England and Wales Patents County Court

IN THE PATENTS COUNTY COURT

		St. Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		22nd June 2011

HHJ BIRSS:

1. This is an action for trademark infringement which is now in the stage of financial remedies. The claimants hold registered trademarks relating to the products in question, which are colostomy pouches. The defendant has been engaged in the parallel importation of these products.
2. The facts of this case are not in dispute. Essentially, the reason that the defendant's products infringed the trademarks in question is because of a failure to give notice in accordance with the law relating to parallel importation which is set out in a number of Court of Justice decisions, but the particular one which has a bearing on this case is Boehringer Ingelheim v Swingward Limited Case C-348/04 [2007] ETMR 71.
3. The issue is this. The claimants elected to seek an account of profits, which they were entitled to do. The defendant put in a Response to the Points of Claim. The Response to the Points of Claim includes at paragraph 4 the following:

"4. The claimants' entitlement to a financial remedy for infringement of their trade marks, including an account of profits, is to be assessed in the light of the extent of damage to the claimants caused by the defendant's infringement and in accordance with the principle of proportionality. In this regard the defendant relies on the fact that the defendant's acts of infringement were due solely to the defendants failure to give adequate prior notice to the claimants concerning the defendant's repackaged products. The claimants have not alleged in their Points of Claim that they have suffered any damage caused by the defendant's failure to give adequate prior notice and the claimant's have suffered no such damage. Accordingly the claimants are entitled to no sum, or no more than a token sum in their claim for an account of profits."

4. The Reply from the claimants does not engage with paragraph 4 and the matter proceeded. I should say that the Points of Claim were filed in January of 2011.
5. When it came to exchanging evidence, the defendant filed two witness statements from Mr Backhouse and Mr Bromley. Essentially, the point of this evidence was to assert that the claimants were fully aware that the products were being parallel imported albeit that proper notice in accordance with the requirements of European law and trademark law had not been given. It is not for me to say whether what they say is right or wrong at this stage.
6. The claimants sought to strike out those witness statements and in the course of the debate between the parties, it became clear that the real question was whether paragraph 4 in response to the Points of Claim should stand or not. Essentially, subject to some details, it is agreed, or was agreed, that if paragraph 4 stays in, the witness statements could stay, and if paragraph 4 goes out, it is certainly agreed that the witness statements should go. The real question is whether paragraph 4 is a proper plea in this account of profits.
7. The principles governing accounts of profits under the English law are summarised conveniently in the judgment of Mr Justice Laddie in Celanese International Corp. v BP Chemicals Limited [1999] RPC 203 at paragraphs 35-37 as follows:

'General principles

35. A plaintiff who is successful in patent litigation has an entitlement to elect between damages and an account. The differences between them are considerable. Where the plaintiff seeks damages, the purpose of the inquiry is to determine what loss he has actually suffered. That loss may far exceed any gain made by the infringer through the infringing activity. Furthermore if the activity of the defendant infringes different rights held by different plaintiffs, he will have to compensate them all for the damage they have suffered. In this respect there is no upper limit on the compensation he may have to pay. The more damage he inflicts, the greater the financial burden imposed on him. In working out quantum the court has to determine what acts of infringement have been committed (an issue which may have been resolved on the trial as to liability) and what damage has been caused, in the legal sense, by them. In doing this the court is not allowed to speculate on whether the defendant could have avoided infringement and, if so, what damage would have been inflicted on the plaintiff by such alternative legitimate activites. It may be that a non-infringing activity would have inflicted the same or more financial damage on the plaintiff. If so it could be said that the plaintiff is no worse off as a result of the infringement than he would have been if a non-infringing course of action had been adopted by the defendant. But this is irrelevant to an inquiry as to damages. As Jacob J. said in Gerber v. Lectra [1995] R.P.C. 383 , the courts have consistently rejected this approach. The fact that the plaintiff could have been damaged by actions of the defendant for which it had no legal redress does not detract from the fact that the damage was inflicted by activities for which it is entitled to redress.

36. An account of profits is very different. Instead of looking to the harm inflicted on the plaintiff it considers the profit made by the infringer. The defendant is treated as if he conducted his business and made profits on behalf of the plaintiff. A number of consequences flow from this. One of them is that the maximum payment which can be ordered is the total profit made by the defendant. It may be that that figure far exceeds the damage suffered by the plaintiff as was pointed out in Colburn v. Simms (1843) 2 Hare 543 . The hope of obtaining more is the normal reason why plaintiffs elect an account in those comparatively rare cases in which they do so. Furthermore there is only one profits "pot". If different plaintiffs seek accounts in respect of different infringing activities of a defendant within a single business, the totality of the profits ordered to be paid should not exceed the total profits made by the defendant in that business. Mr Watson accepted that to be so.

37. Although an account may give rise to a very different figure to that on an inquiry as to damages, they both proceed on a common principle of legal causation. On an inquiry the court is trying to determine what damage has been caused, in a legal sense, by the defendant's wrongful acts. It has to decide whether the breach was the cause of the loss or merely the occasion of it (see for example Galoo v. Bright Grahame Murray [1994] 1 WLR 1360 ). In an account the court is trying to determine what profits have been caused, in a legal sense, by those acts. This was stated expressly by the Canadian Federal Court of Appeal in Imperial Oil v. Lubrizol [1996] 71 C.P.R. (3d) 26 at 30 :

"Just as in a reference on a claim for damages issues of fact relating to causality and remoteness may properly be explored, so may they be likewise on an accounting of profits …. It may be possible for Imperial to show that some part of the profits made on the infringing sales are not profits `arising from' the infringement in that they are not caused by but made on the occasion of such infringement."'

8. Those principles are stated in a patent case. They manifestly apply in general terms to an account of profits in any intellectual property case, no doubt with proper adjustment. The whole point in an account of profits is to focus on the profits made by the infringer rather than the question of damage suffered by the claimants. A particular point which is not relevant generally speaking to an account of profits is the question of whether the claimant, the right holder, has suffered any damage as a result of the defendant's infringements.
9. The particular problem in this case arises from the judgment of the Court of Justice in Boehringer Ingelheim v Swingward Limited. Mr Hacon submits that that judgment has affected a change to English law, specifically in the particular factual circumstances which were dealt with in that decision and which pertain in this case. Those circumstances are that the only reason for infringement is the failure to give notice. The other four criteria which apply in these parallel importation cases, which were set out in the Bristol-Myers Squiibb v Paranova [1996] ECR I-3457, are satisfied.
10. In particular, the relevant passage from the Court of Justice's decision in Boehringer is the section from paragraphs 55 through to 64. I will not set out the whole of that but the most important paragraphs are 63 and 64, as follows:

"63 Thus, a national measure under which, where a parallel importer has marketed goods which are not spurious without giving prior notice to the trade-mark proprietor, that proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious, is not in itself contrary to the principle of proportionality. However, it is for the national court to determine the amount of the financial remedies according to the circumstances of each case, in the light of, in particular, the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and in accordance with the principle of proportionality.

64 In the light of the foregoing, the answer to the third question must be that, where a parallel importer has failed to give prior notice to the trade mark proprietor concerning a repackaged pharmaceutical product, he infringes that proprietor's rights on the occasion of any subsequent importation of that product, so long as he has not given the proprietor such notice. The sanction for that infringement must be not only proportionate, but also sufficiently effective and a sufficient deterrent to ensure that Directive 89/104 is fully effective. A national measure under which, in the case of such an infringement, the trade mark proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious, is not in itself contrary to the principle of proportionality. It is for the national court, however, to determine the amount of the financial remedies according to the circumstances of each case, in the light in particular of the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and in accordance with the principle of proportionality."

11. Mr Hacon submits that what this means is that although the Court of Justice had made it absolutely clear that a financial remedy such as account of profits is not in itself contrary to the principle of proportionality in question, in other words a trademark proprietor is entitled to an account of profits, the assessment of the amount of the financial remedy in the particular circumstances of the case is conditioned by two factors which are set out in the Court of Justice decision. The two factors are the extent of the damage to the trademark proprietor caused by the parallel importer's infringement and the principle of proportionality.
12. I should add that the questions the Court of Justice were asked by the Court of Appeal in this case made it clear that 'financial remedies' specifically included not just damages for infringement but also the handing over of all profits made by infringement. That can be seen from the questions that were put to the Court of Justice. So Mr Hacon submits paragraph 4 is a good plea and in particular he points out that the first sentence of paragraph 4 is essentially something of a paraphrase, more or less a direct quote, from the decision of the Court of Justice. He also refers me to paragraphs 67 to 80 of the opinion of the Advocate General, Eleanor Sharpston QC, in that case and in particular paragraphs 75 to 77 which say as follows:

"AG75 Two scenarios may be envisaged: no (or inadequate) notice, but compliance with the first four BMS conditions, and no (or inadequate) notice, but non-compliance with one or more of the first four BMS conditions.

AG76 In the first of those scenarios, which forms the basis of the referring court's question, it seems to me that it would be disproportionate to sanction the parallel importer for failure to give notice as severely as if, in addition to failing to give notice, he had breached one or more of the substantive conditions. A sanction is nonetheless appropriate because, as explained above, giving notice is an important procedural requirement; and by failing to give notice the parallel importer has (deliberately) deprived the trade mark owner of the opportunity to effect the prior control that Community law allows him. The sanction should thus be effective and dissuasive. It should not, however, be equal to the sanction that would apply if the substantive conditions had also been breached, because that would be disproportionate.

AG77 The defendants express concern that the trade mark owner may, after becoming aware from another source of a repackaged product, deliberately delay commencing proceedings with a view to increasing any financial award for infringement. It would in my view similarly be disproportionate and indeed unjust for the trade mark owner to benefit in such a manner from his own delay."

13. Miss Edwards-Stuart submits that the paragraph in question makes a bad point because the argument does not arise in an account of profits. She submits that the upshot of the Court of Justice's judgment is that her client is entitled to an account of profits, an account of profits is what it is, and the issues raised in paragraph 4 are not relevant to it.
14. Considering as I am a strike-out application, it seems to me to be at its lowest highly arguable that Miss Edwards-Stuart's argument is wrong. It appears rather clear to me that the Court of Justice have varied the law in this respect and that the considerations which they refer to are relevant in the particular case before me, which is one in which the infringement is a failure to give notice.
15. Miss Edwards-Stuart argues that the Court of Justice did not directly endorse the particular paragraphs of the Advocate General's opinion, which I referred to. Miss Edwards-Stuart is right about that but the fact that they did not specifically endorse them does not mean that they were rejected. In particular, paragraph 77, as I understand it, suggests that the question of the knowledge of the trademark owner may be relevant in making a proportionate assessment of the financial remedy in question. Paragraph 76 makes it clear in the opinion of the Advocate General that the sanction in a case in which the only basis for the infringement is the failure to give notice should not be equal to the sanctions that would apply if the substantive conditions had also been breached because that would be disproportionate. The case as pleaded by the claimants here, without paragraph 4 being a relevant consideration, would be one in which the sanction would be precisely equal to one in which the substantive conditions had been breached.
16. In my judgment, it would be quite wrong to strike out paragraph 4.
17. Miss Edwards-Stuart had a subsidiary submission that because the Court of Justice had not expressly approved paragraph 77 of the Advocate General's decision, that meant that I should still strike out the evidence which relates to her client's knowledge. In my judgment I should not do that in this case. It seems to me that it is a matter for trial to decide the precise way in which this new approach to accounts of profits is to be developed having heard all of the evidence. Accordingly, I will not strike out paragraph 4 and I will not refuse to admit the evidence of Mr Backhouse and Mr Bromley.
18. The parties also discussed the case management of the case going forward. At this stage, I will not give a judgment dealing with that. I will hear what the parties have to say.