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UNITARY PATENT

In 2012 Member States and the European Parliament agreed on the "patent package" - a legislative initiative consisting of two...

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Court Affirms Damages Not Just Lost Sales

For IP infringers, the best things in life are free-until a claim for damages gets to court. Nonetheless, how infringers should pay for their ill-gotten gains is not always entirely clear. Where a trademark infringement action results in lost sales, compensation is normally the benchmark for assessing damages. However, what about cases where the infringer takes no sales from the claimant? Is an injunction then all a claimant can expect?

Not necessarily, according to the Patents County Court in its decision in National Guild of Removers & Storers Ltd. v Christopher Silveria (trading as C S Movers) ([2010] EWPCC 15). The PCC's affirmation that damages assessed on the principle of notional royalties can apply to trademark infringement brings brand disputes at last under the umbrella of wider damages principles applicable to other IP disputes. It promises a practical remedy to ensure that defendants do not unfairly profit from their spoils.

He Who Plays...

The claimant was a national guild incorporated in 1991 to regulate and supervise the removals and storers industry. Membership implied "a high level of professional competence and integrity" and required compliance with a stringent code of practice. The evidence showed that the Guild enjoyed considerable consumer confidence and had been highly rated in a consumer magazine survey on trade associations.

The Guild owned various registered trademarks that it licensed to members for use in advertising to show their membership of the Guild. The terms of membership provided that departing members should pay license fees in respect of any continuing use of the Guild's trademarks until the use ceased. For example, if an advertisement placed in the Yellow Pages included one of the Guild's marks, and the advertising member left the Guild halfway through the year, he would be obliged to pay a license fee until the end of the year, when a new Yellow Pages directory would issue.

The case before the PCC in fact concerned four cases where the Guild had brought actions for damages against three former members and one trader who had never been a member, for unauthorised use of the Guild's trademarks in advertising. It was accepted that the defendants were making unauthorised use, in the course of trade, of marks identical to the claimant's in respect of identical services to those for which the claimant's marks were registered, so the finding of infringement was clear. However, none of the unauthorised uses had resulted in lost sales since the claimant did not itself supply services in competition with its members.

It had long been accepted in patent infringement cases that an infringer of patent rights could be ordered to pay damages calculated on the basis of a notional royalty or license fee (the so-called "user principle"), even if the patentee would not have granted a license had he been approached for one. In ordering damages on this basis, the courts held essentially that an infringer should not be unjustly enriched as a result of his unlawful conduct. 

The same principle was only extended to passing off cases in 2003, however (Irvine v Talksport [2003] EWCA Civ 423), in a case involving a misrepresentation of endorsement by a famous motor racing driver, who had in the past derived licensing income from granting commercial endorsements to others. Damages on the user principle had not been applied to trademark infringement cases at all, and when the Guild's case reached the PCC there was therefore some doubt as to whether damages on that basis were available. 

...Must Pay

Getting its teeth into an early issue of importance, the reformed PCC found that damages on the user principle were available in trademark infringement actions.

It considered that acts of trademark infringement were "an invasion of a (lawful) monopoly" in the same way as the unauthorised use of a patent, even where the infringing act did not result in a lost sale or sales. The absence of lost sales did not prevent a court from assessing damages on a "user" basis in patent infringement actions. Nor, the judge held, should it prevent a court from awarding damages to compensate the owner of a registered trademark or goodwill in an unregistered trademark on a similar basis. 

The Court noted that the appropriate level of damages to be awarded on the user principle was a question of fact to be resolved in each individual case, just as the assessment of damages based on lost sales was, too, a question of fact. In this case, the Court was guided by the claimant's own terms of membership which set out the level of fees to be imposed for continued unauthorised use following lapse of membership. These terms allowed the Court to assess notional license fees not just for the three former members, but also for the first defendant, who had never been a member of the Guild. This last was assessed on the basis of the penalty fee for unregulated use included in the Guild's license terms. 

Comment

The damages awarded against the first defendant amounted to £11,594.23, not an enormous sum perhaps, but enough to make an average small to medium-sized trader think twice about purloining the Guild's marks in future. 

That such damages can and should be awarded in trademark infringement cases seems right: in this case, for example, even though the Guild may not have suffered lost sales, the use of its branding by traders that it was in no position to regulate represented a serious risk to its reputation and goodwill. Had the Court ordered an injunction without any damages, the defendants would have been permitted to keep and enjoy the spoils of acts that were fundamentally damaging to the claimant's rights, which could not have been right. 
The notional royalty involved in the Court's assessment may not have accounted for all profits illegitimately enjoyed by the defendants who touted for business by making false claims of an association with the claimant. However, since assessing such profits would be complicated and perhaps even impossible in many cases, the PCC's approach seems a pragmatic and fair compromise which confirms that brand owners are equals with patentees when it comes to defending what is theirs.

Those suing for trademark infringement or passing off in the English courts may derive much benefit from this ruling. Although damages on the user principle are based on a notional royalty or license fee, in principle there seems no reason why they could not apply to cases where confusingly similar, but not identical, marks are used. In that case, clearly the license fee would be notional in every sense since a license would not have been granted in respect of a different mark. However, the defendant's unjust spoils would have derived nonetheless from consumers confusing the infringing mark with that of the claimant, just as if the marks had been the same. Hence, the ruling would appear to be of general usefulness wherever there has been gain by a defendant, but lost sales on the part of the claimant cannot be proved.

The PCC's open and robust approach on this issue is to be welcomed. Practical and considered decisions like this one are likely to make the reformed PCC an attractive venue for resolving smaller-scale trademark and passing off disputes cost-effectively, to the advantage of brands and brand owners alike.