INTELLECTUAL PROPERTY ENTERPRISE COURT
Fetter Lane, London, EC4A 1NL
B e f o r e :
| KOHLER MIRA LIMITED
|- and -
|BRISTAN GROUP LIMITED
Hugo Cuddigan (instructed by Withers & Rogers LLP) for the Defendant
Hearing date: 29th April 2014
Crown Copyright ©
Judge Hacon :
(1) Profits lost by Kohler on the sale of showers that Kohler would have made if Bristan had not infringed.
(2) A royalty on sales by Bristan of infringing showers which did not cause Kohler to lose sales.
(3) Additional advertising and promotional costs incurred by Kohler as a result of Bristan's infringement.
(4) An uplift of 10% on the sums due under heads (1) to (3) for moral prejudice caused to Kohler by the infringement, having regard to art.13(1)(a) of the Intellectual Property Enforcement Directive 2004/48/EC.
(a) The £500,000 overall cap on damages applicable in this court.
(b) The cap on damages provided for by s.239(1)(c) of the Copyright, Designs and Patents Act 1988 ("the 1988 Act"). This provides that where the defendant has undertaken to take a licence of right under UDRs in infringement proceedings, the damages shall not exceed double the amount which would have been payable by him as a licensee, if such a licence had been granted before the earliest infringement.
"Where in an action for infringement of design right brought by virtue of section 226 (primary infringement) it is shown that at the time of the infringement the defendant did not know, and had no reason to believe, that design right subsisted in the design to which the action relates, the [claimant] is not entitled to damages against him, but without prejudice to any other remedy."
Reliance on s.233(1) was not pleaded by Bristan in its Defence in the substantive proceedings and so this was not a matter which concerned Judge Birss. It gives rise to two sub-issues: (a) was Bristan entitled to raise s.233(1) for the first time in the inquiry and (b) if so, does it afford Bristan a good defence?
Whether Bristan can rely on s.233(1) for the first time at the inquiry
(i) Time was short at the trial.
(ii) The trial was also concerned with RCDs, in relation to which Kohler did not succeed. But had it succeeded, Kohler would have obtained an injunction and damages such that there would be no reason to be concerned about the level of parallel damages for infringement of UDRs. Argument in relation to s.233(1) would have been a waste of time.
(iii) Section 233(1) only bites on damages prior to 6 December 2011.
(iv) Kohler relied on a number of UDRs of which 4 were held to attract design right protection and to be infringed. The innocence defence might have been sensitive to which UDRs were held to subsist and be infringed.
(i) It is too late as a matter of law, see the judgment of Warren J in Adobe Systems Inc v Netcom Online.co.uk Limited  EWHC 446 (Ch).
(ii) Kohler would have cross-examined the relevant witnesses at trial, whereas Bristan has not called the witnesses who know the relevant facts at the inquiry.
(a) the claimant's trade mark rights had been exhausted by the time of the defendants' importation since the products had been marketed with the consent of an undertaking economically linked with the claimant;
(b) the claimant had abused its dominant position contrary to art.102 of the Treaty on the Functioning of the European Union ("TFEU");
(c) the claimant had entered into agreements restricting competition contrary to art.101 TFEU.
Warren J assumed without going further that all three points were arguable. Regarding the first of them, Warren J had no hesitation in ruling that it was too late to raise the defence at the inquiry because of the public interest in the finality of litigation (see -). In relation to the second and third new arguments, Warren J took the view that the position was less straightforward since there was a countervailing policy consideration, namely that the courts should not enforce arrangements which are in breach of competition law (see ). Nonetheless the strong public interest in the finality of litigation should prevail and the fact of the order having been made meant there was no failure to meet the requirements of EU competition law (see -). It was also not open to the defendants to raise exactly the same defences under the guise of arguments in relation to the assessment of quantum of damages (see -).
Whether there is a good defence under s.233(1)
(a) it did not know, or
(b) it had no reason to believe
that design right subsisted in the four relevant designs.
" it seems to me that 'reason to believe' must involve the concept of knowledge of facts from which a reasonable man would arrive at the relevant belief. Facts from which a reasonable man might suspect the relevant conclusion would not be enough. Moreover, as it seems to me, the phrase does connote the allowance of a period of time to enable the reasonable man to evaluate those facts so as to convert the facts into a reasonable belief."
This was approved by the Court of Appeal (same citation) at page 139 (per Nourse LJ, with whom Staughton LJ and Sir Michael Kerr agreed). The same passage in Morritt J's judgment was considered by Mann J in Nouveau Fabrics Limited v Voyage Decoration Limited  EWHC 895 (Ch). Mann J made the following observations at , although they are mainly directed to the position following a complaint by the claimant:
"Accordingly, 'reason to believe' requires more than 'reason to suspect', and it requires an evaluation of all factors known to the defendant in order to see whether he fulfils the test. He does not have to accept a claimant's assertions at face value, but he cannot ignore them either. Having been made aware of the claim of copyright and copying, he has to evaluate it. What start as grounds for suspicion have to harden into grounds for belief, whether or not the defendant actually believes it. His evaluation will, in many cases (and certainly in the present) have to include making reasonable inquiries, and the answer to the question of whether he has reason to believe will have to take the result of those inquiries into account."
First head of damages lost profits from lost sales
If the infringing showers had not been available, some customers would have still wanted a similar design and would have bought a Mira Original. Others would have gone for one of Kohler's showers in a similar price band to the infringing showers, i.e. one of the Go, Vie or Zest.
It was not possible to tell how the split between sales of Mira Originals on the one hand and Go, Vie or Zest on the other would have worked out. The profit margin on the Mira Originals was significantly higher. Therefore Kohler would calculate its lost profits, in Bristan's favour, as if the margin on the Mira Originals was the same as on the Go, Vie and Zest.
Taking the shower market generally, i.e. all price bands, in the relevant period Kohler had 30% of the market. Therefore it was entitled to assume that had the 63,204 infringing Bristan showers not been available on the market, 30% of the sales would have gone to Kohler instead.
Kohler's loss was calculated at 30% of 63,204 sales multiplied by the average net profit on Kohler's Go, Vie and Zest showers.
This was subsequently modified when Bristan argued that the Go showers were sold through a trade channel, DIY outlets, which is different to that employed by Bristan's infringing showers. These were exclusively sold through trade merchants. Kohler's loss under this head was recalculated to be based on the average net profit from just the Vie and Zest showers.
Lost sales of products unprotected by the design rights infringed the law
" that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."
"Mr. Hobbs submits that the damages which a patentee can recover from an infringer by way of loss of profits are limited to the profits that would have been earned in activities for which the patent provides a monopoly. In other words, any activities of the infringer that do not in themselves constitute infringements cannot form part of a claim for lost profits. For the purpose of the present case, that submission would disqualify the claim in respect of the CAD systems. They could be sold by the infringers without infringing any right of the patentees; they are not within section 60(2) and (3); at most they are what are called convoyed goods (or "fellow travellers" as I would say), because they are commonly sold together with the patented product. The argument also extends to spare parts, servicing, and the springboard damages which relate to goods sold after the patent has expired.
There is no such limitation to be found in the Patents Act."
"Infringement of a patent is a statutory tort; and in the ordinary way one would expect the damages recoverable to be governed by the same rules as with many or most other torts. We were referred to Halsbury's Laws of England (4th edn) vol. 12 para 1128 and following, to establish the elementary rules (i) that the overriding principle is that the victim should be restored to the position he would have been in if no wrong had been done, and (2) that the victim can recover loss which was (i) foreseeable, (ii) caused by the wrong, and (iii) not excluded from recovery by public or social policy. The requirement of causation is sometimes confused with foreseeability, which is remoteness. The two are different - see Halsbury para 1141:
1141. Causation in tort. Subject to foreseeability and the principles of public policy it is prima facie necessary and sufficient for a plaintiff to prove that a defendant's wrongdoing was a cause and not necessarily the sole or dominant cause of his injuries, as a matter of physical consequences or common sense, but subsidiary principles associating foreseeability and causation have been evolved in certain categories of concurrent or intervening causes.
It is not enough that the loss would not have occurred but for the tort; the tort must (for present purposes at any rate) be, as a matter of common sense, a cause of the loss."
"Viewing the cases as a whole, I cannot find any rule of law which limits the damages for infringement in a patent case in such a way as to exclude the loss claimed by the patentees in the present case. In General Tire & Rubber Co. v. Firestone Tyre & Rubber Co. Ltd.  R.P.C. 197 at page 214 Lord Wilberforce approved a passage in the judgment of Fletcher Moulton L.J. in the Meters case which concluded:
"But I am not going to say a word which will tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reasons of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully."
Beyond that the assessment of damages for infringement of a patent is in my judgment a question of fact. There is no dispute as to causation or remoteness in the present case; nor can I see any ground of policy for restricting the patentees' right to recover. It does not follow that, if customers were in the habit of purchasing a patented article at the patentee's supermarket, for example, he could claim against an infringer in respect of loss of profits on all the other items which the customers would buy in the supermarket but no longer bought. The limit there would be one of causation, or remoteness, or both. But the present appeal, in so far as it seeks to restrict the scope of recovery, should be dismissed."
(1) A claimant who has established infringement of his IP right may, in principle, claim compensation for damage in relation to goods and/or services not protected by the IP right.
(2) Such damage can be claimed if it is (a) foreseeable, (b) caused by the wrong with the defendant has been found to have committed and (c) is not excluded by public or social policy.
(3) In relation to causation, it is not enough that the loss would not have occurred but for the wrong committed. The wrong must, as a matter of common sense, be the cause of the loss.
Lost sales of products unprotected by the design rights infringed this case
Head 2 reasonable royalty
(i) The royalty is assessed on the assumption that both licensor and licensee are willing to negotiate a licence and would reach a deal. Nothing may be taken into account which is inconsistent with the premise of a deal being made and a royalty agreed (at ).
(ii) That said, it is relevant if the licensee had alternative opportunities to take a licence from elsewhere, even if such a licence would have been less attractive. It is to be assumed that such alternative possibilities would have been taken into account when negotiating the royalty (at -).
The profit made by Bristan on the infringing sales
(i) Material cost, freight & duty £2,234,730
(ii) Marketing & development £ 375,740
(iii) Warehouse & distribution £ 482,352
(iv) Selling & admin expense £ 610,823
The appropriate royalty
" I now have to decide how to split that profit between the two sides. Mr Mitcheson urged me to adopt the 50:50 split which, he said, had been used in many patent licence of right cases and, for example, in Cabot. Mr Reed argued for 25:75, with the 75 per cent going to the licensee. This is an issue I have had to consider in previous cases such as E-UK Controls (at p.848) and Sterling Fluid System Ltd's Licence of Right (Copyright) Application  R.P.C. 775 (at p.789), and nothing Mr Mitcheson or Mr Reed have said on this occasion has persuaded me that the line I adopted in the previous cases is unsound. As I said in Sterling, whilst a 50:50 split may be appropriate in the very specialised field of pharmaceuticals, where manufacturing costs are very low compared to the massive research and development costs, I do not believe it is the sort of ratio that willing parties would agree in other fields. True it was also used in Cabot, but as Mr Reed observed, the point doesn't seem to have been argued in that case. In the present case, which is concerned with relatively routine mechanical components whose development costs are unlikely to have been very great, I am satisfied willing parties would have gone for Mr Reed's 25:75 split or something pretty close to it."
Head 3 additional advertising and promotional costs
Head 4 an uplift of 10% having regard to the IP Enforcement Directive
"1. Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him as a result of the infringement.
When the judicial authorities set the damages:
(a) they 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; "
Licence of right