Intellectual Property Enterprise Court

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY ENTERPRISE COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		05/11/2014

Judge Hacon :

Introduction

1. This is an inquiry as to damages following the order of Birss J dated 28 November 2013 in which he entered summary judgment in favour of the Claimant ("NGRS").
2. The claimant is a trade body which both represents and provides services to its members, firms and individuals in the removal and storage business. The defendants ("the Stathams"), who are husband and wife, run a removal and storage business in Wrexham, North Wales.
3. NGRS's claim against the Stathams was for passing off by reason of two representations by the defendants that they were members of NGRS after they had ceased to be so.
4. NGRS claims by way of damages the fee that it says it would have charged had the defendants been licensed over the period of the unauthorised representation: £26,866.77.
5. The Stathams say (a) the two representations complained of were in a listing on a trade website overlooked until receipt of the letter before action, (b) the relevant pages of the website were only ever viewed by four unique users, all on the same day (25 March 2013), and these users and thus the only people who ever saw the pages were NGRS's employees and its lawyers and (c) the Stathams arranged for the removal of the representations on the same day they received the letter before action, 15 April 2013. The Stathams argue that a payment of nearly £27,000 in those circumstances is wholly unjustified.
6. NGRS does not accept that the only people who ever saw the representations complained of were its lawyers and employees. In any event, NGRS argues, it makes no difference: the Stathams must pay the going rate.
7. The trial was conducted on written evidence.

Background facts

8. The Stathams' business was a member of NGRS from 2001 until 13 October 2010. The fact of their membership was indicated on their business papers, their vehicles, their own website and in other advertising. When the membership ceased, references to membership of NGRS were all removed save for the two complained of.
9. There is a website operated by a company based in St Albans ("Really Moving") which allows those moving home or business to search for providers of conveyancing, survey or removal services. The address of the website is www.reallymoving.com ("the Really Moving website"). The Stathams had a listing on the Really Moving website which incorporated two references to their business, in each case identifying the business as a member of NGRS. The Stathams say that they overlooked this listing when their membership came to an end. Given that they removed all other references to NGRS I have no reason to doubt that this is true.
10. On 15 April 2013 the Stathams received a letter before action. On the same day the Stathams contacted Really Moving and by the next day both references to NGRS in the Stathams' listing had been removed.
11. On 5 August 2013 NGRS issued proceedings. The Defence was filed on 3 September 2013, although NGRS says that it was not served until 3 October 2013. On 10 September 2013 the Stathams made an open oral offer of £10,000 to settle the matter which was repeated in writing on 24 September 2013. The offer was refused. NGRS applied for summary judgment. This was not resisted and Birss J made an order for judgment in favour of NGRS on 28 November 2013.

The user principle

12. NGRS relies on the 'user principle' for calculating damages, that is to say it claims the licence royalty that the Stathams would have had to pay in order to make the infringing acts lawful. It was common ground that this was a legitimate basis on which to assess damages in this case. The relevant principles for assessment were considered by Arnold J in Force India Formula One Team Limited v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 606 (Ch); [2012] RPC 29 and by Newey J in 32Red OKC v WHG (International) Limited [2013] EWHC 815 (Ch), which I attempted to summarise in Henderson v All Around the World Recordings Limited [2014] EWHC 3087 (IPEC). For convenience I will repeat the relevant part of that judgment here:

"[18] … In Force India Arnold J considered Wrotham Park damages, i.e. of the type awarded in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. … Arnold J identified the following principles (at [386]):

'(i) The overriding principle is that the damages are compensatory: see Attorney-General v Blake at 298 (Lord Hobhouse of Woodborough, dissenting but not on this point), Hendrix v PPX at [26] (Mance L.J., as he then was) and WWF v World Wrestling at [56] (Chadwick L.J.).

(ii) The primary basis for the assessment is to consider what sum would have [been] arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place: see PPX v Hendrix at [45], WWF v World Wrestling at [55], Lunn v Liverpool at [25] and Pell v Bow at [48]–[49], [51] (Lord Walker of Gestingthorpe).

(iii) The fact that one or both parties would not in practice have agreed to make a deal is irrelevant: see Pell v Bow at [49].

(iv) As a general rule, the assessment is to be made as at the date of the breach: see Lunn Poly at [29] and Pell v Bow at [50].

(v) Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain: see Pell v Bow at [51].

(vi) The court can take into account other relevant factors, and in particular delay on the part of the claimant in asserting its rights: see Pell v Bow at [54]"

The Court of Appeal in Force India ([2013] EWCA Civ 780; [2013] RPC 36) did not dissent from Arnold J's summary of the law (at [97]).

[19] Wrotham Park damages, though they are for breach of contract, are in all relevant respects the same as those I have to consider under this head, so the foregoing principles set out by Arnold J apply. In the inquiry as to damages for infringement of trade marks in 32Red OKC v WHG (International) Limited [2013] EWHC 815 (Ch), Newey J's assessment was by consent also on the basis of willing licensor and willing licensee. Newey J endorsed the principles identified by Arnold J and expanded on them as follows:

(vii) There are limits to the extent to which the court will have regard to the parties' actual attributes when assessing user principle damages. In particular

(a) the parties' financial circumstances are not material;

(b) character traits, such as whether one or other party is easygoing or aggressive, are to be disregarded [29]-[31].

(viii) In contrast, the court must have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. The task of the court is to establish the value of the wrongful use to the defendant, not a hypothetical person. The hypothetical negotiation is between the actual parties, assumed to bargain with their respective strengths and weaknesses [32]-[33].

(ix) If the defendant, at the time of the hypothetical negotiation, would have had available a non-infringing course of action, this is a matter which the parties can be expected to have taken into account [34]-42].

(x) Such an alternative need not have had all the advantages or other attributes of the infringing course of action for it to be relevant to the hypothetical negotiation [42].

(xi) The hypothetical licence relates solely to the right infringed [47]-[50].

(xii) The hypothetical licence is for the period of the defendant's infringement [51]-[52].

(xiii) Matters such as whether the hypothetical licence is exclusive or whether it would contain quality control provisions will depend on the facts and must accord with the realities of the circumstances under which the parties were hypothetically negotiating [56]-[58]."

The judgments in Jones and Silveria

13. Ms Chantrielle, who appeared for NGRS, also relied on two judgments of HH Judge Birss QC in the Patents County Court concerning inquiries as to damages in which NGRS was claimant, namely National Guild of Removers & Storers Ltd v Silveria & ors [2010] EWPCC 15; [2011] FSR 9 and National Guild of Removers & Storers Ltd v Jones & ors [2011] EWPCC 4.
14. The Silveria judgment was in relation to four inquires; the defendants were not represented in any of them and did not appear. The Jones judgment was in relation to two inquiries. Mr Jones, one of the defendants, represented himself; none of the other defendants either appeared or were represented.
15. At both trials NGRS relied on the rules of membership and in particular the post-termination obligations on members as a guide to appropriate damages. In Silveria the relevant (2008) rules included (i) a 'run-off' advertising licence fee for £100 per week following termination of membership for advertisements appearing in the Yellow Pages and other similar public directories; (ii) in the event that a former member continued to use NGRS's name or logos after that period it was liable to pay a penalty of £200 per week; and (iii) if the former member was in breach of its post-termination obligations then in addition to the licence fee there were payable £100 per week 'liquidated damages', such damages to be paid from the date of the first breach until the breaches came to an end.
16. In relation to all four actions in Silveria Judge Birss assessed damages at £200 per week on the ground that it was both the higher of the two rates in the post-termination clause and the sum of the lower rate and the amount payable in the liquidated damages clause.
17. In Jones the only defendant who attended the hearing, Mr Jones, argued a number of points. The first was that he could just have paid the annual fee of £1,000 which NGRS had charged him and would then have undoubtedly been licensed. Therefore £1,000 was the right basis on which to assess damages. Judge Birss said this:

"[27] On the matter of the annual fee, in my judgment Mr Jones is right to the extent that the guild's annual fee is a relevant factor in assessing the damages but I do not accept that the matter is a simple as saying that the damages are the same as the annual fee. The guild's rules include provisions dealing with use of the marks after membership has ended and these rules therefore provide the starting point for assessing the guild's loss in those circumstances. However the overall exercise ought to take into account the annual fee in assessing the matter. These are damages for trade mark infringement, not for breach of contract, and the terms of the rules are relevant but not determinative. For the sake of argument if the guild were to write in an absurdly high run off fee in the contract that would not suddenly mean they would always be entitled to sums of that magnitude by way of damages for unlicensed trade mark use.

[28] The 2008 rules (clause 4.1) provide that the annual membership fee is £2,750. Mr Jones contended that he had paid only £1,000 annual membership. Mr Hill and his instructing solicitor were not in a position to challenge this since Mr Jones had made no attempt to file his evidence in good time in accordance with the directions for this inquiry. Mr Hill submitted that to make the assessment I should rely on the figure set out in the rules (£2750). I agree. Mr Hill on instructions informed me that the annual fee remained the same in 2008 and 2009 (£2,750 according to the rules) but in 2010 it rose to £5,200.

[29] For 2008 and 2009 damages of £200 per week would add up to £10,400 per year — just under four times the annual fee for that period. In my judgment that is too high and I will reduce the figure to £150 per week. Doing the best I can in the circumstances that seems to me to be a fair level. For 2010 the annual fee is £5,200 and so £200 per week gives an annual sum which is double the annual fee. I will not alter the £200 per week figure for 2010. In terms of monthly figures these weekly amounts become £650 per month in 2008/09 and £866.67 for 2010."

18. Mr Jones also raised a second point:

"[30] Mr Jones' second point was that the damages figures were out of scale with the value to his business of the use of the guild's marks. He said (see paragraph 21 above) membership of the guild was only worth about £6,000 in annual turnover and £1,500 in profit. I accept the principle that the value of a mark to a business is relevant in assessing what they would have paid for the use, and that that must come into the overall consideration of the rate, but in my judgment on the facts of this case I should not adjust the figures any further. I am not doubting Mr Jones' sincerity in giving the estimate but I do not have sufficient evidence on this to satisfy me that the figures before me need to be adjusted."

NGRS's case

19. In the present case Ms Chantrielle argued that I should follow the same approach as Judge Birss and that I should also take into account that the NGRS membership fee in the years 2010 to 2013, the period of infringement by the Stathams, was £5,200 per annum.
20. Ms Chantrielle's contention was that clauses 7.1.9, 7.1.11 and 7.2 of the membership rules in the years 2010 to 2013 are the most relevant provisions. In summary they state:

• There is a run-off fee of £100 per week for use of the NGRS name and logos, but on certain terms and only in relation to directory websites – not other websites or other media. This fee therefore did not provide a guide to damages in the present case.

• Any unauthorised use of NGRS's name or logos requires a payment of £200 per week. This provided the relevant guide.

21. Ms Chantrielle said that £200 per week from 31 October 2010 to 16 April 2013 came to £26,866.77 without interest. This amounts to about twice the assessment calculated by reference to the annual membership fee (£5,200 x 2½ = £13,000) and so, Ms Chantrielle argued, it is a figure which accords with Judge Birss's earlier judgments.

The Stathams' case

22. Mr St Quintin, who appeared for the Stathams, argued that Judge Birss had been wrong to use the post-termination provisions in the NGRS membership agreement as a yardstick or starting point to assess the licence fee that would have been agreed to use NGRS's registered trade marks. Mr St Quintin submitted that these provisions were unenforceable penalty clauses which could not be justified as a genuine pre-estimate of the loss which NGRS would suffer in the event of a post-termination breach by a member.
23. Two further principal arguments were advanced. The first relied on Mr Statham's evidence that his firm had been charged £1,800 for full membership of NGRS up to 2010 and that even after 2010 the £5,200 membership fee was only a headline figure that was never enforced. Mr Statham said that in practice NGRS charged between £1,500 and £1,800. He produced five invoices from NGRS for payment of membership fees in the period 2009 to 2014 to support this contention. Of these one was too early (2009) to be relevant. The other four appeared to support what Mr Statham said although the name of the member had been redacted from three of those invoices. Mr Statham also said that if in October 2010 it had been pointed out to him that he required a licence to make the representations on the Really Moving website, he would have taken out full membership of NGRS for the relevant period, with the obligations this would have entailed, rather than pay a licence fee under the post-termination clauses. It was argued that this formed the starting point for assessing damages on the user principle.
24. Secondly, Mr St Quintin argued that the full licence fee over 3 years was not the end point in assessing damages. He referred to the 2012 membership terms which contains provision for a headline annual fee of £5,200. Clause 4.4.1 permits payment of the lower figure of £4,500 if membership permits use of all names and logos licensed by NGRS (which go beyond the NGRS name and logos, covering RIOS, NIRII and OQMP names and logos) but excludes the right to use the names and logos in electronic directories (such as the Really Moving website). Mr St Quintin argued that this implied that the latter excluded right was worth £700 per annum. He then pointed to clause 4.4.2 which permits a still lower annual fee of £4,000 if the licence covers only the use of the NGRS name and logos – still without the right of use in electronic dictionaries. Mr St Quintin argued that clause 4.4.2 shows that 8/9 of the annual membership was for use of the NGRS name and logos as opposed to the remaining names and logos. The final step in the argument was that a licence to use just the NGRS name and logo solely in electronic directories was therefore 8/9 of £700, i.e. £622.22, or about 12% of the total membership fee. 12% of a membership fee of £1,500 was £180, or if the total fee was £1,800, 12% of that would be £216. Though Mr St Quintin did not say so, I think his point was that for 3 years (to cover the relevant two and a half years), the appropriate licence fee would be £540 or £648.

Discussion

25. The hypothesis with which I must begin is that immediately before the termination of the Stathams' membership on 13 October 2010 they entered into negotiations with NGRS for a licence to cover the use which the Stathams made of the NGRS name over the next two and a half years. Since both sides are to be taken to be willing to enter into a licence, I must assume that both would have been conciliatory to that extent.

The nature of the licence

26. The hypothetical negotiations are for a licence solely covering the right infringed (see principle (xi) referred to in paragraph 12 above) and only for the period of the infringement (principle (xii)). However these two features of a licence can sometimes be qualified by the further principle that the licence might include provisions going beyond the grant of precisely that which would have rendered the infringing acts lawful, depending on the realities under which the parties would be hypothetically negotiating (principle (xiii)). In relation to principle (xiii) Newey J had mainly in mind matters such as quality control provisions. But in my view the realities of the negotiation might, to take an example, require the term of the licence to be fixed as a period of one or more years. In such a case the term of the hypothetical licence would not normally be deemed to expire on the very day on which the defendant stopped infringing.
27. The fact that the licence under negotiation need only cover the IP right infringed may imply a degree of hindsight. It is possible that the parties would in reality not have known precisely which of the IP proprietor's rights the intended licensee would wish to exploit. For policy reasons the hypothetical negotiations are nonetheless conducted by reference only to the IP right (or rights) that in the event were infringed by the acts complained of. I think that in an appropriate case hindsight can be taken a little further. I have found that in October 2010 the Stathams did not have the Really Moving (or any other) website in mind at all. If they had, i.e. if there had been a conscious intent to continue the use of NGRS's name on their listing for on that website, the hypothetical negotiations would concern the appropriate licence fee for such use encompassing the relevant two and a half years. On the present facts I think the negotiations should be taken to be the same, that is to say conducted on the assumption that the parties had in mind in October 2010 a licence for the Stathams to use the NGRS name in a listing on the Really Moving directory which covered the relevant two and a half years.
28. However hindsight should not be taken too far. Mr St Quintin argued that since no one ever saw the Stathams' listing on the Really Moving website, aside from NGRS's employees and lawyers in the course of seeking evidence on which to found proceedings against the Stathams, it should be assumed that the hypothetical negotiations would have taken place on that basis. I do not agree. I think the distinction is that whereas, in relation to the acts of the defendant to be licensed, the parties are deemed to have had in mind what the defendant actually did, the parties are not deemed to have had knowledge of future acts of third parties beyond what would have reasonably been expected in the circumstances. In the present case neither side would have been in any position to know with precision how many hits the relevant page of the Really Moving website would receive. So the negotiations should be taken to have proceeded on the basis of a reasonable expectation. There was no evidence in that regard. I should also say that there was a dispute as to whether the Stathams' evidence sufficiently established as a fact that only NGRS's employees and lawyers saw the relevant page but I need not explore that.
29. I will go forward on the basis that in October 2010 the parties would have negotiated a licence giving the Stathams the right to state that their business was a member of NGRS on the Really Moving website and that the licence would cover the following two and a half years. The parties would have contemplated whatever would have been a reasonable number of expected hits on the Stathams' page of the website.

Comparison with the Jones and Silveria cases

30. In both the Jones and Silveria cases the post-termination provisions in the NGRS membership agreements served as a starting point for assessing damages. Judge Birss did not say that he need look no further, though he was obliged to work with the limited evidence he had. No argument about penalty clauses was raised.
31. Ms Chantrielle submitted that the argument that these post-termination provisions were penalty clauses was irrelevant; this was not a case about breach of contract so the law on penalty clauses was neither here nor there. I agree in principle, but had it been shown that the provisions were undeniably penalty clauses, I would not have taken them to be a sound basis for assessing the outcome of the hypothetical negotiations. Reasonable parties would not press for terms that would be unenforceable. In the end the law on penalty clauses was (sensibly) not explored in depth – not beyond the assertion that the relevant provisions did not represent a genuine pre-estimate of NGRS's loss in the relevant circumstances. This just takes the argument back to what parties would have taken to be reasonable.
32. In the two cases before Judge Birss there was no evidence that the putative licensees would have been willing to take full membership of NGRS for the relevant period. By contrast in this case there was express evidence to that effect from Mr Statham, which was not disputed.
33. As I have said, the hypothetical negotiations would have been concerned solely with a licence to the Stathams allowing them to state for the next two and a half years, on the Really Moving website, that their business was a member of NGRS. Bearing that in mind I have quite a lot of sympathy with the contention that the parties would have negotiated a licence taking the form of something less than full membership. As Mr St Quintin pointed out, versions of 'membership lite' were on offer for a reduced fee. However I do not accept his further argument based on cutting and dicing the membership rights. It assumes that NGRS would have been prepared to grant a licence limited to the use of its name on one directory website or on some other reduced basis that would have been relevant. There is no evidence on which I can make that assumption. Even Mr Statham did not suggest as much. In this regard his evidence was directed only to his willingness to negotiate full membership of NGRS for the following three years – which would cover the two and a half years of actual use. He did not say that anything less was a realistic possibility.
34. I therefore conclude that even though the nature of the hypothetical licence sought by the Stathams would have been limited in the way I have indicated, the best that NGRS would have offered is full membership for three years. I have no reason to doubt that as a willing licensor NGRS would have been content to have the Stathams signed up for a further three years. I also find that the Stathams as willing licensees would have accepted that offer.
35. That takes me to the fee for each year's membership. NGRS was served at the end of January 2014 with Mr Statham's evidence that in practice, in the period 2010 to 2013, NGRS charged between £1,500 and £1,800. NGRS made no attempt to adduce any evidence to contradict this. Under the rules governing procedure in the IPEC NGRS would have been under an obligation to apply to the court to file such further evidence and moreover sufficiently to explain its reasons for another round of evidence. It seems to me that such an application is likely to have been successful. As it is, I am left with the strong impression that members of NGRS in the period 2010 to 2013 were by no means universally required to pay the headline membership fee of £5,200.
36. I therefore find that the relevant annual fee which would have formed the basis of the hypothetical negotiations is £1,800 per annum. Three years membership would have been necessary, making a total fee of £5,400 payable.

Conclusion

37. The Stathams must pay NGRS damages in the sum of £5,400 plus interest. I will hear submissions on the appropriate rate and period for interest.