Rare High Court ruling on account of profits in trade mark infringement case
Following the decision that the defendant, House of Fraser, had infringed the "Mr Wills" pheasant trade mark (Jack Wills Ltd v House of Fraser (Stores) Ltd [2016] EWHC 626 (Ch), 21 March 2016), the High Court has decided House of Fraser must pay 41% of its net profits from sales of the infringing articles to Jack Wills.
Jack Wills claimed it should be entitled to all profits from infringing sales, but House of Fraser countered that it should be entitled to set off against the gross profit the overheads that had sustained the infringing business but which would have sustained non-infringing business if it had sold non-infringing products instead.
In making the assessment, the court applied the reasoning in the Court of Appeal's recent decision in Design & Display Ltd v Ooo Abbott and another [2016] EWCA Civ 95. In that case, the court held that an infringing defendant could deduct a proportion of overhead costs, attributable to the infringement, which would have sustained non-infringing business. The reason being, that an account of profits is not designed to compensate the claimant, nor punish the defendant, but to prevent its unjust enrichment. To do otherwise would leave an infringer in a worse position than if it had not infringed.
Here it was found from the evidence that House of Fraser had sold similar goods before, during and after the period when the infringing goods were sold, so if the infringing goods had not been sold they would have been replaced by non-infringing goods of the same type. Therefore, general overheads could be deducted from the gross profit when calculating the amount payable to the claimant.
The parties agreed that deductible costs relating to property, depreciation and establishments should be divided by the sales area of the infringer's whole business and then multiplied by the area occupied by the infringing goods. For all other costs, the least unrealistic method to apportion costs was to divide the deductible costs by total sales during the relevant period and then to apply the resulting percentage to the infringing sales.
It was found that unless infringement itself drove the sale of the goods, there had to be an apportionment which reflected the amount attributable to infringing use rather than all of the profits derived from sale of the item. The evidence did not indicate that the infringement itself drove sales so the proportion of the profit that was due to the infringement would be calculated at a rate of 1.5%, which reflected the royalty rate for the infringer's use of third party brands.
Comment
Since the parties in such cases often reach agreement on account of profits, this decision provides a helpful indication of the principles and methodologies to be applied in determining a fair apportionment.