[2023] EWHC 1821 (IPEC)

A successful claimant in an intellectual property case must choose between two alternative methods of assessing the appropriate financial remedy: an inquiry as to damages or an account of profits. He cannot have both remedies or some hybrid between them, as the Court of Appeal made clear in Hollister Inc v Medik Ostomy Supplies Ltd [2013] FSR 24 at [54]-[56]:

“54 A claimant who has succeeded in an action for infringement is entitled to damages as of right. If it seems the claimant may have suffered more than nominal damage then he will generally be entitled to an inquiry, the central purpose of which is to ascertain the extent of his losses and so restore him to the position he would have been in if the infringement had not been committed.

55 Alternatively, a successful claimant may seek an account of the profits made by the infringer. This is an equitable remedy and the court has a discretion whether to order it. It may be refused if, for example, the infringer was entirely innocent or the trade mark owner has delayed in bringing proceedings. The purpose of an account is very different from an inquiry as to damages. It is to deprive the infringer of the profits he has made by the infringement. He is treated as if he has conducted the infringing business on behalf of the claimant. The losses the claimant has suffered by reason of the infringement are therefore not relevant.

56 It can be seen that the remedies of an inquiry as to damages and an account of profits proceed on very different bases. A successful claimant must therefore elect between them. Often, a successful claimant has insufficient information to make an informed decision as to which remedy he should pursue, and in those circumstances the court may order the defendant to provide limited disclosure and give the claimant a reasonable period of time thereafter in which to make his election.”

Kitchin LJ went on:

“69 …an account of profits does not compensate the trade mark owner for the losses he has suffered. It simply deprives the infringer of the profits he has made from an activity in which he should never have engaged. It therefore ensures the infringer does not benefit from his wrong, but it contains no element of punishment. Moreover, as an equitable remedy, it may be refused if for any reason it would produce an unjust result.”

If an account of profits is chosen, as was done here, the extent of any damage caused to the claimant by the infringing activities is not relevant to the assessment of the sum to be paid by the defendant. As Kitchin LJ said in Hollister:

“71 … An assessment of the damage caused to the claimant forms no part of an account of the profits made by an infringer and the approach adopted by the judge constituted an illegitimate amalgamation of two quite different ways of assessing compensation. The damage suffered by the claimants was not relevant to the account which the judge ordered and to which Medik consented. The points taken by Medik as to the inadequacy of the claimants’ case in relation to damage they had suffered therefore fall away.”

The principles of law relating to a claim for an account of profits in an IP case were set out by the Court of Appeal in OOO Abbott v Design and Display Ltd [2016] FSR 27, applied in Jack Wills Ltd v House of Fraser (Stores) Ltd [2016] EWHC 626 (Ch), and helpfully summarised by Deputy Judge Nicholas Caddick KC in Bei Yu Industrial Co v Nuby (UK) LLP and another [2022] EWHC 652 (IPEC). He set out the relevant principles at paragraph 5 as follows:

In addition to this summary, and the question of the apportionment of overheads, counsel referred me to the need to assess the proportion of net profits which is properly attributable to the acts of infringement (the point is Issue 4 of the List of Issues). In OOO Abbott Lewison LJ considered whether all of the profits made by sale of an infringing product (in that case, a product which infringed a patent) should necessarily be taken into account. He said:

“34 Mr St Quintin of course accepts that so much of the profit made on the sale of the incorporated panel as is attributable to the infringing insert must be included in the account. But he says that this is not a case in which the article itself (the incorporated panel) would not have come into existence at all but for the infringement. Nor was it an essential ingredient in Design & Display’s whole product (i.e. a panel with an insert). That is demonstrated by the fact that Design & Display continued to sell incorporated panels after it ceased to use the infringing insert without any drop in sales. In those circumstances he argues that the overall profit should be apportioned between the insert on the one hand and the panel on the other. Mr Cuddigan said that this argument was not permissible because of the way that the issue was framed. The issue was framed as follows: “Are the Claimants entitled to claim the profits which accrued to [the Defendant] as a result of the sale of slatted panels sold together with the clip in aluminium extrusion?”

35 He argued that this was a binary question which the judge had to answer either “Yes” or “No”. I do not agree. It was open to the judge to answer the question by holding that such profits could be recovered in some circumstances but not in others. 36 Let me revert to the example given by the Full Court in Dart Industries v Decor Corp [1994] F.S.R. 567. A manufacturer sells a car which includes a patented brake. If the car did not have brakes, the manufacturer could not have sold it, but it did not have to have that particular brake. In those circumstances the Full Court clearly thought that it would be unjust to charge the manufacturer with the whole profit made on the car; and I agree with them. In my judgment the legal error that the judge made was to ask whether the sale of the panel plus insert would have happened separately rather than to ask himself how much of the profit on the sale was derived from the infringement. In a case in which the infringement does not “drive” the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement. In particular it does not follow from the fact that the customer wanted a slat wall that incorporated an insert that the customer wanted a slat wall that incorporated the infringing insert. Mr Cuddigan argued that the infringing inserts and the slot were the “very essence” of the incorporated and unincorporated panels. But the judge made no such finding, and his observations at [32] suggest the contrary. In addition I do not consider that the judge was correct at [31] in saying that “because the sales went together, the sale of inserts caused … the sale of the panels…” The mere fact that the two went together is not, in my judgment, sufficient to establish that the whole of the profit earned on the composite item was derived from the invention. One might just as well say that the sale of the panel caused the sale of the insert. As the judge himself recognised the customer specifies panels, and on the hypothesis that he was considering at [31] the customer is indifferent about the inserts (provided that some form of insert is included). On the judge’s approach, because the sale of the patented brake went with the sale of the car, the whole of the profit on the car would be included in the account. If the judge had found on the facts that the infringing insert was “the essential ingredient in the creation of the defendant’s whole product” (i.e. the incorporated panel), then he would have been justified, on the facts, in declining to apportion the profit. But I cannot see that he made that finding.

37 In my judgment therefore in cases simply falling within the factual hypothesis discussed at [31] the judge should have apportioned the overall profit. The question of apportionment will therefore have to be returned to IPEC, although the judge would not be precluded from finding as a fact that the infringing insert was the “essential ingredient” of the incorporated panel.”

This was followed by HHJ Pelling KC in Jack Wills (another trade mark and passing off case):

“The Infringement Apportionment Issue

61.

In my judgment the law in this area is now settled by Design & Display Limited (ante). In relation to this issue and having considered all the relevant authorities Lewison LJ concluded at [36] that:

"In my judgment the legal error that the judge made was to ask whether the sale of the panel plus insert would have happened separately rather than to ask himself how much of the profit on the sale was derived from the infringement. In a case in which the infringement does not "drive" the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement. In particular it does not follow from the fact that the customer wanted a slat wall that incorporated an insert, that the customer wanted a slat wall that incorporated the infringing insert. … If the judge had found on the facts that the infringing insert was "the essential ingredient in the creation of the defendant's whole product" (i.e. the incorporated panel) then he would have been justified, on the facts, in declining to apportion the profit. But I cannot see that he made that finding."

62.

As it seems to me the position is now that unless … there is a finding that the infringement drove the sale, there must be an apportionment to take account of the fact that the profits to be disgorged are those properly attributable to infringing use of the mark not all the profits derived from sale of the item – see also and by way of example Cartier v. Carlile (1862) 31 Beav. 292 per Sir John Romilly MR at 298, and Hotel Cipriani SrL and another v. Cipriani (Grosvenor Street) Limited and others [2010] EWHC 628 per Briggs J (as he then was) at [8]: "… where a single head of profit is attributable to a number of causes, some of them infringing and some of them not, it is necessary and appropriate for the court to conduct an apportionment so as to work out on a broad brush basis what proportion of the profit is due to the act of infringement …" There is no justification in law for approaching the profit taking exercise differently simply because this is a trade mark infringement case – see Cipriani (ante) at [7].”

I should add that Ms Fletcher referred me to regulation 3 of the Intellectual Property (Enforcement) Regulations 2006, SI 2006/1028, which provides that “damages awarded to the claimant shall be appropriate to the actual prejudice he suffered” where the Defendant “knew, or had reasonable grounds to know, that he engaged in infringing activity.” However, in the light of the Claimant’s election for an account of profits, this point seems to me to have fallen away, for the reasons given in Hollister and reflected in the relevant paragraph of the relief sought in the Claim form which sought “An inquiry as to damages, including such damages as may be appropriate pursuant to the Intellectual Property (Enforcement) Regulations 2006, SI 2006/1028 or at the Claimant’s option an account of the profits, by reason of the Defendants’ acts complained of herein.” In the circumstances, the claim made pursuant to regulation 3 in the claim at the liability stage was not repeated in the prayer to the Points of Claim for the account. The Claimant may have come to regret the election it made, but cannot now go behind it.