INTELLECTUAL PROPERTY ENTERPRISE COURT
Fetter Lane, London, EC4A 1NL
B e f o r e :
| OOO ABBOTT
(a company incorporated in the Russian Federation)
GODFREY VICTOR CHASMER
|- and -
|DESIGN & DISPLAY LIMITED
EUREKA DISPLAY LIMITED
Thomas St Quintin (instructed by Appleyard Lees) for the First Defendant
Hearing date: 24th July 2014
Crown Copyright ©
Judge Hacon :
" The case concerns display panels used in shops. Shopfitters often use a wooden wall called a slatwall as a panel on which to construct displays. Today the slatwall is made of MDF and has horizontal slots. Back plates or other shelf fixings can be fitted into the slots in order to secure display accessories such as shelves, brackets and hangers. The merchandise is displayed from the display accessories. The fittings are inserted into the jaws of the mouth of the slot and hooked into the top of an internal chamber of the slot lying behind its mouth.
 The slots are made by a computer controlled router moving across the width of the panel. A router makes a T shaped slot and leaves visible machined surfaces within the slot having machined away the decorative veneer that generally covers the face of the MDF. Also the edges of the veneer around the mouth of the slot are susceptible to damage as display accessories are hooked in and removed.
 For these reasons it became standard practice to provide inserts for slots, as protection against damage and to hide the machined surfaces. To an extent the inserts also strengthen the panel. The accessories are then fitted into the inserts rather than being fitted directly into the bare slots.
 The inserts are made by extrusion. By 2004 the standard inserts used were of two kinds: "slide-in" or "snap-in". As the name suggests slide-in inserts were slid into place from the edge of the slat wall. They were made of aluminium. They could be T-shaped, corresponding to the T shaped cross-section of the slot or else they could be L-shaped, using only the top arm of the slot. A problem with slide-in inserts was that if the edge of the slatwall was not accessible, for example at a corner, there is no room to slide the insert into place. Snap-in inserts solve this problem by being inserted from the front with a spring action. Because they needed to be compressible, they were made of PVC instead of aluminium.
 The invention in this case is a snap-in insert made from a resilient metal like aluminium."
(1) What was the length in metres of clip in aluminium extrusions which were found to infringed [the Patent] that was sold by each Defendant in the relevant period and at what sales price?
(2) Are the Claimants entitled to claim the profits which accrued to either Defendant as a result of the sale of slatted panel sold together with the clip in aluminium extrusions?
(3) If issue 2 is determined such that the Claimants are entitled to claim profits resulting from the sale of slatted panel sold together with the clip in aluminium extrusions, what were the quantities of such sales by each Defendant in the relevant period and at what sales price?
(4) What were the gross profits made by the Defendants from the sales determined under issues 1 and 3?
(5) What are the allowable costs that the Defendants are entitled to deduct from the profits determined under issue 4?
(6) From what date was the First Defendant aware, or had reasonable grounds for supposing, that the Patent existed for the purposes of section 62(1) of the Patents Act 1977?
How the panels and inserts are made and sold
Issue 1: Length of aluminium clip extrusions sold
Issue 2 : Whether Abbott are entitled to profits from slatted panels
" Although an account may give rise to a very different figure to that on an inquiry as to damages, they both proceed on a common principle of legal causation. On an inquiry the court is trying to determine what damage has been caused, in a legal sense, by the defendant's wrongful acts. It has to decide whether the breach was the cause of the loss or merely the occasion of it (see for example Galoo v. Bright Grahame Murray  1 WLR 1360). In an account the court is trying to determine what profits have been caused, in a legal sense, by those acts. This was stated expressly by the Canadian Federal Court of Appeal in Imperial Oil v. Lubrizol  71 C.P.R. (3d) 26 at 30:
'Just as in a reference on a claim for damages issues of fact relating to causality and remoteness may properly be explored, so may they be likewise on an accounting of profits … . It may be possible for Imperial to show that some part of the profits made on the infringing sales are not profits 'arising from' the infringement in that they are not caused by but made on the occasion of such infringement.'
 One consequence of this is that where the defendant carries on multiple businesses or sells different products and only one infringes, he only has to compensate the plaintiff for the damage inflicted by the infringements or he only has to account for the profits made by the infringements. For example in this case no question of BP having to account in respect of acetic acid from the DF plants arises. Similarly, save in respect of the period of the stay early this year where special circumstances are said to exist, it is not suggested that BP must account for the acetic anhydride made on the A5 plant. As Lord Watson said in United Horse Shoe and Nail v. Stewart (1888) 5 R.P.C. 260, it would be unreasonable to give the patentee profits which were not earned by use of his invention.
 A further consequence of these common principles is that it should be 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?' It should not matter that similar profits could have been made in another, non-infringing way."
 If this is right, it cuts both ways. Just as the defendant cannot reduce the profits by saying that he could have made all or most of them if he had taken a non-infringing course, so also the plaintiff must take the defendant as he finds him. He cannot increase the profits by saying that the defendant could and should have generated higher profits: see Dart Industries v. Decor Corp. Pty Ltd  F.S.R. 567 at 590."
The relevance of the claims of the patent to the scope of the inquiry
" In deciding whether the defendant has to account for all or only a part of the profits made on a particular venture, I respectfully agree with the view expressed by the Canadian Federal Court of Appeal in Imperial Oil v. Lubrizol that this is a matter of fact and that form must not be allowed to triumph over substance. As I have mentioned above, HC commenced the inquiry arguing that low-iodide acetic acid was a product made directly from the patented process and therefore was an infringement in its own right pursuant to s.60(1)(c) of the Act. Based on this it said that because the whole product was an infringement, therefore all the profits made from it were accountable. Arguments as to whether the product is acetic acid or purified acetic acid hide the real purpose of the account which is to identify what profit has been made by BP by using the patented purification method. The point can be illustrated by the tin whistle example much beloved of patent practitioners. Someone invents a new form of tin whistle. With the aid of his patent agent he obtains a patent. Regrettably, but as is now common, the patent ends with claims of ever greater particularity and narrowness. (Subsidiary claims limited to the patented article made out of plastics material of a particular colour are not unknown.) Claim 1 is for the tin whistle. Claim 10 is for a funnel to which the new tin whistle is connected. Claim 15 is for a battleship with a funnel to which the tin whistle is connected. No doubt none of the subsidiary claims are independently valid over Claim 1 but they are probably not per se invalid. Nor is there any doubt that an injunction or an order for delivery up would be directed to the tin whistle alone rather than the whole battleship. Similarly on an account substance not form counts. What the defendant has to account for is the profit made by exploitation of the invention, i.e. the whistle, not profits made by exploitation of material or activities which are not attributable to the plaintiff's ingenuity, i.e. the rest of the battleship."
"There the accessories were of a nature capable of being applied to any car, and were certainly capable of being and were in fact dealt with as separate. Here nothing of that sort takes place and the parts incorporating the invention, are, in my opinion, component and essential parts of the meter regulating and controlling – from the Gas Company's point of view – the most important functions of the meter, that is to say the supply of the exact amount of gas to which the consumer is entitled having regard to the amount he has paid and the current price of gas. In my opinion, the mechanism protected by these Patents is of the very essence of the meter;"
"… the Patents Act is aimed at protecting patentees from commercial loss resulting from the wrongful infringement of their rights. That is only a slight gloss upon the wording of the statute itself. In my judgment, again as a matter of first impression, it does not distinguish between profit on the sale of patented articles and profit on the sale of convoyed goods. So I must look to see whether any such distinction emerges from the case law."
"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."
The Court of Appeal upheld Jacob J's view that the scope of the inquiry should extend to non-infringing machines, spare parts and servicing.
"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." (original italics)
In Celanese Laddie J focussed only on causation but I doubt that he was intending to differ from what Staughton LJ had said. Often, whether using remoteness or causation as the test for limiting the scope of an inquiry or account, one would arrive at the same answer. However, both must be considered.
Issue 3 : Quantity of unincorporated panels sold
Issue 4 : Gross profits
Issue 5 : Costs which may be deducted from the gross profits
"The Central Costs Issue
 In my judgment the applicable principles are those identified by the Court of Appeal in Hollister inc. v. Medik Ostomy Supplies Ltd (ante) at  to . In summary:
i) An infringer is entitled to deduct any direct costs associated with the infringement and also any overheads to the extent that they have been increased by the infringement – see ;
ii) It is not permissible for a defendant to allocate a proportion of its general overheads to an infringing activity – see ;
iii) The evidential burden rests on the infringer to show that the relevant overheads are properly attributable to the infringing activity – see ; and
iv) It followed that in any case where a defendant seeks to deduct an element of general overheads it will be for it to prove its business was running to capacity or that but for the infringement it would have sold other products or that its overheads would have been lower if it had not infringed – see ."
(1) Costs associated solely with the defendant's acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant's other businesses.
(2) The defendant is entitled to deduct the former costs from gross profits.
(3) A proportion of the general overheads may only be deducted from gross profits in two circumstances:
(a) if an overhead was increased by the acts of infringement (i.e. the increase would not have occurred but for the acts of infringement), that increase may be deducted;
(b) if the defendant was running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted, the apportioned overheads incurred by the infringing business (and which would have been incurred by the displaced business) may be deducted.
(4) The evidential burden is on the defendant to establish any of the above.
(1) The switch from sales of infringing inserts to sales of non-infringing inserts made no difference to sales figures. Design & Display would have sold just as many products if it had not infringed. Therefore the overheads claimed which supported the infringing business would have supported a non-infringing business if Design & Display had chosen not to infringe.
(2) Because it would have received no less custom had it sold non-infringing inserts, its business was working to capacity in the sense that there was no more business to be had by selling infringing inserts.
(3) Mr Lloyd gave evidence that it did not have staff or machines standing idle ready to exploit other opportunities. If an exceptional opportunity arose (as happened because of a contract with Vodafone in 2012) Design & Display took on contract workers, hired equipment and a temporary building to accommodate the extra work. The employee headcount varied from year to year. This showed that the company was working to maximum capacity.
Issue 6 : Whether, and if so from which date, s.62(1) may be relied on
"In proceedings for infringement of a patent damages shall not be awarded, and no order shall be made for an account of profits, against a defendant or defender who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed; and a person shall not be taken to have been so aware or to have had reasonable grounds for so supposing by reason only of the application to a product of the word "patent" or "patented", or any word or words expressing or implying that a patent has been obtained for the product, unless the number of the patent accompanied the word or words in question."
" That may be right, but seems to me to ignore policy issues which, although they are not identical to those considered by Warren J, are important for all that. Parties should know where they stand in relation to each side's arguments by the time the pleadings are closed – not least in the IPEC. If it is a defendant's case that damages to which the claimant would be entitled if he wins are never going to be available because of s.233(1), this should be made clear in the pleadings for the trial on liability. It may have a significant effect on the way the claimant pursues the proceedings and also the degree to which the claimant may be amenable to settlement. If the claimant succeeds at trial, knowledge of whether an argument is being advanced under s.233(1) might easily affect whether the claimant elects to go for an inquiry or an account of profits. Mr Cuddigan, who appeared for Bristan, argued that if Kohler made the wrong election in the present case, that was its own fault for not taking into account the possibility that Bristan might rely on s.233(1). I reject that. It was Bristan's choice whether to rely on the subsection and Kohler's right to know in good time what choice Bristan had made.
 In this court cards should not be held behind the back of litigants after the case management conference, to be played as and when seems tactically best, or alternatively only when a party notices that a card might be put into play.
 If Bristan had pleaded reliance on s.233(1), it would have been perfectly legitimate at the case management conference in the substantive proceedings for Bristan to have raised the question whether, as a matter of procedural economy, argument on the point might better be left to the inquiry, if there was to be one. The various arguments now raised by Bristan (summarised above) could have been advanced. The court might have decided they were telling and may have ruled that s.233(1) should be left to the inquiry. There would have been no question of either party concealing part of its case from the other and in particular Kohler would have approached the proceedings in full knowledge of all points being taken against it.
 It seems to me that just as Warren J felt he had a discretion to allow defences to be raised for the first time at an inquiry (or so I infer from his judgment) and that such discretion should be exercised by reference to policy considerations, I should approach Bristan's application to rely on s.233(1) in the same way. In my judgment Bristan is not entitled to rely on that subsection for the reasons of policy I have referred to. These are not outweighed by other considerations."