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
		08/05/2015

Judge Hacon :

1. Bodo Sperlein is a designer specialising in ceramics. He runs a business which is in part a design consultancy and in part devoted to the manufacture and sale of ceramics under the 'Bodo Sperlein' name. The business is conducted through the claimant company ("BSL") of which Mr Sperlein is the sole director and shareholder.
2. In 2001 Mr Sperlein created a design for tableware, completed in September of that year, which he called the 'Red Berry' design. Part of his design document is shown as Annex 1 to this judgment. The design document or a copy of it was sent in October 2001 to a decal printer. The creation of a surface design for items such as tableware using decals involves first, the design and manufacture of one or more decals. Then the decals are positioned on ceramic articles, the positioning forming part of the overall design process. Those articles become the models for manufacture of the ceramic items that are put on the market.
3. Mr Sperlein satisfied himself that the shape and colour of the Red Berry decals made to his design were as he wanted and he positioned them on various items of bone china – large and small plates, bowls, cups, saucers and so on – which make up a tableware collection. This was done over the next few months to create 'the Red Berry collection'. The collection was launched in September 2002 at the Maison et Objet trade show in Paris.
4. The Red Berry collection was very successful and became a signature collection of BSL. Between 2003 and 2005 the range of tableware bearing the Red Berry design was expanded to include other items such as a teapot and a napkin ring.
5. In March 2013 Charles Jarrett, an employee of BSL, saw items of tableware at a store in Guildford run by the First Defendant ("Sabichi Retail"). According to Mr Sperlein, at first Mr Jarrett thought that these were from the Red Berry collection, but on closer inspection they were products bearing the 'Sabichi' name from a range called the 'Red Blossom' collection.
6. A small plate from the Red Blossom collection is shown on the left in Annex 2 to this judgment. A bowl from BSL's Red Berry collection is on the right.
7. The Red Blossom design was created by employees of the Second Defendant ("Sabichi Homewares"). Tableware from the Red Blossom collection was made in China to the order of Sabichi Homewares, imported into this country by that company and sold to the public through stores, among others, run by Sabichi Retail.
8. BSL claims copyright in the Red Berry design document created by Mr Sperlein, the copyright having been assigned by Mr Sperlein to BSL. BSL alleges that Sabichi Homewares and Sabichi Retail have infringed its copyright by the creation of one or more copies of the Red Berry design in the United Kingdom and by the importation and sale of Red Blossom tableware in this country.
9. The parties also filed pleadings and evidence in relation to an account of the Defendants' profits. The trial concerned both liability and the quantum of profits if liability was established.
10. Mr Christopher Hall appeared for BSL and Mr Graham Cunningham appeared for the Defendants, which I will collectively call 'Sabichi'.

How the Red Blossom design came to be created – the first account

11. Sabichi's account of how the Red Blossom design came to be created altered slightly on the first day of the trial. I set out first the history of the design set out in Sabichi's written evidence, sometimes with further detail taken from cross-examination.
12. The Red Blossom design was developed in two stages. The first involved Hayley Adams who was employed as a designer at Sabichi Homewares from May 2006 to February 2007. She managed all of Sabichi Homewares' design work, working with one assistant whom she identified by the name 'Jenna Blackwell'. In her first witness statement Ms Adams emphasised that Ms Blackwell did not provide any exterior design influences.
13. Ms Adams said that she created a number of designs for Sabichi Homewares in 2006, one of which was called 'Twiggy', intended to be used on a dinner set. Final versions of two Twiggy designs were served by way of disclosure on a single A3 sheet (too faint to be satisfactorily annexed to this judgment). Ms Adams said that although the drawing is dated 2004, this is a mistake because she was not employed by Sabichi Homewares until 2006. The Twiggy designs were not selected for further development while Ms Adams remained an employee and she left for other employment in February 2007.
14. Sam Bagga, Managing Director of both defendants provided written evidence about the next stage. He said that in 2008 the company carried out a review of its earlier designs in the company's Asia office. The final Twiggy designs were found in an archive and a decision was taken to change the two colours used, platinum and silver, to a single red colour. Although not involved personally, Ms Adams said that she had been told by Mr Bagga that an employee of Sabichi Homewares, Emma Perruzza, had advised on the change of colour. Mr Bagga did not dispute this. Ms Adams thought this had happened in 2009 but nothing turned on the discrepancy in dates. The factory in China was instructed to use the final Twiggy designs shown on the A3 sheet, but in red.
15. There were two curiosities about this account. First, the designs on the large and small plates in the Red Blossom collection are neither exactly the same as those appearing on the Twiggy A3 sheet then said to have been sent to China, nor are they in the same position on the plates. Secondly, the Twiggy designs on the A3 sheet offer no guidance as to the positioning of the Red Blossom images for items in the collection other than plates, such as bowls, mugs and so forth.

Late applications to introduce further evidence

16. On the first morning of the trial both sides applied to introduce further evidence. BSL sought to file a fourth witness statement from Mr Sperlein. BSL's solicitors had by chance discovered an entry in the 'Linked In' website for a 'Jenna Backwell' who had worked at Sabichi Homewares as a designer from August 2006 to September 2008. As I have mentioned, Sabichi's evidence referred to Ms Adams' assistant as 'Jenna Blackwell', a name that rang no bells with Mr Sperlein. However, following the finding of the Linked In entry for Jenna Backwell, he searched the company's computer system and discovered that Ms Backwell had applied to BSL for a job in February 2010. The job application had been kept and it referred to Ms Backwell's time at Sabichi Homewares. It said this in response to a question on the job application form about her research techniques:

"I've always enjoyed researching and am very thorough. As a designer I produced five seasons of trend stories, which involved producing image boards and trend packs with descriptions. The research always started with a stimulating visual trip to Maison & Objet in Paris (homewares trade show) and meetings with trend prediction companies to see their books. Comp shows in London and lots of magazines and photocopying. The internet is always a wonderful up to date source but by no means the be all and end all."

17. Ms Backwell withdrew her job application to BSL, but the point that Mr Sperlein wished to make was that Ms Backwell had revealed an interest in what was displayed at Maison et Objet, that this will have included the 2006 trade show which occurred while she was employed by Sabichi as assistant to Ms Adams, and that the Red Berry collection had been featured at the 2006 show – and other years following its launch in 2002. Mr Sperlein's point was that this was evidence of a clear opportunity for Ms Adams to have become aware of the Red Berry collection in around 2006.
18. For its part Sabichi's application on the first day of the trial was to file further documents by way of disclosure and to use them in evidence. These documents were five further A3 pages showing Twiggy designs. I was told by Mr Cunningham on instructions that they were preparatory designs created by Ms Adams leading to the final Twiggy designs which had already been disclosed.
19. It will be rare that late applications to file additional evidence will be allowed in the IPEC. Mr Hall referred me to the helpful guidance given by Peter Smith J in relation to late evidence in Nottinghamshire and City of Nottingham Fire Authority v Gladman [2011] EWHC 1918 (Ch); [2011] I WLR 3235. All factors must be taken into account including in particular whether the opposing party is in a position to deal with the evidence. These considerations are relevant in the IPEC but CPR 63.23(2) must also be observed. This states that save in exceptional circumstances the court will not permit a party to submit material in addition to that ordered at the CMC. That is a hurdle which applies in addition to the matters which must be taken into account in the rest of the High Court.
20. I allowed BSL's application, first because there had been no reasonable opportunity to file the evidence earlier than it did, secondly because the delay in filing it was caused by Sabichi's mistake in their evidence, thirdly because Sabichi could deal with the point in cross-examination and last because the evidence was on its face clearly relevant to one of the principal issues before the court.
21. I was more doubtful about allowing Sabichi's application. There is always an ongoing obligation to give disclosure of documents in those categories ordered at the CMC so I had no objection to their being served on BSL. However Sabichi wanted to do more than just disclose these further Twiggy designs, they wished to alter their case on the creation of the Red Blossom design by reference to the new documents. The only reason given for the lateness in relying on the extra Twiggy drawings was a mistake on the part of Sabichi or their solicitors. That is no good reason at all. In the end I allowed Sabichi to rely on the new designs because they appeared to be highly relevant, in one direction or the other. I directed Sabichi to serve a further witness statement from Ms Adams on the evening of the first day of the trial to explain the further documents and put them properly in evidence. I also imposed a condition that Ms Adams had to return on the second day of the trial for further cross-examination so that BSL could properly deal with the new evidence.

The amended account of how Red Blossom came to be created

22. After the new Twiggy designs had been admitted, for the purposes of easy identification the two Twiggy designs which had already been disclosed on the first A3 sheet were referred to as Twiggy 1. The others, which appeared on five further A3 sheets of paper, were referred to as Twiggys 2 to 6 according to the sheets on which they appeared. Ms Adams stated that the designs in Twiggys 2 to 6 were preliminary designs created by her, probably on the same day that she created the Twiggy 1 designs.
23. The new version of events regarding how the Red Blossom design came about, largely advanced by Mr Cunningham on instructions, was that instead of a copy of the Twiggy 1 designs being sent to the Chinese factory, the Twiggy 6 designs had been sent. This made some sense in that the Twiggy 6 designs for the large and small plates are to my eye identical to those on the large and small plates from the Red Blossom collection, save that the former are in black.
24. As to colour, in his first witness statement Mr Bagga had said that red was chosen for the Red Blossom collection because it was evergreen in trend and popular with the British consumer. He also said that the decision was based on cost, implying that using red would be cheaper than the platinum and silver colours in Twiggy 1. In cross-examination Mr Bagga expanded on this. He said Sabichi Homewares wanted to use a shade of red that was standard in their range, so the Twiggy designs were sent to the factory in China together with an item from their range made in that shade of red.

The issues

25. A list of issues was agreed by the parties at the CMC and settled in my order of 2 July 2014. A number of issues were helpfully resolved or conceded before and during the trial. Those remaining came down to these:

(1) Whether Hayley Adams copied the Red Berry design when she created the Twiggy design.

(2) If so, whether she copied the Red Berry design in substantial part.

(3) Whether the Red Blossom design is a copy of the Red Berry design.

(4) If so, whether it is a copy in substantial part.

(5) If Sabichi are found liable for infringement of copyright, whether the court should exercise its discretion to allow an account of profits.

(6) If so, what costs are deductable from Sabichi's gross profits so as to arrive at the sum due to BSL?

Knowledge

26. The allegation of copying by Ms Adams which resulted in the creation of the Twiggy designs was an allegation of primary infringement of copyright. The pleaded acts in relation to products in the Red Blossom collection, that is to say importation and sale, were secondary acts of infringement. To establish that the latter were acts of infringement BSL had to prove in relation to each Sabichi defendant that it knew or had reason to believe that the imported items of Red Blossom tableware were infringing copies, see ss.22 and 23 of the Copyright, Designs and Patents Act 1988.
27. This burden on BSL notwithstanding, nothing regarding knowledge or reason to believe appeared in the agreed list of issues attached to the Order of 2 July 2014. It may not have been an oversight. BSL's pleaded case on knowledge relies on the notice '© Bodo Sperlein' marked on the base of the Red Berry products. The Defence denies knowledge on the part of Sabichi (paragraph 25) but apparently only because in one of the two images of Red Berry products shown in Annex K to the Particulars of Claim the notice is not legible. The notice was clear in the other image and certainly on the example of BSL's products I saw. It may well be that having inspected BSL's products, Sabichi came to a rational view that denying knowledge, should copying be proved, was not realistic.
28. I have to speculate about this because at trial I raised the topic of knowledge with Mr Hall, thinking that it was something BSL had to establish in the usual way. Mr Hall did not refer me to the pleadings or the © Bodo Sperlein notice but dealt with knowledge on his feet by reference to paragraph 16 of Mr Bagga's first witness statement, which indicates that the amendment of the Twiggy design to what became the Red Blossom design was a corporate decision on behalf of the 'company'. It was not disputed that Mr Bagga is the controlling mind of both Sabichi companies so it follows that both knew about that stage of the creation of the Red Blossom design. Mr Bagga also admitted in cross-examination that he was aware that copyright was likely to subsist in designs such as the Red Berry design. Therefore if the latter design was copied at the stage of amendment of the Twiggy design in 2008, it is inevitable that Sabichi knew or had reason to believe that the Red Blossom tableware would be infringing copies. So even leaving aside the © Bodo Sperlein notice, knowledge still falls away as an issue if copying in 2008 is proved.

The witnesses

29. Mr Sperlein appeared for his company. I found him to be an honest witness. Mr Cunningham rightly made no criticism of him.
30. I think Ms Adams was on the whole trying to give her evidence accurately. But I had the impression that she was conscious of what Sabichi were trying to establish and was willing to overstate parts of her evidence because she thought it would help Sabichi's case. For instance, while she did not deny that circumstances had provided the opportunity for her to see the Red Berry design, she was completely adamant that she had never seen it. I find it hard to believe how anyone not blessed with a photographic memory – Ms Adams did not claim that – could be certain that among the huge number of designs seen and presumably the many forgotten in the last 10 years or so, the Red Berry design could absolutely not be among them. I think it is possible that Ms Adams thought or had been told that if she admitted even the possibility of having seen the Red Berry design she would be letting the side down. This cast some doubt on her complete reliability as a witness.
31. Mr Bagga was not a satisfactory witness. His evidence was shown to be contradictory and unreliable on a number of counts. In relation to the profit made by Sabichi on sales of the Red Blossom ceramics Mr Bagga annexed to his first witness statement a spreadsheet dealing with the gross profits made by the two Sabichi companies from trade in the Red Blossom products, the costs incurred and thus the deductions to be made from gross profits when calculating relevant net profits. Among the costs Sabichi relied on in Mr Bagga's evidence were (i) VAT paid in relation to the Red Blossom products – even though the companies are registered for VAT which means, as Mr Bagga freely acknowledged in cross-examination, the VAT will have been recovered from HMRC, (ii) an anti-dumping duty levied by the European Union on imports of ceramics from China – although he conceded in cross-examination that this duty had not yet been imposed by the European Commission at the time the Red Blossom products were imported into the EU and (iii) a 2% inspection fee although, when Mr Bagga was reminded of the relevant purchase order, he admitted there had been no charge for inspection as shown on the purchase order. He suggested that an organisation different to the one referred to on the purchase order charged something for quality inspection. Mr Bagga was remarkably indifferent about whether his evidence was accurate or not.

The law

32. In John Kaldor Fabricmaker UK Ltd v Lee Ann Fashions Ltd [2014] EWHC 3779 (IPEC); [2015] ECDR 2, I attempted (at [22]) a summary of the steps to be taken by the court when assessing an allegation of infringement of copyright, particularly in the context of copyright in a fabric, drawn largely from the judgment of the House of Lords in Designers Guild Ltd v Russell Williams (Textiles) Ltd [2001] 1 All ER 700; [2001] FSR 11.
33. In the absence of direct evidence of copying, the first of the steps to which I referred is to consider whether the claimant has established a prima facie inference of copying by reason of similarities between the copyright work and the defendant's work. In many cases (this is one) any inference of copying will come in the first instance from a comparison between the defendant's work and a publicly available design in the alleged chain of copying. Mr Sperlein created the original copyright work, which is shown at Annex 1. It was copied and to some extent modified in the course of creating the Red Berry decals used on BSL china, as can be seen from the bowl on the right in Annex 2. If there was copying by Sabichi, the design directly copied was of course that on BSL's china, not Mr Sperlein's original work.
34. The copying, if it happened, occurred either when Ms Adams created the Twiggy design or alternatively when the Twiggy design was amended to create the design for the decals sent to the Chinese manufacturer in 2008, or on both occasions.
35. As I said in John Kaldor (at [11]), the stronger the prima facie case of copying which can be inferred from any similarities, the more compelling the defendant's evidence of independent design must be to rebut that inference. Evidence of independent design usually comes from the relevant designer, who says what he or she did. To move that evidence towards the compelling end of the spectrum, where this is needed, generally speaking it must (a) point to one or more designs available to the independent designer at the date of alleged copying, other than the claimant's or anything derived from it, which could plausibly have been the source of relevant design inspiration and/or (b) establish that the designer did not have access to any image of the design which, according to the claimant, was directly copied.
36. If copying is established, the claimant must still show that his design was copied in substantial part. In Designers Guild the majority of their Lordships held that once copying has been established, this will almost inevitably lead to the conclusion that a substantial part of the copyright work has been copied. In Lord Scott's view it was fully inevitable in instances of 'altered copying' (the present allegation is one of altered copying).
37. There is a qualification which was not relevant in Designers Guild but which I should mention. There may be a chain of copying starting with the copyright work, passing through one or more intermediate designs and finishing with the defendant's infringing copy. It is possible that the cumulative effect of changes in design made at successive stages of the chain is such that the defendant's design is not a copy of the claimant's copyright work in substantial part, even though it forms the end of a chain of copying which started with the copyright work. The point is that when it comes to assessing whether there has been copying in substantial part, the comparison must be between the claimant's original copyright work and the defendant's design alleged to infringe – i.e. comparing always the two ends of the chain of copying. Particularly where there is a long chain, there may in some instances be a weaker inference that there has been copying in substantial part just from the premise of copying having been established in the first place.

Whether the designs on BSL's Red Berry collection were copied

38. Quite a lot of time was spent on argument about the part played by the designs in Twiggys 1 to 6 in the creation of the Red Blossom design and why Twiggys 2 to 6 were withheld by Sabichi until the last minute. I find it impossible to reach a clear conclusion as to exactly what happened in relation to the various Twiggy designs and the precise role of each of them in the creation of the Red Blossom design. I have real misgivings as to why Twiggys 2 to 6 emerged so late despite many and clear requests for preliminary designs from BSL's solicitors in the period leading up to the trial. But I believe that it is not necessary for me to resolve either matter.
39. There are two alternative though related alleged chains of copying. Both necessarily begin with BSL's copyright work created by Mr Sperlein – the Red Berry design. BSL's first allegation is that when Ms Adams created the Twiggy design in 2006, she copied the Red Berry design which she saw either on BSL's dinnerware itself or on images of it in advertisements. The Twiggy design was modified by Sabichi in 2008 to create Red Blossom decals used on the Sabichi's Red Blossom dinnerware collection sold in this country, but the images on that collection are still a copy in substantial part of the Red Berry design.
40. The alternative allegation is that even if Ms Adams did not copy the Red Berry design, when it came to amending her design in 2008 Sabichi copied the Red Berry design to create the design which was sent to China with instructions to make decals of that design and apply them to dinnerware. That became Sabichi's Red Blossom collection.
41. In fact the distinction between the two alleged chains of copying does not matter much. The key similarity which Sabichi must explain away is that between the Red Berry design on BSL's homeware and the Red Blossom design on Sabichi's homeware. If such similarities are significant, it makes no difference whether they came about because of copying by Ms Adams in 2006 or by others at Sabichi in 2008, or both. It was not contended by Sabichi that if copying occurred at either stage, Sabichi escaped any liability that may flow from such copying. Sabichi's simple case was that no copying occurred either in 2006 or 2008.

Do the similarities in design create a prima facie inference of copying?

42. To my eye, the similarities between the Red Berry design and the Red Blossom design are very striking indeed. Ms Adams identified several differences, these being details such as the smooth twig of the Red Blossom design as opposed to the more realistic and detailed appearance of the Red Berry design, the number of berries, the precise placing and shape of the twigs and berries, and so on. But even Ms Adams conceded this in her witness statement (para. 19):

"I do realise that the Court may look at these designs and have difficulty telling them apart."

Ms Adams is right about that. I can see there are differences but I would struggle to say which was which without close inspection and this is after comparing them for some time.

43. One telling ground for an inference of copying is the colour used in the Red Blossom collection. I find it almost inconceivable that Sabichi's design should employ exactly the same shade of red as that of the Red Berry design unless either the latter was copied or alternatively there was a very convincing explanation for the coincidence. Sabichi's explanation was that this was a shade of red from its standard palette of colours and that the manufacturer copied it by reference to a sample Sabichi product supplied along with Twiggy 6. No Sabichi products at all, apart from pieces from the Red Blossom collection, were produced in evidence whether dating from 2008 or any other time. Absent such evidence I reject Sabichi's contention that this was a Sabichi standard shade of red. Similarity of colour is not something on which BSL can rely in relation to whether Ms Adams copied, since the Twiggy designs are in monochrome. But it is highly relevant to the allegation of copying in 2008.
44. It follows that to my mind Sabichi's evidence would have to be compelling indeed to rebut the prima facie inference of copying.

Has the prima facie inference of copying been rebutted?

45. Ms Adams denied that she had ever heard of Mr Sperlein or his company's products. But she admitted that she read the Sunday Times Style magazine. The Red Berry collection had been featured in that magazine but Ms Adams denied having seen it. She also admitted that she had attended the Maison et Object design show in Paris in 2006 at which the Red Berry collection was exhibited. She said that she and Mr Bagga, who was also present, found that it was not the kind of show at which Sabichi should be exhibiting. Even so, it seems that they spent something approaching half a day at the show. Ms Adams remained adamant that she saw nothing by Mr Sperlein.
46. There is nothing to suggest that Ms Adams must have seen the Red Berry design before her work on the Twiggy design in October 2006. But she could have done. It is also possible that Ms Backwell, who accompanied Ms Adams to the Maison et Objet show in 2006 (she did not give evidence) saw the Red Berry design and made suggestions to Ms Adams based on that design.
47. Ms Adams's evidence of an alternative source from which ideas for the Twiggy design could have come were non-existent. Nothing of that kind was produced by Sabichi which dated from October 2006 or earlier. Ms Adams said that her inspiration came from photographs of twigs with red berries, particularly holly bushes, together with winter foliage and floral scenes. These, she said, were found on the internet.
48. I do not think that Ms Adams discharged the burden of explaining away the similarities between the Twiggy design and the Red Berry design. I accept that she has no recollection of being influenced by the Red Berry design, but the possibility cannot be excluded that she has forgotten such influence or successfully put it out of her mind. I think it is likely that the Red Berry design did play a part in the creation of the Twiggy design.
49. Turning to 2008, the similarities between the Red Blossom design sent by Sabichi to the Chinese manufacturer in 2008 (or 2009) and the Red Berry design, including colour, are so striking that in my view the Red Berry design was copied in 2008, even if it had not been copied in 2006. No other explanation has been given for those similarities. I find that the designs appearing on Sabichi's Red Blossom collection are indirect copies of BSL's Red Berry copyright work.

Whether the Red Berry work was copied in substantial part

50. A comparison between the Red Berry work created by Mr Sperlein and the design on the Red Blossom ceramics leaves me in no doubt that Mr Sperlein's design was copied in substantial part. Mr Cunningham did not submit otherwise if I were to find that there has been copying.
51. It follows that Sabichi infringed BSL's copyright by the importation into the United Kingdom of Blossom ceramics and the sale here of those products.

Whether an account of profits should be refused in the court's discretion

52. Mr Cunningham submitted, rightly, that an account of profits is equitable relief and therefore the court has a discretion whether to order such relief. Mr Hall submitted that this argument should have been taken at the CMC and it was too late now. I do not accept that. At the CMC BSL had not yet elected between an inquiry as to damages or an account of profits. I think the highest that BSL can put this aspect of its case is to say that Sabichi should have listed its challenge to entitlement to an account of profits as an issue for trial, in the event that BSL were to pursue an account. That does not seem to me to be sufficient reason to dismiss Sabichi's challenge.
53. Mr Cunningham relied on Hollister Incorporated v Medik Ostomy Supplies Limited [2012] EWCA Civ 1419; [2013] FSR 24 and in particular paragraph 55 of the judgment of Kitchin LJ (with whom both Jackson LJ and Peter Smith J agreed) in which he said:

"…a successful claimant may seek an account of profits made by the infringer. This is an equitable remedy and the court has a discretion whether to order it. It may be refused if, for example, the infringer was entirely innocent or the trade mark owner has delayed in bringing proceedings."

Mr Cunningham also relied on paragraph 69 of the same judgment. There Kitchin LJ was considering whether an account of profits satisfied the criterion of proportionality which, among other criteria, the European Court of Justice (in Case C-348/04 Boehringer Ingelheim KG v Swingward Ltd [2007] ETMR 71) required to be satisfied in the context of the facts of Hollister:

"As for proportionality, an account of profits does not compensate the trade mark owner for the losses he has suffered. It simply deprives the infringer of the profits he has made from an activity in which he should never have engaged. It therefore ensures the infringer does not profit from his wrong, but it contains no element of punishment. Moreover, as an equitable remedy, it may be refused if for any reason it would produce an unjust result."

Mr Cunningham said that an account in the present case would produce an unjust result because Sabichi was 'entirely innocent' within the meaning contemplated by Kitchin LJ in paragraph 55 of Hollister.

54. The discretion to refuse an account of profits only falls to be decided if infringement has been proved. The main head of infringement of copyright in these proceedings is secondary infringement by reason of importation and sale. This required BSL to establish that Sabichi knew or had reason to believe that the Red Blossom dinnerware bore infringing copies of BSL's copyright work. 'Knowledge' in that sense was possibly conceded and was in any event proved if there was a finding of copying. I do not see how Sabichi can be 'entirely innocent' infringers in those circumstances. In my judgment there is no justification for refusing an account of profits in this case.

Quantum

The law

55. In OOO Abbott v Design & Display Limited [2014] EWHC 2924 (IPEC) I attempted to summarise (at [38] to [40]) the law on the costs which may be deducted from gross profits when assessing the appropriate profits payable by a defendant in an account, as settled by the Court of Appeal in Hollister:

"[38] … (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.

[39] The logic of the principle which I have numbered (3)(b) (adopted from the judgment of the High Court of Australia in Dart Industries Inc v Decor Corp Pty Ltd [1994] FSR 567) is that while a defendant may not deduct the profit that it would have made from the displaced business (i.e. the loss of profit from an opportunity forgone, called the 'opportunity cost') it would be unfair to deprive the defendant of both the opportunity cost and the apportioned overheads which would have sustained the displaced business (and which sustained the infringing business).

[40] The corollary of (3) as a whole is that if the overheads would have been incurred anyway in the absence of the infringing business and also no opportunity cost was incurred by the defendant, no overheads may be deducted from its gross profits."

This case – Sabichi Retail

56. The parties agreed that Sabichi Retail's gross profit earned from sales of Red Blossom dinnerware was £2,008.12. None of the deductions from that profit proposed by Sabichi was a cost associated solely with the sales of Red Blossom dinnerware – all were general overheads. In relation to those overheads, none was shown to have been increased because of the sales – in the sense that the increase would not have occurred but for the sales. It was not suggested that any opportunity cost was incurred by Sabichi. I therefore find that Sabichi Retail's relevant profit for the purposes of this account was £2,008.12.

This case – Sabichi Homewares

57. Sabichi Homewares' gross profit derived from the import and sale to Sabichi Retail of the Red Blossom dinnerware was £33,784.27. It was common ground that import duty at 12%, amounting to £4,089.38, was a deductable cost. Sabichi did not establish that there were any other allowable deductions.
58. I have already mentioned that Sabichi claimed deductions for VAT, anti-dumping duty and inspection fees, none of which were costs actually incurred by either Sabichi company. The other deductions sought were by way of general overheads. None was shown to have been increased because of Sabichi Homewares' trading in the infringing products. I give an example: the cost of the containers in which the products were shipped from China, which was the subject of most debate. The shipping documents indicated that the Red Blossom products were shipped in containers, each of which contained other products imported by Sabichi Homewares. Sabichi proposed a deduction from Sabichi Homewares' profits on the basis of a pro rata cost of the container shipment. This is a general overhead which is not deductable. It is of course possible that if the Red Blossom dinnerware had not been included in a shipment, a smaller container would have been used at a lower price to Sabichi Homewares. There were, in other words, the makings of an allowable deduction here. But there was no evidence to support it. Mr Bagga conceded in cross-examination that a shipment could be made without a full container. On that evidence it was possible that the same containers would have been used had the Red Blossom dinnerware not been in them. Even if that would not have happened, relevant figures to support an allowable deduction were not before the court.
59. Finally, there was no suggestion of any opportunity cost. I find that Sabichi Homewares' relevant profit was £29,694.89.

Conclusion

60. Sabichi's importation and sale of its Red Blossom dinnerware infringed BSL's copyright in the Red Berry design. Sabichi Retail and Sabichi Homewares are jointly liable for both companies' collective profit from such sales, that is to say £31,703.01. BSL is also entitled to interest on that sum, as to which I will hear submissions from the parties.

ANNEX 1

ANNEX 2