England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		31 July 2001

Introduction

1. On 30 May 2001 I gave judgment in action HC 99 06782 (CH 1998 S 6872) against Worlds Apart Limited. In my judgment I upheld the validity of Spring Form's European patent (UK) number 487 342 and found that it had been infringed by certain tent-like structures sold in the jurisdiction by Worlds Apart Limited ('Worlds Apart'). Spring Form had started other actions against Toy Brokers Limited ('Toy Brokers') and its controlling mind Mr Brennan and against Argos Limited ('Argos') and Woolworths plc ('Woolworths').
2. The action against Toy Brokers and Mr Brennan was settled by a consent order on 31 January 2001 in which the defendants submitted inter alia to an order for a preliminary statement of profits following the directions proposed by Lightman J in Island Records v Tring International [1996] 1 WLR 1256. Subsequently an order was made by consent on 10 April 2001 whereby the claimants elected to take an account of profits and the following preliminary issue in the account was ordered to be tried:

'whether the Claimant is entitled to an account of the Defendant's profits between 3rd June 1992 (the date of publication of the application for the Patent) and 23rd September 1998 (the date of the grant of the Patent)'

and providing for directions to be given in the preliminary issue.

3. In the action against Worlds Apart, no order has yet been made, and no preliminary statement of profits has been provided. Worlds Apart has supplied infringing tents to both Argos and Woolworths, and I was told that it was liable to indemnify both Argos and Woolworths against either any award of damages for infringement or any order for payment of profits on an account.
4. Against this background, I have to consider the recoverability of profits made by Toy Brokers in the 'application phase'. The result of this determination will be of direct relevance in the other actions. I was also asked to decide a number of other questions arising in the case Spring Form elected for an account against Worlds Apart, Argos and Woolworths. I was concerned to discover during the hearing that an election for an account was not certainly to be made in these actions, and thus that the matters under discussion were hypothetical. The parties were all agreed that the questions needed to be decided: the claimants so as they could make a more informed election and the defendants so that they were aware of their potential exposure, and the parties agreed that since the order in the actions had not been made it would be appropriate to express the order giving the claimants their election in rather more detail than is customary. In this way, it was suggested that I was not deciding a hypothetical issue. I am happy to accede to this suggestion so far as possible so as to provide the parties with as clear a path as is possible in the circumstances. I should however make it clear that I was not asked to find any facts and that the factual basis of my decision is either common ground between the parties or determined by me in the action. This had the merit that there could be no speculation upon the relative sizes of any potential awards of profits or damages, and that the respective magnitudes of the profits made by Worlds Apart on the one hand and its customers Argos and Woolworths on the other were not known.

The issues

5. The first issue to be decided is that raised by the preliminary issue in the Toy Brokers action. It can be conveniently referred to as the section 69 point. With this issue there is a subordinate question whether Spring Form are entitled to seek this relief in respect of the application period having regard to their pleadings. This is a live issue in the other actions as well. The next issue concerns the position of the second

claimant ('Ninja'). Ninja is an exclusive licensee under the patent in suit. For a signficant period Ninja's exclusive licence was unregistered. What effect does section 68 of the Act have on recovery by Ninja and Spring Form if an account of profits is sought? This is the section 68 point. Worlds Apart also raise the question whether an account of profits should be permitted at all on the facts of the present case.

The account of profits

6. It is convenient to preface the discussion of the specific issues with a brief description of the nature of an account in actions for infringement of intellectual property rights. In the past judges have said that accounts of profits are intrinsically difficult to take, uncertain and expensive. Until recently they have not been common in infringement cases, whether of patents, trade marks, copyright or design, nor in passing off cases. There is a remarkably complete review of the jurisdiction to order an account of profits in intellectual property cases in the two judgments of Windeyer J in the registered trade mark case Colbeam Palmer Ltd. v Stock Affiliates Pty Ltd. (1969-70) 122 CLR 25. In the context of copyright proceedings Millett J considers the remedy in Potton v Yorkclose Ltd [1990] FSR 11, and in patent infringement proceedings the potential complexities are well illustrated by the judgment of Laddie J in Celanese International Corp. v BP Chemicals Ltd [1999] RPC 203.
7. I can summarise the main features of the remedy so far as it relates to infringement of intellectual property rights as follows. An account of profits in this context is a restitutionary remedy whose purpose is to deprive the defendant of the profits which he has improperly made by wrongful acts committed in breach of the plaintiff's rights and to transfer those profits to the plaintiff (see the judgment of Slade J in the Chicago Pizza case, My Kinda Town v Soll [1983] RPC 15 at 49). Its purpose is to prevent the unjust enrichment of the defendant (Potton v Yorkclose). Meagher Gummow and Lehane (Equity: Doctrines and Remedies 3rd Ed 1992) state the general rule in these words:

'The courts of equity would order an account be taken in industrial property cases, such as passing off and infringement of patent or trade mark cases. In these cases, an account would be ordered only if ancillary to an injunction, not otherwise. It should be noticed that in these cases the subject matter of the decree is not the state of indebtedness between the parties, but the profit made by the defendant. Nor is the profit always calculated on the same basis: in fraudulent passing off, the profit for which the defendant is accountable is the actual profit made in selling the goods in question; in the case of an infringement of patent or trade mark, the profit is so much of the profit which the defendant makes which is attributable to the mark or patent. The distinction was lucidly explained by Windeyer J in his learned judgment in Colbeam...

8. I shall return to the question of causation below. The test is in effect a 'but for' test, and the consequences are rather different for patents and copyrights on the one hand and trade marks on the other. Windeyer J in Colbeam pointed this out:

'It was suggested that the defendant's profit should be measured by the difference between the amount it received for painting sets bearing the trade mark and the amount it had paid to obtain them. The account taken when a patent has been infringed was suggested as an analogy. But to my mind there is an important distinction. If the infringes of a patent sells an article made wholly in accordance with the invention and thereby obtains more than it cost him to make or acquire it, he is accountable for the difference as profit. That is because he has infringed the patentee's monopoly right to make, use, exercise and vend the invention. But in the case of a registered trade mark, infringement consists in the unauthorised use of the mark in the course of trade in relation to goods in respect of which it is registered. The profit for which the infringer of a trade mark must account is thus not the profit he made from selling the article itself, but, as the ordinary form of order shews, the profit made in selling it under the trade mark.'

9. The calculation which is to be made is described by Windeyer J is

'(1) to ascertain the sum received by the defendants for painting sets sold by it . . . under the [trade mark]

(2) to ascertain the total cost to the defendant of

(a) obtaining the articles to be sold and getting them to its store or place of business. This will be the landed cost in Australia including any charges for customs duties etc. payable by the defendant and also any costs of carriage to the place of business; and of

(b) selling and delivering the articles to be sold to the buyers of them. This will include any costs directly attributable to such sales and deliveries. But it should not, I think, include any part of the general overhead costs, managerial expenses and so forth of the defendant's business, as it seems to me that all these would have been incurred in any event in the ordinary course of its business in which ...the painting sets were a "side line".

Then, taking the difference between (1) and (2) as the profit made by selling the goods, it would be necessary to ascertain how much thereof was attributable to the selling of them under the trade mark. That is a question of some nicety...'

Windeyer J returns to this question in his second judgment (122 ALR 40). He starts with the general principle, referred to in Cartier v Carlile (1862) 31 Beav 292 (trade marks) and in United Horsenail v Stewart (1886) 3 RPC 139 (patents), that the claimant is entitled in general to the net profit attributable to the infringing activity. 'When the patentee elects to claim the profits made by the unauthorised use of his machines, it becomes material to ascertain how much of his invention was actually appropriated, in order to determine what proportion of the net profits realised by the infringer as attributable to its use' - see Lord Watson in the latter case at 3 RPC 166 - 7. Observing that this question can sometimes be very difficult, he identifies one straightforward class of cases, represented by Peter Pan v Corsets Silhouette [1964] 1 WLR 96. Peter Pan was a confidential information case in which an account of profits was ordered in respect of all the profits arising from sale of the brassiere in question since Pennycuick J found that it could not have been made at all without the plaintiff's confidential information. These are cases in which one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man's property in a patent design or copyright, and do not give rise to a problem of apportionment of the profit to the infringing activity. The extreme problems which can arise in cases where apportionment must be carried out are illustrated in Celanese v BP (above).

10. That is not the end of the question, since it is clear that the court has an additional discretion to allow expenses for the exercise of skill and labour in bringing the infringing item to the market at all. In Redwood Music Ltd. v Chappell & Co Ltd [1982] RPC 109, in which the plaintiff had acquired a large number of reversionary interests existing by virtue of the proviso to sub-s 5(2) of the Copyright Act 1911, and the defendants showed (in order to establish a defence to conversion damages) that they believed, and had reasonable grounds for believing, that their copies of the relevant work were not infringing copies, Robert Goff J (as he then was) said this in relation to a possible account of profits:

'...in my judgment, on the principle stated by Wilberforce J (as he then was) in Phipps v Boardman [1964] 1 WLR 993 at 1018, a liberal allowance should be made for the skill and labour exercised by Chappells in producing, as parties who honestly believed that they were entitled to exploit the song on behalf of the heirs of [the author], the profits for which they are being asked to account.'

This is the same principle which in that case the House of Lords agreed existed and which was applied by the majority of the House.

11. On behalf of the defendants, Mr Wilson QC submits that this was not a case of deliberate infringement. Innocence was not pleaded, but the defendants had done a patent search which had failed to turn up the application for the patent in suit. Until their attention was drawn to its existence by the patentee they were unaware of it. This is not a case of deliberate infringement. This is accepted by Mr Silverleaf QC.

Apportionment of profits

12. There is here no process (Celanese v BP) but comparatively simple, but evidently popular, children's toys. On the face of it, therefore, this is a case where the whole profit is attributable to the infringement. Three particular questions are posed by the defendant's articles in this case. They bear merchandising embellishments (Teletubbies, Barbie, Winnie the Pooh and Thomas the Tank Engine) which it is contended contribute to sales. It is said that not merely are the licence fees to be taken into account when computing the net profit, but that the use of these powerful incentives to purchase for or on behalf of (or pressure from) children justifies an apportionment of net profit to their use. Then it is said that the defendant expended very considerable time and labour in the design of the alleged infringements (which are not foreshadowed in the patent in suit, albeit that they fall within the claims). Finally it is said that the defendant was licensed under the Arrow Link patent, a fact which should be reflected by an apportionment.
13. After some thought I prefer to express no concluded view on whether these matters could result in an apportionment of the profit. On the face of it each will be taken into account on the overall profits calculation as an expense. I suspect that only one of them (the merchandised characters) gives rise to any real claim for apportionment, on the footing that the characters give rise to additional profit entirely independent of the particular substrate. If it were shown that any given toy line will make 10% extra profit if it uses one of these merchandised features there may be some substance in the point. I am not satisfied that I have got to the bottom of this question, and, if this goes further, attention will have to be given to the question of evidence on this point.

Relief for infringement of the rights conferred by a patent application

14. By section 69 of the 1977 Act:

'(1) Where an application for a patent for an invention is published, then, subject to subsections (2) and (3) below, the applicant shall have, as from the publication and until the grant of the patent, the same right as he would have had, if the patent had been granted on the date of the publication of the application, to bring proceedings in the court ...for damages in respect of any act which would have infringed the patent; and (subject to subsections (2) and (3) below) references in sections 60 to 62 and 66 to 68 above to a patent and the proprietor of a patent shall be respectively construed as including references to any such application and the applicant, and references to a patent being in force, being granted, being valid or existing shall be construed accordingly.

(2) The applicant shall be entitled to bring proceedings by virtue of this section in respect of any act only-

(a) after the patent has been granted; and

(b) if the act would, if the patent had been granted on the date of the publication of the application, have infringed not only the patent, but also the claims (as interpreted by the description and any drawings referred to in the description or claims) in the form in which they were contained in the application immediately before the preparations for its publication were completed by the Patent Office.

(3) Section 62(2) and (3) above shall not apply to an infringement of the rights conferred by this section, but in considering the amount of any damages for such an infringement, the court. . . shall consider whether or not it would have been reasonable to expect, from a consideration of the application as published under section 16 above, that a patent would be granted conferring on the proprietor of the patent protection from an act of the same description as that found to infringe those rights, and if the court ...finds that it would not have been reasonable, it ...shall reduce the damages to such an amount as it ...thinks just.'

Sub-sections 62(2) and (3) relate to restrictions on the recovery of damages and on the account of profits: sub-s 62(2) relates to periods during which the renewal fee is not paid, which is irrelevant in the case of an application and sub-s 62(3) relates to amendments to patents whose specification as granted was not framed with good faith and reasonable skill and knowledge, again of no application to applications.

15. It is submitted by Mr Hacon that this provision permits recovery of damages only in respect of the pre-grant period. He relies on two simple submissions. First, without this section there is no right of action; and second, the section confers a right to bring proceedings in the court for damages. It does not mention an account. So far as an injunction is concerned, Mr Hacon observes, no proceedings can be brought until after

grant, and post-grant infringements support the right (if any) to an injunction. He points to sub-section 69(3) and submits that this applies in terms only to damages, and that it provides a valuable defence where the claim has been broadened in prosecution. Mr Silverleaf submits that the provisions in respect of sections 60-62 and 66-68 are entirely general and confer a right on the patentee to claim an account of profits in respect of the period during which he was an applicant merely. He submits that there is no rational basis for such an exclusion as that for which Mr Hacon contends.

16. In my judgment, it would be clear that an account is available in respect of infringements committed during the pre-grant period were it not for sub-s 69(3). It can be argued with justice that if it is irrational to exclude accounts of profits, so also is it irrational not to provide this defence, when it is available to a claim for damages. However, the contention loses some of its force when one considers that although sub-s 62(3) does not on its face apply to an account of profits, it may well be that an account of profits, an equitable remedy, should not be awarded in respect of infringement of a patent framed without good faith or the exercise of reasonable skill and knowledge. Mr Silverleaf submits that the award of an account can be refused on equitable grounds, and that such grounds as the unforeseeability of relevant protection must be relevant. On the whole, I consider that I should give greatest weight to the words of the section which apply sections 60-62 with the necessary amendments to the position before grant, and hold that in principle an account of profits is available in respect of infringing activities before grant.
17. Finally, I must consider the point arising on the pleadings. Mr Hacon submits that an account in respect of the application period is not open to the claimants on the pleadings. The particulars of infringements are in standard form: they allege infringement generally after the publication of the application for the patent in suit, and give one particular of the types of infringement relied on. Mr Hacon says, however, that the patentee has to show that there was infringement of the claims as applied for as well (para 69(2)(b)) and that this is an essential averment if relief in respect of this period is granted. I do not think this is right. The right place for this contention (if it is relevant) is on the account of profits or enquiry as to damages. It is essentially a subsidiary issue and can conveniently be dealt with in that way. It is not

an essential averment prior to the order for the account or enquiry being ordered.

Accounts and exclusive licensees: the statutory framework

18. The recoverability of damages and profits, the position of exclusive licensees and ancillary matters are dealt with by ss 61-69 of the Patents Act 1977. Section 61 deals with the relief available in patent actions and to some extent with the relationship between damages and an account of profits. Sections 67 and 68 deal with exclusive licensees. Section 69 deals with the infringement of the rights conferred by publication of the application.
19. Section 61 provides that subject to the provisions following, a claim may be made by the proprietor of a patent for various relief, including (para (1)(c)) damages in respect of the infringement and (para (1)(d)) an account of profits derived by him from the infringement. The word 'derived from the infringement' are apt to permit the apportionment of profits between infringing and non-infringing activity and the law in force is preserved by subsection (6) which provides that in determining whether or not to grant any kind of relief claimed under section 61 and the extent of the relief granted, the court shall apply the principles applied by the court in relation to that kind of relief immediately before the appointed day. Between 1919 and 1949 there was no right to an account of profits in patent infringement proceedings, but the recommendations of the Swan report, which led to the passing of the Patents Act 1949 was that accounts should once again be made available, for two reasons, viz that they were available in other actions for invasion of monopoly rights and that successful plaintiffs did not wish to disclose their confidential information to unsuccessful defendants in the course of an enquiry. The report contains no discussion whatever of the consequences of the recommendation and no critical analysis. There was no equivalent of sub-s 61(6) in the 1949 Act, but it is accepted that the account under s 61 proceeds on equitable principles.
20. Section 67 is as follows:

'(1) Subject to the provisions of this section, the holder of an exclusive licence under a patent shall have the same right as the proprietor of the patent to bring proceedings in respect of any infringement of the patent committed after the date of the licence; and references to the proprietor of the patent in the provisions of this Act relating to infringement shall be construed accordingly.

(2) In awarding damages or granting any other relief in any such proceedings the court... shall take into consideration any loss suffered or likely to be suffered by the exclusive licensee as such as a result of the infringement, or, as the case may be, the profits derived from the infringement, so far as it constitutes an infringement of the rights of the exclusive licensee as such.

(3) In any proceedings taken by an exclusive licensee by virtue of this section the proprietor of the patent shall be made a party to the proceedings, but if made a defendant or defendant shall not be liable for any costs or expenses unless he enters an appearance and takes part in the proceedings.'

The purpose of this provision is (subject to section 68 with which I deal below) to assimilate an exclusive licensee to the patentee for the purpose of bringing proceedings. 'Exclusive licensee' is a defined term in the 1977 Act by virtue of s 130:

"'exclusive licence" means a licence from the proprietor of or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), any right in respect of the invention to which the patent or application relates, and "exclusive licensee" and "non-exclusive licence" shall be construed accordingly;'

This definition is essential to an understanding of sub-s 67(2). There can be more than one exclusive licensee under a patent, as there is more that one 'right in respect of the invention'. In my judgment this term does not merely relate to the list of ways of infringing the patent set out in section 60, which are not described as rights, but to any subdivision of the monopoly conferred on the proprietor. To take an example proposed in argument, in the case of a pharmaceutical product, one manufacturer may have an exclusive licence in respect of manufacture and sale of dosage forms for veterinary purposes and another may have an exclusive licence in respect of manufacture and sale of material of dosage forms for administration to humans. The veterinary licensee has no interest in recovery in respect of human products although he has a cause of action in respect of them. Sub-s 67(2) is directed to ensuring that the exclusive licensee obtains compensation, to use a neutral term, only where the infringement affects his slice of the monopoly conferred by the patent.

21. Section 68 is concerned (among other things) with registration of the exclusive licensee's interest:

'Where by virtue of a transaction, instrument or event to which section 33 above applies a person becomes ... an exclusive licensee of patent and the patent is subsequently infringed, the court ... shall not award him damages or order that he be given an account of profits in respect of such a subsequent infringement occurring before the transaction, instrument or event is registered unless-

(a) the transaction, instrument or event is registered within the period of six months beginning with its date; or

(b) the court of the comptroller is satisfied that it was not practicable to register the transaction instrument or event before the end of that period and that it was registered as soon as practicable thereafter.'

Section 33 is concerned with the effect of registration on the priority of interests under patents, but the 'transactions, instruments or events' to which it applies include 'the grant ...of a licence ...under an patent or application'.

22. In this case, there are three periods which are to be considered. Ninja was granted an exclusive licence on 1 July 1997, to 'manufacture, distribute and sell the Licensed Structures) in the Territory.' This agreement was registered on 9 December 1998. On 9 September 1999, Spring Form and Ninja entered into a second agreement which was not registered until July 2001. The recitals to the new agreement state that Spring Form and Ninja wish to amend the earlier licence agreement on the terms set out in the new agreement. The new agreement does not, in fact, operate by amendment of the earlier agreement but replaces it and it states its commencement date as having been 1 July 1997. It contains a Californian choice of law clause and a provision that it is deemed to have been executed in Orange County, California. No evidence was adduced of Californian law. The new agreement contains no reference to the earlier terms and contains an entire agreement clause (20.11). This is as follows:

'This Agreement contains all the terms and conditions agreed upon [by] the parties hereto with reference to the subject matter hereof. No other agreements oral or otherwise shall be deemed to exist or to bind any of the parties hereto and all prior agreements, letters of intent, understandings and representations are merged herein and superseded by this agreement. Licensee represents that there are no contemporaneous Agreements or understanding between the parties [other than those] that are contained herein. This Agreement cannot be modified or changed ' except by written instruments signed by all the parties hereto.' (my emendations).
 


23. Mr Silverleaf QC submits that the disability imposed on Ninja by section 68 of the Act does not arise on the coming into force of the second licence, since by that document Ninja did not 'become ...an exclusive licensee' but merely remained one. It is far from clear to me in the light of this provision that it is open to Spring Form to allege even that there was a prior agreement, let alone that it conferred a licence on Ninja, but I prefer to base myself on what I think is the purpose of sections 68 and 33. These sections exist to coerce patentees and others entering into relevant transactions concerning the patent to register their interests. Where an agreement plainly replaces an existing agreement, which I conclude is the combined effect of the clause which I have set out and the commencement date of 1 July 1997, it is this agreement which is the agreement by which Ninja became Spring Form's exclusive licensee and this agreement which should be recorded on the Register. I conclude that Ninja were not disabled from claiming damages or an account of profits during the period from 9 December 1998 to 9 September 1999 but were not entitled to claim any other such relief save in respect of infringements after registration in July 2001.

Can the exclusive licensee and the patentee claim both profits and damages?

24. This discussion must proceed in stages. The first question is the effect of sub-s 61(2) on the election which may be made by a patentee: what is meant by 'infringement' in the sub-section. If it means 'act of infringement' (as in make, dispose of, offer to dispose of use or import and so on) then the provision is nonsensical, as in general it is the whole course of the infringer's dealing with a particular item which causes the patentee loss or gives the infringer profit. In this context it makes no sense to separate manufacture from sale. In my judgment, therefore, the word 'infringement' in sub-s 61(2) is used in colloquial way to denote the defendant's activities in respect of a single infringing article or operation of a process.
25. The next question is the effect of sub-s 61(2) on two plaintiffs with concurrent causes of action for damages, the patentee and the exclusive licensee. Does the provision mean that each have to make the same election? In my judgment, it clearly does so. The exclusive licensee's right is the 'same right' as that possessed by the patentee (sub-s 67(1)) and that this phrase does have a technical meaning is in my view slightly reinforced by sub-s 67(3) which requires the joinder of the patentee to proceedings by the exclusive licensee. On the other hand, it is to be observed that where the proprietor of a patent subject to an exclusive licence takes proceedings it is not necessary to join his exclusive licensee (one can contrast the provisions of s 66 relating to co-owners). On the whole, I prefer the view that s 67 is giving the exclusive licensee a common cause of action with the patentee and entitling him to recover compensation for his own loss.
26. In coming to this conclusion, I admit that I have been influenced by s 102 of the Copyright Designs and Patents Act 1988, which is explicit on the point:

`(4) Where an action for infringement of copyright is brought which relates (wholly or partly) to an infringement in respect of which the copyright owner and an exclusive licensee have or had concurrent rights of action-

(a) the court shall in assessing damages take into account-

(i) the terms of the licence, and

(ii) any pecuniary remedy already awarded or available to either of them in respect of the infringement;

(b) no account of profits shall be directed if an award of damages has been made, or an account of profits has been directed, in favour of the other of them in respect of the infringement; and

(c) the court shall if an account of profits is directed apportion the profits between them as the court considers just, subject to any agreement between them;

and these provisions apply whether or not the copyright owner and the exclusive licensee are both parties to the action.'

There may be more than one exclusive licence under a copyright: indeed, this is common. The statute permits one account only but a multiple recovery of damages, as one would expect having regard to the purposes of the two species of relief. While the phraseology is very different (s 102 has its origins in sub-ss 19(5), (6) and (7) of the Copyright Act 1956) I would be very reluctant to construe the provisions of the Patents Act 1977 to come to a different result if it could be avoided. I do not think that there is anything which requires me to do so, either as a matter of words in the provisions themselves or as a matter of principle. I would accordingly conclude that in an action for patent infringement the patentee and the exclusive licensee must elect either for damages or an account, and, if they elect for the latter, one account only will be awarded against the infringes.

The periods when Ninja was not registered.

27. I can now turn to the question of the scope of the relief which may be sought by Spring Form and Ninja in the period during which the latter was under the disability provided by s 68. Obviously Ninja cannot claim an enquiry as to damages in respect of any such period. So far as an account is concerned, two questions arise. Should an account be awarded to Spring Form, if the effect is that money will be apportioned between Spring Form and Ninja thus circumventing the prohibition of section 68; and should the court perform the apportionment which would be performed in the case of copyright under s 102 of the 1988 Act? There are no registration provisions so far as copyright is concerned, so in that case the question does not arise. I cannot see why, during this period, the patentee is not entitled to an account of the whole profits against the infringes. It may be that the court would put the patentee on terms not to account to the exclusive licensee so as to maintain the effect of s 68, but in principle I cannot see how this is to be distinguished from (say) an individual inventor confronted with an infringing manufacturer. Just as in all cases of infringement, the infringes has unjustly enriched himself albeit not at the expense of the plaintiff, and must account for it.
28. The contrary argument is that there is only one pot, holding the profits made illegitimately by the defendant. Since more than one person may be interested in the cause of action reflected in the profits made by the defendant, then any one of those persons should be entitled only to his proportionate share. This may well be true. But where there is only one person entitled to a cause of action for the profits, he is entitled to the whole share, and it does not matter that there is another who would be seeking to participate if he had the cause of action. I consider, therefore, that while there would have to be an apportionment between Ninja and Spring Form in respect of the period during which they could both claim the account, Spring Form is entitled to the whole of the profits for the periods during which Ninja was under a disability.

Accounts against successive infringers

29. The reported cases are concerned, so far as I can ascertain, only with situations in which the patentee (P) has claimed against an infringer (Dl) who has sold or used the goods. There is no case in which an account has simultaneously been sought against D2, the customer of D1, who also makes a profit (whether by infringing use or onward infringing sale) of the infringing article supplied to him at a profit by Dl. The position becomes significant because it is likely that D1 will be obliged to indemnify D2 against the claims made by P. If D1 becomes liable to indemnify the entire distribution chain it is conceivable that his exposure will become significantly greater than any profits he made by the infringement. Where there is a chain of distribution, the patentee may well prefer, in the general case, to seek an account of profits against the various components in the chain, since his damages will not exceed his own profit and may well amount only to a reasonable royalty if he cannot show he would have made the sales made by the defendants (see General Tire v Firestone [1976] RPC 197). I was asked to deal with three questions:

1. Is it possible to elect for an account of profits in respect of sale an article by D1 to D2 but for

damages in respect of its infringing sale by D2?

2. Is it possible to elect for damages in respect of Dl's infringing sale to D2, but for D2's profits derived from its further sale or use?

3. In any case, is there a `cap' or limit on the recovery, whether or not D 1 will ultimately pay the whole of the bill? Alternatively, are the amounts recovered against D 1 relevant in an account or inquiry against D2, and vice versa?

30. I have already construed the section 61(2) in the context of an account against a particular defendant as meaning that the patentee is restricted to either an account or damages in respect of the defendant's activities in respect of a single infringing article or operation of a process. There is no doubt that so far as one defendant is concerned damages and account of profits are inconsistent. But is the election made in respect of the infringing article in the hands of another. And what about the product of an infringing process which is sold to another and used?
31. I think the answer to this question is best approached through examining the award of damages. Wherever in a chain of supply a patentee chooses his defendant, he will recover as damages the loss reasonably foreseeable as a result of the infringing article going out into the market. Thus, if it is reasonably foreseeable that the goods manufactured or dealt in by a particular defendant will cause the patentee to lose his profit on a competing sale, he will recover that loss of profit, as will his exclusive licensee if he has one. It is thus often a matter of indifference where in the supply chain the defendant is selected: he may be selected because he is substantial; or because he is the only source of the infringing articles; or to obtain some sort of collateral advantage. If the patentee goes on to sue another, he will only recover the balance of the loss which he has not recovered from other defendants, although he will have a choice as to which to execute against and for how much. It is well settled that recovery of damages does not `frank' the infringing article for future dealing, but that it remains an infringement.
32. Once the claimant has elected to be compensated in damages for the appearance in commerce of the infringing article or process, it seems to me that the compensation which he receives reflects all the commercial stages through which the article goes or all the purposes for which the process is used and the product of the process is used: see for example Gerber v Lectra [1997] RPC 443. He is entitled to claim for the fact that a sale has caused him loss both now and in the future and may entitle him to ancillary and bridgehead damages. To permit computation of damages in this way is inconsistent, in my judgment, with examining parts of the commercial history of the infringing article and seeking in respect of some events an account of profits, and in respect of others damages. Accordingly I consider that an election extends to all

defendants in respect of any particular infringing article, infringing process or product of the latter.

33. The final question under this head relates in my judgment to computation. If a defendant is liable to indemnify, directly or indirectly, the other defendants, then in a damages claim his exposure is limited to the claimant's damage on Gerber v Lectra principles. Where an account is claimed, the indemnity will affect the actual profit which he makes. It may be capable of extinguishing his own profit if he pays it. This must be the case down the line of infringers. My reaction is that each defendant is able to set off against his profits the payments which he is obliged to make to other defendants on behalf of the patentee's claims. While this may entirely extinguish his liability to account, he will still lose if his payments to the others exceed his own

profits. It follows that the accounts must be taken together, and that no order for payment should be made in respect of any infringing article until the claimant undertakes not to make a claim in respect of that article against any other defendant. Unless this is done the account becomes hopelessly complicated.

Should an account be awarded at all

34. Mr Wilson's submissions on this point were, I think, largely directed to the potential unfairness of an account of profits. He did not point to any sound reason, such as unreasonable delay, which would normally be held to be capable of affecting the exercise any discretion which exists to award an account. He was very concerned about the way in which an account might work unfairly. I have dealt with his main topics (expenses, apportionment, multiple defendants and the position of the exclusive licensee) above. That is not to say that there will not be other questions which arise. But I am satisfied on the material I have seen that there is no reason to refuse an account altogether.

Concluding matters

35. I am conscious that in this judgment I have considered a wide variety of matters affecting an account. Some are capable of being embodied in the order for election, others not. On some I have not expressed a concluded view. I will hear counsel on a form of order which will embody these conclusions.