The Intellectual Property Enterprise Court (IPEC) has just published the latest judgment in OOO Abbott and another v Design & Display Ltd [2017] EWHC 932 (IPEC), a case concerning the profits to be accounted for following a finding of patent infringement. The case had been remitted to it by the Court of Appeal. Our blog covering the Court of Appeal's decision can be found here.
In the IPEC, two issues remained for determination: (1) what proportion of sales of slatted panels sold together with inserts, which infringed the claimant's patent, should be included in the account of profits and (2) what deductions (if any) for general overheads could the defendant make in its account of profits?
Background
The case concerned infringement by the defendant, Design & Display, of the claimant, Abbott's, patent for a snap-in insert for use with display panels. The inserts are made from a resilient metal, such as aluminum, for use in displays fitted onto shop walls. Design & Display sold products in addition to the infringing articles (convoyed goods) as well as non-infringing products, into which the infringing products could be incorporated.
Having succeeded on infringement, Abbott elected for an account of the profits derived from the infringement, pursuant to s.61(1)(d) of the Patents Act 1977 (following pre-election disclosure pursuant to Island Records v Tring International). The role of the court in awarding an account of profit is to determine to what extent a defendant has profited from the infringement so as to avoid leaving them unjustly enriched. The original account was assessed by HHJ Hacon in the IPEC. The case was then appealed to the Court of Appeal and subsequently remitted to the IPEC for determination.
Judgment
HHJ Hacon emphasised that, when accounting for profits, the claimant is entitled to the profit made on exploitation of the rights infringed. On the facts, only part of the infringing product fell within the scope of the patent claims.
First issue
HHJ Hacon held that Abbott was entitled to claim the profits made on the sale of the entire article where:
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The protected part is an 'essential feature' of the entire article – a part which is functionally or commercially the most significant part of the whole article; or
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The entire article would never have been made if there had been no infringement of the claimant’s rights.
Similarly, where that entire article drives the sale of other non-infringing products, Abbott was entitled to seek an account of the profit made on those non-infringing products. The infringing article can be considered to ‘drive’ the sale of the non-infringing product where there is a causative link between the two, leading to a consequential purchase. This may be shown through perceived compatibility, functional interaction or a connection between the goods.
On the facts, HHJ Hacon held that the embodiment of the invention in Design & Display's infringing article was the essential feature of the entire product. Additionally, sale of the panels were convoyed sales. As such, he ordered Design & Display to account for the profits on:
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The entire profit made on 10% of sales of panels and inserts;
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The entire profit made on 10% of sales of inserts and separate but associated panels;
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The entire profit made on sales of infringing inserts; and
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The entire profit made on 10% of the sales of the panels. The judge further ordered that the defendant was entitled to deduct general overheads from its profits.
Second issue
HHJ Hacon made clear that the specific overheads associated wholly with the infringement were deductible.
Regarding general overheads, an apportioned sum would be deductible unless:
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The overheads would have been incurred anyway even if infringement had not occurred; and
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The sale of the infringing product would not have been replaced by sale of non-infringing products.
On the facts, HHJ Hacon held that the same overheads would have been incurred by the defendant in the manufacture of non-infringing inserts. Similarly, the sale of the infringing articles had in fact been replaced by the sale of non-infringing articles. As such, an apportionment of the general overheads incurred by Design & Display was deductible from the profits for which it had to account to Abbott. The size of Design & Display and the nature of its business meant that payments made to directors were not deductible, but rent paid by it was.
Having set out the principles, HHJ Hacon then invited the parties to calculate and agree the profit, if any, due to be paid by Design & Display.
Comment
The judge has delivered a pragmatic and accessible judgment in determining profits, an area in which the presentation of statistics can significantly skew the perceived profitability of a business. Here, Design & Display argued that no profit had in actual fact been made and, as such, no payment was due at all. HHJ Hacon said that this suggested the pre-election disclosure may not have been adequate.
On the facts, the patent claims in this case covered a product. As such, it was somewhat easier to identify and scrutinise the relevant overheads incurred by Design & Display in infringing the patent. The task may not be as straight forward where the patent in question claims an inventive process. Indeed, determining causation by attributing profit made by a defendant through the exploitation of a patented process may be far more complex. Specifically, the article obtained through the use of a patented process may carry independent value which bears no relevance to the patent. Alternatively, infringing the patented process may be a small step in the manufacturing process of a large composite product made up of multiple components. In such instances, it will be more difficult to identify the profits attributable to the infringement. This may affect which remedy a party chooses to elect: an award of damages or an account of profits.