy matching furniture. Once the sale of the dining room table had been secured via a furniture retailer, the wholesaler would make sales of other items in the same range via the retailer. In that sense the sales of infringing dining room tables by the first defendant in Alfrank ‘drove’ sales of other convoyed items.33.Not any link between two sets of sales will do. In his review of the law on convoyed goods as it applies in an inquiry as to damages Staughton LJ observed in Gerber ([1997] RPC 443, at 456):“There is no dispute as to causation or remoteness in the present case; nor can I see any ground of policy for restricting the patentees’ right to recover. It does not follow that, if customers were in the habit of purchasing a patented article at the patentee’s supermarket, for example, he could claim against an infringer in respect of loss of profits on all other items which the customers would buy in the supermarket but no longer bought. The limit would be one of causation, or remoteness, or both.”34.In Gerber the patented article was a machine for the automatic cutting of fabric. The Court of Appeal awarded damages in relation to the claimant’s lost sales of such machines and, among other things, for loss of profits on what would have been convoyed sales by the claimant of (i) CAD systems which enabled efficient and quick production of cutting patterns and automatic sizing of patterns, (ii) a proportion of spare parts and (iii) servicing (at 448-456).35.To my mind, Staughton LJ’s distinction, illustrated by his supermarket example, applies equally in the context of an account of profits and is consistent with the reasoning of the Court of Appeal in the present case. For goods or services to qualify as convoyed, there must be a causative link between their sale and the consequential sale of infringing goods. This means, first, that there is a perceived compatibility, functional interaction, or some other connection of that nature between the infringing goods and the putative convoyed goods or services. Secondly, the sale of the putative convoyed goods or services must be consequential upon the sale of the infringing goods or services (see the Court of Appeal at [36]). The sale of the infringing goods or services must constitute the primary purchasing decision. For example, in Gerber the purchaser principally sought to buy fabric cutting machines. The CAD systems, spare parts and servicing followed on from that. Likewise, in Alfrank the first purchasing decisions concerned dining room tables and the other purchases followed on as a consequence. Evidential burden 36.The Court of Appeal stated (at [53]) that the evidential burden in relation to the profits to which a successful claimant is entitled lies on the infringer. I take that to include the issues of whether the defendant must pay to the claimant his profits on entire articles or an apportioned part of the profits and whether there were sales of convoyed goods for which the defendant must account. The relevant evidence is more likely to be in the control of the infringer than the claimant. Summary of the law 37.So that there is no doubt as to the basis on which I approach the first issue remitted by the Court of Appeal, I would summarise the law under this head as follows: (1)In an account of profits the claimant is entitled to the infringer’s profit made from the exploitation of the right infringed.(2)Where the right is a patent, the invention must be identified. Where the invention is a product, the claimant is entitled to the infringer’s profit made from the sales of articles or part articles which embody the invention.(3)Where the patent protects only part of an article sold by the infringer, the claimant is entitled to the profit made by the infringer from the sale of the entire article if either(a)the protected part is the essential feature of the entire article, or(b)the entire article would never have been made by the infringer if there had been no infringement of the claimant’s right.(4)Part of an article is its ‘essential feature’ if the part is functionally and/or commercially the most significant part of the whole.(5)If the patent protects part of an article and neither 3(a) nor (b) apply, the court must assess how much of the total profit made by the infringer on the sale of the article is to be apportioned to the protected part of the article. The claimant is entitled to that part of the total profit.(6)Where the sale of an article protected by the patent drives the sales of other, unprotected, goods or services, the claimant is in addition entitled to the profit made by the infringer on the sale of those other goods and services (convoyed goods and services).(7)The sale of an article ‘drives’ the sales of other goods or services if there is a causative link between the purchase of the article protected by the patent and a consequential purchase of the other goods or services.(8)There will be a causative link where there is a perceived compatibility, functional interaction or other connection of that nature between the protected article and the other goods or services.(9)The purchase of the putative convoyed goods or services must be consequential in the sense that the purchase of the protected article is the principal purchasing decision in the mind of the buyer and the purchase of the other goods or services follows as a consequence.(10)In relation to the foregoing issues the evidential burden rests on the infringer.