This first part considers the principles which are applied to the assessment of damages in English law. The second part will then apply those principles to a real-world scenario in a walkthrough of the damages judgment in the famous case of Hotel Cipriani SRL & Others v Cipriani (Grosvenor Street) Ltd (see background here). This remains the largest ever award for trade mark infringement in English history.
When a business infringes a trade mark how is the value of the infringement assessed by the English courts?
- The primary objective for most claimants in intellectual property disputes is to stop the infringing activity. This is understandable because if a litigant is willing to accept the risk and has the resources to invest, the best it can usually hope for is merely to be returned to the original position, minus legal costs and management time. It is small wonder then that the pursuit of damages is regarded as simply too great a task to justify the effort; forget it and move on.
- As tempting as that approach might be, businesses should not dismiss the opportunities that court proceedings can bring. Used wisely, tactical litigation can allow a solid intellectual property portfolio to be leveraged to its full potential by opening up new markets or closing off entry to competitors. This inevitably adds value to the underlying business. To ensure maximum returns therefore, any rights in patents, designs, trade marks, copyright and databases should be complemented by a carefully thought-out litigation strategy and form part of a company’s overall vision.
- The calculation of damages for trade mark infringement under English law
- When calculating damages for trade mark infringement in English law, the general principle is that the court will seek to determine what is fair in the circumstances. It will generally seek to put the claimant back into the same position which he would have been in had the infringement not occurred:
Damages should be liberally assessed but… the purpose is to compensate the claimant and not punish the defendant – General Tire v Firestone.
- This approach is now complemented by Article 13 of Council Directive 2004/48/EC on the Enforcement of Intellectual Property Rights which requires that when setting the damages for IP infringement, judicial authorities across the European Union:
(a) shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement; or
(b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.
- The claimant’s choice of which remedy to seek will largely depend on the method likely to achieve a higher award. The question is, how does a claimant know which is likely to result in the higher award?
Liability and quantum
- Very often the claimant will not know the value of its claim at the outset of the matter nor indeed when legal proceedings are begun at court. English court procedure therefore allows for the litigation to be bifurcated. This means that the trials for liability (who did what) and quantum (how much is it worth) are dealt with in sequence rather than together. In practice, quantum trials are rare as parties usually settle once liability is established.
General principles for assessment of damages
- The general principles to be applied in assessing damages for infringement of intellectual property rights were considered in detail in Gerber Garment Technology v Lectra Systems. They can be summarised as follows:
- damages are compensatory. The general rule is that the measure of damages is to be, as far as possible, that sum of money that will put the claimant in the same position as he would have been in if he had not sustained the wrong;
- the claimant can recover loss which was (i) foreseeable, (ii) caused by the wrong, and (iii) not excluded from recovery by public or social policy. It is not enough that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss;
- the burden of proof rests on the claimant. Damages are to be assessed liberally. But the object is to compensate the claimant and not to punish the defendant;
- it is irrelevant that the defendant could have competed lawfully;
- where a claimant has exploited his patent by manufacture and sale he can claim (a) lost profit on sales by the defendant that he would have made otherwise; (b) lost profit on his own sales to the extent that he was forced by the infringement to reduce his own price; and (c) a reasonable royalty on sales by the defendant which he would not have made;
- as to lost sales, the court should form a general view as to what proportion of the defendant’s sales the claimant would have made;
- the assessment of damages for lost profits should take into account the fact that the lost sales are of “extra production” and that only certain specific extra costs (marginal costs) have been incurred in making the additional sales. Nevertheless, in practice costs go up and so it may be appropriate to temper the approach somewhat in making the assessment;
- the reasonable royalty is to be assessed as the royalty that a willing licensor and a willing licensee would have agreed. Where there are truly comparable licences in the relevant field these are the most useful guidance for the court as to the reasonable royalty. Another approach is the “profits available” approach. This involves an assessment of the profits that would be available to the licensee, absent a licence, and apportioning them between the licensor and the licensee; and
- where damages are difficult to assess with precision, the court should make the best estimate it can, having regard to all the circumstances of the case and dealing with the matter broadly, with common sense and fairness.
Damages based on account of profits
- The English courts developed the remedy based on account of profits in Potton v Yorkclose and Hoeschst Celanese International Corp. v BP Chemicals Ltd.
- They found that it is intended to deprive the defendants of the profits which they have improperly made by the wrongful acts committed in breach of the claimants’ rights and to transfer those profits to the claimants. The defendant is to be treated as having conducted business on behalf of the claimant and therefore the maximum recoverable amount is the total profit made through the infringing activity.
- Following general accounting principles, the court should seek to identify the specific profit attributable to the infringing acts. It also established that:
- an account is confined to profits actually made;
- account is addressed to identifying profits caused by the infringement;
- the fact that the profits could have been made in a non-infringing fashion is irrelevant;
- the claimant must take the defendant as he finds him; and
- overheads, including tax, should be dealt with so as to arrive as closely as possible at the true profit.
Damages based on the loss suffered
- Attempting to identify the loss which has been suffered is inherently problematic. The courts have therefore adopted an approach which assumes that the claimant granted a licence to the defendant at the market rate for the duration of the infringement (known as the “user principle” – see Wrotham Park v Parkside, General Tire v Firestone, Ludlow v Williams, Irvine v Talksport and National Guild v Silveria).
- In the absence of direct comparisons, the court will look to comparable licences and data to determine what is the market rate and decide in all the circumstances what is fair. It may in particular consider the following factors:
- the terms of any agreement between the parties – National Guild v Jones;
- the value and contribution of the mark to the defendant’s business – National Guild v Jones;
- the nature and extent of the infringing use (e.g. greater magnitude of infringement on the internet than through hard copy publications) – National Guild v Jones; and
- whether the infringing party was a “direct competitor” – USP plc v London General Holdings Ltd .
- However, some judges may take the view that the user principle does not apply automatically, especially where a trade mark is not “available for hire” – Reed v Reed.
- The European Commission’s analysis on the application of Directive 2004/48/EC, which reviewed the application by courts across the EU, observed that:
where a licence royalty is already fixed and used in the relevant sector, this amount will be used; if there is not an agreed royalty rate or where it is difficult to determine precise rates, often an estimated average royalty related to the specific type of business involved is used .
If you would like to discuss IP valuation or trade mark infringement in more detail, please get in touch here.
All content and images © Robert Cumming
 In cases of copyright infringement, it is also possible to recover additional damages for “flagrant” copying – s.97(2) Copyright, Designs and Patents Act 1988; Absolute Lofts South West London Limited v Artisan Home Improvements Limited and another  EWHC 2608 (IPEC)
 Meters v Metropolitan  28 RPC 157, per Cozens Hardy MR: “…where licences are not granted to anyone who asks for them for a fixed sum, it is a matter which is to be dealt with in the rough – doing the best one can, not attempting or professing to be minutely accurate – having regard to all the circumstances of the case and saying what upon the whole is the fair thing to be done”
 General Tire and Rubber Co v Firestone Tyre and Rubber Co  RPC 197
 Island Records Ltd v Tring International plc  1 WLR 1256
 Gerber Garment Technology v Lectra Systems by Jacob J at first instance at  RPC 383, and by the Court of Appeal at  RPC 443
 Potton v Yorkclose  FSR 11
 Wrotham Park Estate Co Ltd v Parkside Homes  1 W.L.R. 798
 General Tire v Firestone
 Ludlow Music Inc v Williams (No 2)  EMLR 29: “The basis of the assessment is a transaction as between willing licensor and willing licensee… to be decided on all the evidence… other similar transactions and… the approach which is taken to the negotiation of such agreements… precision is not attainable and that if one is to err, one should err on the side of generosity to the Claimant”
 Irvine & Ors v Talksport Ltd  EWCA Civ 423
 National Guild of Removers & Storers Limited v Jones
 as per Jacob LJ (obiter) in Reed v Reed  RPC 40