7 Rolls Buildings
London EC4A 1NL
B e f o r e :
| (1) Hollister Incorporated
(2) Dansac A/S
|- and -
|Medik Ostomy Supplies Limited
Richard Hacon (instructed by DWF LLP) for the Defendant
Hearing dates: 2nd - 4th November 2011
Crown Copyright ©
His Honour Judge Birss QC :
The background facts
The parties' rival arguments
Accounts of profits
i) In an account of profits the defendant is treated as if he conducted his business and made profits on behalf of the claimant (para 36).
ii) An account proceeds on a principle of legal causation. The court is trying to determine what profits have been caused, in a legal sense, by the defendant's wrongful acts. In particular, a distinction must be made between profits caused by infringement and those made on the occasion of such infringement (para 37).
iii) Where the defendant sells different products and only one infringes, he only has to account for the profits made by the infringements (para 38).
iv) It is no answer to an account that the defendant could have made the same profits by following an alternative, non-infringing course. The question to be answered is "what profits were in fact made by the defendant by the wrongful activity?" (para 39).
v) This cuts both ways: a claimant must take a defendant as he finds him and cannot say that the defendant could and should have generated higher profits (para 42).
vi) Profits attributable to the non-infringing parts of the defendant's business were not caused by the use of the invention even if the use of the invention was the occasion for the generation of those profits (para 43).
i) There is no onus on either party in deciding on the level of apportionment (para 74).
ii) Once the court has decided what a fair apportionment is, there should be no substantial rounding up. The account is not a camouflaged method of making the defendant pay punitive compensation (para 75).
iii) This does not absolve the defendant of the necessity of giving proper disclosure or supplying relevant information to allow the court to carry out the assessment. If insufficient material is available to allow the court to come to a fair adjudication, it may be necessary to adjourn subject to questions of costs. It is no justification for pulling a figure out of the air which bears little relationship to any of the relevant facts (para 76).
iv) The fact that an account can be an imprecise exercise does not mean that the judge is entitled to pick a winner on the basis of little more than hunches (para 80).
v) In an account the claimant is entitled to net profits. In deciding what are the relevant costs to be deducted from gross profits the following principles apply (in the context of an infringement of a patented process ) (para 86):
a) all costs which are shown to have nothing to do with the patented process and sale of the product manufactured from it are ignored;
b) all costs which relate only to the patented process and sale of the product manufactured from it are allowed in their entirety;
c) all costs which relate to the patented process and sale of the product and also to the manufacture and sale of other products are to be apportioned between the former and the latter.
vi) Costs which fall into category (c) above include centrally incurred costs which go to support all the businesses conducted by a business unit. In particular they include costs of distribution and sale, staff salaries, office rental, computer and other support and so on (para 88).
vii) Apportionment of such costs should not be done on a "but for" basis. When deciding whether a cost may be apportioned to a particular business or product it is not relevant to ask whether, absent that business or product, the cost would still have been incurred (para 90).
viii) It is not correct to say that the percentage of a cost attributable to a relevant business or product is so small it may be disregarded. In particular, it is not correct to say that in the absence of that business or product, there would have been no difference to the overall cost incurred. Even if only 1% of a cost is attributable to the product in issue, it should still be taken into account (para 94).
ix) Finance charges, in particular interest payments on money loaned in relation to the relevant business, may be deducted as an allowable cost (paras 107-113)
x) On the facts of the Celanese case, the costs of the plant using the patented process were to allocated on the basis of volume, not turnover (paras 116-127).
xi) Profits should be assessed net of tax (paras 128-139).
(1) it is established that reliance on trade mark rights by the owner in order to oppose the marketing of repackaged products under that trade mark would contribute to the artificial partitioning of the markets between Member States; [ … ];
(2) it is shown that the repackaging cannot affect the original condition of the product inside the packaging; [ … ];
(3) the new packaging clearly states who repackaged the product and the name of the manufacturer in print such that a person with normal eyesight, exercising a normal degree of attentiveness, would be in a position to understand; similarly, the origin of an extra article from a source other than the trade mark owner must be indicated in such a way as to dispel any impression that the trade mark owner is responsible for it; however, it is not necessary to indicate that the repackaging was carried out without the authorization of the trade mark owner;
(4) the presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark and of its owner; thus , the packaging must not be defective, of poor quality, or untidy; and
(5) the importer gives notice to the trade mark owner before the repackaged product is put on sale, and, on demand, supplies him with a specimen of the repackaged product.
[paragraph 3 of the answers to the referred questions]
it appears to be the law that a proprietor can complain about repackaged goods which have had the mark reapplied to the packaging if no prior notice has been given by the importer. His right to do so appears to be unqualified and, in particular, it is not dependent on showing that the activities of the importer will cause the proprietor or his marks any harm.
(3) Where a parallel importer has failed to give notice in respect of a repackaged product as required by the fifth condition of Bristol-Myers Squibb and Others, and accordingly has infringed the proprietor's trade mark(s) for that reason only:
(a) is every subsequent act of importation of that product an infringement or does the importer only infringe until such time as the proprietor has become aware of the product and the applicable notice period has expired?
(b) is the proprietor entitled to claim financial remedies (i.e. damages for infringement or the handing over of all profits made by infringement) by reason of the importer's acts of infringement on the same basis as if the goods had been spurious?
(c) is the granting of financial remedies to the proprietor in respect of such acts of infringement by the importer subject to the principle of proportionality?
(d) if not, upon what basis should such compensation be assessed given that the products in question were placed on the market within the [European Economic Area] by the proprietor or with his consent?"
63 Thus, a national measure under which, where a parallel importer has marketed goods which are not spurious without giving prior notice to the trade-mark proprietor, that proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious, is not in itself contrary to the principle of proportionality. However, it is for the national court to determine the amount of the financial remedies according to the circumstances of each case, in the light of, in particular, the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and in accordance with the principle of proportionality.
64 In the light of the foregoing, the answer to the third question must be that, where a parallel importer has failed to give prior notice to the trade mark proprietor concerning a repackaged pharmaceutical product, he infringes that proprietor's rights on the occasion of any subsequent importation of that product, so long as he has not given the proprietor such notice. The sanction for that infringement must be not only proportionate, but also sufficiently effective and a sufficient deterrent to ensure that Directive 89/104 is fully effective. A national measure under which, in the case of such an infringement, the trade mark proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious, is not in itself contrary to the principle of proportionality. It is for the national court, however, to determine the amount of the financial remedies according to the circumstances of each case, in the light in particular of the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and in accordance with the principle of proportionality.
i) to give the trade mark proprietor an opportunity, before the product goes on sale, to check that the repackaging neither (a) affects the original condition of the product nor (b) has been done in such a way that the presentation of the mark after repackaging is likely to damage its reputation; and
ii) to afford the trade mark proprietor a better possibility of protecting himself against counterfeiting.
[Judgment paragraph 78]
i) First, the purpose of the notice provision is to give the proprietor an opportunity to check the repackaging before the product goes on sale and to afford the proprietor a better possibility of protecting himself against counterfeiting.
ii) Second, the remedy of an account of profits is available for a breach of the notice provision (BMS (5)). Had Medik objected to the order of HHJ Fysh QC, they would have failed in that objection.
iii) Third, in assessing the amount of the financial remedy in a case like this, the national court is required by Community law to consider the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and the principle of proportionality.
i) Assess the account on normal basis under English law;
ii) Consider the extent of damage caused to the proprietor by the infringement and the issue of proportionality, in all the circumstances of the case;
iii) Decide what final sum should be awarded having regard both to the sum assessed on the account at step (i), and the factors considered at step (ii).
What is the effect of the consent order for judgment?
(i) Assess account on normal basis under English law
i) This case is proceeding in the Patents County Court. Proportionality is always a relevant consideration as is the cost of taking a step as compared to the benefit of that step.
ii) The court has the power to exclude evidence (CPR Pt 32 r32(1)(2)).
iii) The application, although late, is not so late as to be refused on that ground alone. The experts had met and agreed a joint statement in July 2011. That statement made clear (paragraph 3.8) that there was a dispute between Mr Geale and Mr Watts on the issue. Mr Watts' position was that while he agreed that as a general rule units sold was a more appropriate basis on which to apportion costs in relation to certain costs such as repackaging, overheads should in the main be attributed by turnover (i.e. value).
iv) The parties were not able to say how much of a difference this point would make to the final figures. Given the figures I have been provided with it seems to me to be a point which is likely to be worth tens of thousands of pounds but not hundreds of thousands of pounds.
v) Refusing to let Medik rely on this material at all would be unjust given that the issue had been identified in July as between the experts. However the claimants contend that if the evidence comes in disclosure should be given. The cost of requiring disclosure at this stage would be large and the exercise would be likely to derail the trial.
vi) It seems to me that the most proportionate course is to let the evidence in but not order disclosure. The absence of disclosure will go to weight. When I informed the parties of my decision during the trial I indicated that the absence of disclosure is something which would be a matter which may be very significant on the question of weight. It may well lead to the court giving no weight at all to some or all of the material which has been put in in relation to the two new witness statements. This is particularly so bearing in mind that much of it or all of it involves information which is peculiarly in the knowledge of the defendant.
Apportionment – unit or value?
i) Premises costs
ii) Notional charges for directors
iii) Medik repackaging staff
iv) Clinisupplies repackaging staff
v) Medik general staff
vi) Clinisupplies general staff
vii) General overheads of Medik
Notional charges for directors
Under no circumstances can he, in my opinion, deduct interest in his capital employed in the business. Under no circumstances can he claim any remuneration to himself or under any circumstances can he claim in my opinion any director's fees for carrying on the business.
Medik repackaging costs
Medik general staff
CliniSupplies general staff
General overheads of Medik
Assembly reports and total sold
(ii) Consider the extent of damage caused to proprietor by the infringement and the issue of proportionality, in all the circumstances of the case;
i) The claimants' statement of case on their estimated extent of the damage suffered by the infringement;
ii) Whether the claimants have suffered any damage of the kind Mr Hacon submits is relevant
iii) Actual knowledge / notice of the repackaging.
i) Medik had infringed the claimants' trade marks by selling the products. Those products ought not to have been sold.
ii) Had Medik not sold them, the claimants (through their relevant subsidiaries) would have sold equivalent products (i.e. products with the same product codes).
iii) The claimants have therefore suffered damage in the form of loss of profits on those sales. All profits earned by the subsidiaries ultimately benefit the relevant claimant.
iv) The claimants did earn a profit on the sale of the imported goods when they were first marketed in the EEA, albeit a smaller profit than it would have been if the product was sold in the UK. To do the exercise fully and correctly discounts would need to be taken into account as would sales to hospitals.
v) The claimants' loss, L = PUK – PEEA where PUK is the profit which would have been made from sale in the UK of the product and PEEA is the profit actually made on sale in the relevant EEA country.
vi) The claimants' costs of sales are approximately the same throughout the member states.
vii) Since the claimants do not know where the goods actually came from, assumptions have had to be made.
viii) In total, based on this approach, the claimants contend that their losses are [ xxx]. The figures were provided in a confidential schedule. Pending argument as to the form of order to be made the total will remain confidential. Rather than produce two versions of this judgment at this stage (one confidential version including the figure and a public version with the figure redacted), I will simply complete this judgment in its present public form. I propose to deliver a short further judgment when the form of order is settled. That will address the figure and the question of confidentiality.
(iii) Decide what final sum should be awarded having regard both to the sum assessed on the account at step (i), and the factors considered at step (ii).