Case No. EWHC-652-(IPEC)

31.To the extent that Nuby is entitled in principle to make a deduction in respect of its general overheads, there is an issue as to what approach the court should take when seeking to apportion those overheads as between Nuby’s infringing activities and its non-infringing activities.The rival approaches32.Nuby’s approach was the so-called “sales revenue” approach. This involves working out the percentage of Nuby’s total sales revenue that was referable to its infringing activities and apportioning the general overheads according to that percentage. In her evidence, Mrs Bowman provided the figures which she said were the relevant percentages for 2019, 2020 and 2021 and she applied those figures to every class of the general overheads in the relevant year.33.By contrast, Bei Yu accepted that the sales revenue approach might be appropriate for certain types of overhead but, as recognised by HHJ Pelling in Jack Wills (see [5](e) above), might not be the best approach for others. Its case was that for many of the overheads, a fairer approach would be to make an apportionment by reference to the fact that the Nuby Baby Bath was one product out of 280 products being marketed by Nuby. According to Mr Chapman’s calculations, this led to a permitted deduction of 0.36% of the relevant overheads. Another possible basis of apportionment suggested was the volume approach, based on the number of infringing products sold as against total number of products sold by Nuby in the relevant period. The pleading point34.In response to this, Mr St Quintin raised a pleading point. He pointed out that a statement of case in the IPEC is required to set out concisely all of the facts and arguments on which the party serving it relies (see CPR r.63.20(1)). Here, Bei Yu’s Points of Claim asserted that Nuby’s sales revenue approach to apportionment was “incorrect” (see paras.[19]-[20]) but did not say what other approach would have been correct. In response to this, Mr Hicks pointed out that the question of apportionment had been raised at the CMC. Indeed, Issue 4(b) of the List of Issues annexed to the CMC Order was “on what basis should the apportionment of those overheads be made”. Mr Hicks also pointed to his Skeleton for the CMC which referred to the need for disclosure in order to see whether “some other approach” was appropriate and whether “a different approach should apply to different overheads”.35.In the circumstances, I do not think that it would be appropriate to prevent Bei Yu raising any other possible bases of apportionment. However, I bear in mind Mr St Quintin’s point that the evidence and disclosure at trial was given on the basis of what was pleaded and that it would be unfair to allow Bei Yu to rely on a basis of apportionment that would require evidence and disclosure beyond that which was actually given at trial. On this basis, I will allow Bei Yu to argue that it is appropriate to use the one in 280 basis of apportionment but I will not allow it to rely on the volume approach referred to above as that would go beyond the scope of the evidence and disclosure materials before me.The appropriate apportionment in the present case36.As mentioned above, it may be appropriate to use different approaches to apportionment depending on the nature of the overhead. For example, in Jack Wills, the premises costs were apportioned according to the proportion of the square footage of the premises that had been used in relation to the infringing goods, whereas the sales revenue approach was used in relation to the employment costs. However, as pointed out by HHJ Pelling in that case, each approach was an artificial mechanism adopted for pragmatic reasons and the choice between them really involved asking which approach provides “the least unrealistic outcome” (see [2016] EWHC 626 (Ch), at [52]-[57]). On the facts of Jack Wills, HHJ Pelling used the sales revenue approach to apportion the employment costs largely because that was how those costs had been treated under the defendant’s own internal accounting policy. 37.In the present case, Mrs Bowman’s approach was to use the sales revenue basis in respect of each item of the general overheads. Whilst she accepted that there was no exact way of carrying out an apportionment, her evidence was that she was extremely familiar with how Nuby’s financial systems worked (having written many of them and having worked on them since 2010) and, on this basis, she was confident that the sales revenue basis was the “most logical basis” to use and was the basis that she had always used. 38.Mr Chapman’s comment was that the sales revenue approach had the advantage of being simple but assumed that sales of a product are directly proportional to the overheads relating to it. Whilst that is true, it may not be a reason to reject the sales revenue approach given that the court is involved in a broad brush exercise and, particularly, given Mrs Bowman’s evidence that:In contrast, when questioned about the one in 280 approach, she commented that it would be a difficult metric, especially given Nuby’s varying product lines and the varying numbers of products and given the fact that its products were not all of a similar value or size.39.In closing, Mr Hicks accepted that the sales revenue approach was appropriate in relation to Nuby’s factoring costs but he queried whether it was appropriate in relation to a number of other “big-picture” items included in Nuby’s list of general overheads. He queried, for example, its use in respect of the costs in respect of penalties, relevant marketing, baby shows, gross wages, legal fees, premises and repairs. However, with the exceptions referred to below, I am satisfied that it was appropriate for Mrs Bowman to use the sales revenue approach for these items in the sense that it was the least unrealistic way to apportion those costs. In reaching this conclusion, I bear in mind that this is intended to be a reasonably broad brush exercise and that a detailed analysis of all Nuby’s financial records would not be proportionate. I can see that in many cases (such as penalties, gross wages, and costs of premises) there may be little clear correlation between the cost claimed and the value of sales of the Nuby Baby Bath as a proportion of the sales as a whole. However, it seems to me that the same is true of the alternative bases of apportionment put forward by Bei Yu and that those alternatives might be even more unrealistic. Mr St Quintin argued that the other bases may actually produce a worse result for Bei Yu. However, whether that was so would depend on whether he was right in saying that the Nuby Baby Bath was a lower price item in Nuby’s range, which I am not in a position to find.40.A point made by Mr Hicks was that any difficulty which the court faces in determining what is the fairest method of apportionment is because Nuby had failed to provide it with the information necessary to reach a more informed view. For the most part, I do not accept this because the court is involved in a necessarily broad brush exercise and also because Nuby’s alleged failure has to be seen against the fact that Bei Yu’s pleading did not put forward any positive case as to any particular alternative basis of apportionment. Also, I accept Mrs Bowman’s evidence that the sales revenue approach is (in general) a fair broad brush approach and is the approach in fact adopted by Nuby in its own internal accounting policy.41.The exceptions to this and where, in my judgment, a different approach is justified are with regard to the following items of general overheads - (i) the website, (ii) telephone and IT and (iii) the stationery and office equipment. Mr Hicks argued that, for these items, the sales revenue approach was unlikely to be realistic and that the one in 280 approach would be fairer. For the reasons set out below, I agree.42.In relation to item (i), Mr St Quintin argued that the one in 280 approach could not be justified. In pressing for the sales revenue approach, he relied on what he said was Mrs Bowman’s unchallenged evidence – namely that the website costs included commissions for web sales and payments to Nuby’s website platform provider for hosting, platform maintenance and development support as well as for search engine and conversion rate optimisation. I do not accept this. Whilst Mr Hicks did not expressly challenge each aspect of Mrs Bowman’s evidence, he certainly challenged her use of the sale revenue approach in relation to the website costs and he pointed out that the cost of putting details of a product on to the website was not affected by the value of the sales of that product and would be broadly the same for all products. I agree and it seems to me that this also applies to the hosting, maintenance and support costs to which Mrs Bowman referred. Further, in the absence of any other explanation from Nuby, I cannot see why costs relating to search engine or conversion rate optimisation should be treated any differently. Finally in relation to the element of commissions for web sales, Mrs Bowman’s own evidence was that “we would ideally sell to another retailer so the website is a small proportion of our sales”. This would suggest that the commission element of the website costs figure is likely to be small. 43.As regards items (ii) and (iii), there was no evidence as to why the level of these costs is dictated by the value of the sales of particular products and, taking a broad brush approach, I cannot see any good reason why these should be apportioned on the sales revenue basis. It seems to me that the one in 280 approach is more realistic. 44.I should mention another head of expenses where a slightly different apportionment has been applied by Nuby, this was in relation to warehousing costs. In this regard, the deduction applied by Mrs Bowman was somewhat higher than those generally applied under sales revenue approach to reflect the fact that goods bought by Nuby on free on board (“FOB”) terms would not have passed through its warehouse and so a higher proportion of the warehousing costs can be attributed to the Nuby Baby Baths (which did require warehousing). As I understand it, this approach was not disputed by Bei Yu.