England and Wales Patents County Court

IN THE PATENTS COUNTY COURT

		Rolls Building 7 Rolls Buildings London EC4A 1NL
		20/12/2011

His Honour Judge Birss QC :

1. This is an action for trade mark infringement. The claimants are both part of the Hollister group and make, distribute and sell medical devices including ostomy products. They have various trade marks including the word marks HOLLISTER and DANSAC in classes 5 and 10 registered in respect of a range of goods including ostomy products. The defendant has a business parallel importing such products from elsewhere in the EU and selling them in the UK. This business exploits the differences in the prices at which such goods are on sale. It is a lawful business under European free movement of goods law provided certain conditions are satisfied.
2. The relevant condition in this case is sometimes called BMS (5). It is a requirement that the parallel importer gives prior notice to the trade mark owner if he is going to sell repackaged or relabelled goods. It is explained in more detail below. There is a point in this case about BMS (3) which I need to consider, however the main case concerns BMS (5) alone.
3. The defendant admitted infringement and on 14^th June 2010 a consent order was made which provided for final relief on liability. It included an order that there would be an inquiry as to damages or account of profits. The choice was a matter for the claimants' election. The claimants elected to pursue an account of profits. On 22^nd June 2011 I heard an application in the proceedings to strike out paragraph 4 of the defendant's response to the points of claim. That paragraph raised the Boehringer II issue (see below). I refused to strike it out.
4. The account came on to be heard on 2^nd November 2011. Before me Mr Giles Fernando appeared for the claimants instructed by Sloan Plumb Wood LLP. Mr Richard Hacon appeared for the defendant instructed by DWF LLP.

The witnesses

5. For the claimants I heard from Mr Geale, an independent accountancy expert and from Mr Willys, Director of Key Accounts at Hollister Services Ltd. Mr Willys had been the managing director of Dansac Ltd from 1991 to 2007. He has had an interest in parallel imports on behalf of Hollister and Dansac since the 1970s.
6. For Medik I heard from Mr Watts, an independent accountancy expert and from a number of factual witnesses. They were in two groups. I heard from three Medik witnesses: Mr Pathmanathan, Medik's Financial Controller; Mrs Haskell, Medik's General and Human Resources manager; and David White, Operations Manager at Medik and Clinisupplies Ltd a related company. I also heard from two witnesses who were not related to Medik and were giving evidence which Medik contended showed that the claimants have always known all about Medik's parallel importing business regardless of the issue of notice under BMS (5). These witnesses were Alan Backhouse a director of MTS Trading Ltd and former director of Ostomed and 4C Healthcare; and Neil Bromley, logistics manager at Salts Healthcare Ltd a customer of the claimants and also a customer of Medik.
7. Medik also provided a witness statement from Jenny Bowman a recruitment consultant. She was not cross-examined.
8. Finally I should mention Hemang Badiani. He is the Managing Director of Medik. He provided four witness statements in this case and was going to be cross-examined on them. However for reasons which I will explain below, Mr Badiani's evidence was withdrawn.

Mr Willys

9. Mr Hacon made no criticism of Mr Geale but he did criticise Mr Willys. On the defendant's behalf Mr Hacon submitted that Mr Willys was not a truthful witness and was prepared to say anything to promote the interests of his employer. The point concerned the knowledge of Dansac and Hollister. Medik contended that Dansac and Hollister knew about Medik's parallel imports. The relevance of this point related to the Boehringer II issue. Medik say that Hollister and Dansac knew what was going on and no doubt did not object because there was nothing substantive to object to, since the re-packaging was being done correctly.
10. The major issue was whether the claimants in general and Mr Willys in particular knew about the imports by Medik at the relevant time. A secondary question was whether the identity of Medik's customers and suppliers was of any interest to the claimants. Medik contended that Mr Willys in particular did know about Medik's parallel importing. For this they rely on evidence from Mr Backhouse and Mr Bromley. Both men attended the trial and were cross-examined. Neither witness had any axe to grind in these proceedings. Mr Backhouse now works for a company which does not deal in ostomy products at all and Mr Bromley's company buys from both sides.
11. There is clearly no love lost between Mr Willys and Medik (as well as other parallel importers like Medik). In relation to the knowledge point, Mr Willys' evidence can be summarised by his answer at one stage (Day 1 p45 line 27-28) "We may have [had] a perception that Medik were parallel importing but we did not know."
12. However Medik rely on a meeting in 2004 between Mr Backhouse and Mr Willys at which Mr Willys said he knew they (4C Healthcare) were buying imported Dansac ostomy products. Mr Backhouse says that Mr Willys and his colleague (Darren Forster) were fully aware of the parallel importing activities of various companies including Medik. Mr Backhouse says that the major manufacturers of ostomy products were well aware of the parallel importing of ostomy products and repackaging and relabelling by entities such as Medik. Mr Willys maintained in cross-examination that no importer was named at this meeting.
13. In cross-examination Mr Backhouse was adamant that parallel importing had been discussed at the meeting he referred to. He explained that the whole point of the meeting was for Dansac to offer an equalisation deal to buy UK product which would have been pointless if Mr Backhouse's company were not buying parallel imported products. He was also sure Medik were mentioned. Mr Fernando pointed out that Medik were not repackaging these goods in 2004. Mr Backhouse said that they did not talk about relabelling specifically but he said that the parallel importing market and the people operating in it were discussed. However even with this qualification with regard to relabelling, Mr Backhouse's evidence is not reconcilable with Mr Willys' evidence that no importers were named at the meeting. Mr Backhouse was clear that names were mentioned.
14. Medik also rely on Mr Bromley's evidence that since 2006 Mr Willys brought to his office samples of Hollister and Dansac parallel imported boxes relabelled by Medik. Mr Willys had denied that this had happened prior to 2009 and in cross-examination Mr Fernando suggested to Mr Bromley that he was making a mistake and the event relating to a box happened in 2009. Mr Bromley did not agree and stuck to his evidence that in 2006 and 2008 Mr Willys had brought boxes with Medik labels to meetings.
15. Mr Bromley's evidence also cannot be reconciled with that of Mr Willys. Mr Bromley was clear that he had been shown Medik repackaged products by Mr Willys in 2006 and 2008.
16. I am sure Mr Willys was trying to avoid making any statement he did not believe to be a true statement as he saw it. However it also seemed to me that Mr Willys was seeking to avoid giving any assistance to Medik's case rather than to simply answer the questions put.
17. I listened to the evidence of all three witnesses carefully. In cross-examination at one stage Mr Backhouse said that "They knew who were doing it because Nick Willys knows as well as I do all the players within that market". In my judgment that makes sense. I would expect someone in Mr Willys' position to make it his business to know the players within his market. I prefer the evidence of Mr Backhouse and Mr Bromley to that of Mr Willys.
18. By the same token, when Mr Willys professed neutrality about identities of Medik's customers and suppliers, that did not strike me as convincing. Of course the claimants want to know who buys parallel imported product. Mr Backhouse referred to an offer of an equalisation deal. The point of such an offer is to try to encourage the customer to buy locally sourced product instead of parallel imports. To make the offer the claimants need to know who is buying parallel imports.
19. Mr Willys' witness statement states that until the facts giving rise to these proceedings he did not know and the claimants did not know that the defendant was involved in repackaging or relabelling their products. In my judgment the claimants were well aware that Medik were engaged in parallel importing of their (i.e. Dansac and Hollister) products at all material times. Were they also aware that Medik were repackaging or relabelling? In my judgment they were aware of this. To hold otherwise would require me to reject Mr Bromley's testimony about the meeting in 2006. I will not do so. Accordingly I cannot accept Mr Willys' evidence about the claimants' state of knowledge.

The accountants

20. Mr Watts was the accountant expert witness called by Medik. Mr Fernando submitted that although he was entirely truthful when giving his evidence in court, Mr Watts' report could not be relied on. The problem with Mr Watts' approach to his report was that he had not considered the factual foundations of his report critically. Mr Watts had been given information from Medik which he relied on in his report in support of Medik and contrary to Mr Geale's opinions. However this evidence, if correct, would have meant that Medik had been operating for four years at a loss, which was plainly not correct. Had he paused to consider this information Mr Watts would not have relied on it. However he did not consider it critically, and he did rely on the information. Mr Watts was clearly embarrassed about this when it emerged in cross-examination.
21. I regret to say that I accept the criticisms levelled at Mr Watts' report. It is with genuine regret on my part because I believe Mr Watts was an honest and independent witness. However it seems to me that he had not approached the task of preparing his report and formulating his views with sufficient care.

The background facts

22. There is a dispute about exactly how many relevant products have been supplied by Medik and the claimants contend the numbers are about 20% higher than have been admitted. Leaving that dispute to one side, and employing Medik's admissions, the figures are these. Between 2003 and 2009 the number of parallel imported, relabelled and repackaged Dansac and Hollister products supplied by Medik onto the UK market were:

	2003	2004	2005	2006	2007	2008	2009	Total
Hollister	64	51	-	1312	1030	760	58	3,275
Dansac	-	-	-	13,753	12,946	14,971	13,266	54,936

23. The reference in the table to Hollister and Dansac refers to the branding on the goods in question.
24. It is clear that this business was a profitable one. An indication of that can be gained from the sums that Mr Badiani and his brother paid themselves over the period, albeit that the business of Medik was not restricted to trading in the goods in issue in this case. The sums were dividends of over £1 Million in addition to pension contributions of £810,000 and director's remuneration of £183,394.
25. In 2009 a mislabelled box was returned to Dansac by Salts Healthcare Limited. A credit note was requested of Dansac by Salts because of the mislabelling. It transpired that the box had not been supplied by Dansac and therefore a credit note was not issued. Dansac investigated the mislabelling and Dansac's case is that this is what alerted them to the relabelling activity of Medik.
26. There is no dispute that Medik did not give sufficient notice of this activity to the claimants in order to satisfy the BMS (5) condition. Thus the claimants contend all this activity represents trade mark infringement.
27. Medik contends that its gross profits from the relevant activity were £23,679 for Hollister products and £495,511 for Dansac products.

The parties' rival arguments

28. Essentially the claimants' case is that the sums due on the account, i.e. the profits derived from the infringement, are the gross profit figures mentioned above. In fact the claimants claim £546,150 but for present purposes the difference between that and the sum of the previous numbers does not matter. There is no dispute in this case about arithmetic.
29. Medik takes two points against the claimants' case. First Medik contends that the sum to be paid is nil (or a token sum). That is because the acts of infringement were due solely to the failure to give adequate notice. Medik contends that the claimants have not suffered any damage caused by the failure to give notice (and have not alleged they have suffered any). Medik refers to the judgment of the ECJ in the Boehringer II case (see below) which provides that the claimants' financial remedy in a case like this is to be assessed in the light in particular of the extent of damage to the claimants caused by the infringement and in accordance with the principle of proportionality. This first point is the key difference of principle between the parties.
30. Second Medik contends that if (which they deny) and insofar as the sum due is to be assessed by looking at the defendant's profit, the relevant profit is the net profit made by the defendant, i.e. the gross profit less properly attributable costs. When calculated this way the figures come out at £9,047 for Hollister goods and £100,585 for Dansac goods. This dispute involves an issue of principle as to how accounts of profits are to be approached and how costs are dealt with. That dispute is a general one, not tied into the Boehringer II issue. The dispute also then involves questions of fact in relation to the various costs Medik contend are properly to be deducted from the gross profit figures. It will also be convenient in this regard to resolve the dispute about the numbers of relevant products actually sold by Medik.
31. I do not need to decide on actual figures in this judgment. The parties informed me at the conclusion of the hearing that as long as the judgment decided the issues of principle which fell to be considered on the account, they are confident the accountancy experts will be able to sort out the necessary numbers.

The law

Accounts of profits

32. Requiring an infringer of an intellectual property right to account to the proprietor of that right for the profits made from infringing is a well established remedy in English law. The focus is on the profits made by the infringer rather than the question of damage suffered by the proprietor. Whether the proprietor has in fact suffered any damage caused by the infringement is not generally relevant to an account of profits. The proprietor can choose which remedy to seek, damages for loss or an account of profits, but cannot have both. They are freely entitled to choose the one they think will give them the largest sum of money. In this case the claimants chose an account of profits.
33. 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 35-43. Mr Hacon sought to summarise them as follows:

i) In an account of profits the defendant is treated as if he conducted his business and made profits on behalf of the claimant (para 36).

ii) An account proceeds on a principle of legal causation. The court is trying to determine what profits have been caused, in a legal sense, by the defendant's wrongful acts. In particular, a distinction must be made between profits caused by infringement and those made on the occasion of such infringement (para 37).

iii) Where the defendant sells different products and only one infringes, he only has to account for the profits made by the infringements (para 38).

iv) It is no answer to an account that the defendant could have made the same profits by following an alternative, non-infringing course. The question to be answered is "what profits were in fact made by the defendant by the wrongful activity?" (para 39).

v) This cuts both ways: a claimant must take a defendant as he finds him and cannot say that the defendant could and should have generated higher profits (para 42).

vi) Profits attributable to the non-infringing parts of the defendant's business were not caused by the use of the invention even if the use of the invention was the occasion for the generation of those profits (para 43).

34. I did not detect any dissent from Mr Fernando in relation to these submissions and I accept them.
35. Where the parties were not in agreement was in relation to the proper apportionment of costs to be deducted from the sums earned in order to arrive at the correct profit figure. Mr Hacon submitted the principles on this issue were to be derived from Celanese, as follows:

i) There is no onus on either party in deciding on the level of apportionment (para 74).

ii) Once the court has decided what a fair apportionment is, there should be no substantial rounding up. The account is not a camouflaged method of making the defendant pay punitive compensation (para 75).

iii) This does not absolve the defendant of the necessity of giving proper disclosure or supplying relevant information to allow the court to carry out the assessment. If insufficient material is available to allow the court to come to a fair adjudication, it may be necessary to adjourn subject to questions of costs. It is no justification for pulling a figure out of the air which bears little relationship to any of the relevant facts (para 76).

iv) The fact that an account can be an imprecise exercise does not mean that the judge is entitled to pick a winner on the basis of little more than hunches (para 80).

v) In an account the claimant is entitled to net profits. In deciding what are the relevant costs to be deducted from gross profits the following principles apply (in the context of an infringement of a patented process ) (para 86):

a) all costs which are shown to have nothing to do with the patented process and sale of the product manufactured from it are ignored;

b) all costs which relate only to the patented process and sale of the product manufactured from it are allowed in their entirety;

c) all costs which relate to the patented process and sale of the product and also to the manufacture and sale of other products are to be apportioned between the former and the latter.

vi) Costs which fall into category (c) above include centrally incurred costs which go to support all the businesses conducted by a business unit. In particular they include costs of distribution and sale, staff salaries, office rental, computer and other support and so on (para 88).

vii) Apportionment of such costs should not be done on a "but for" basis. When deciding whether a cost may be apportioned to a particular business or product it is not relevant to ask whether, absent that business or product, the cost would still have been incurred (para 90).

viii) It is not correct to say that the percentage of a cost attributable to a relevant business or product is so small it may be disregarded. In particular, it is not correct to say that in the absence of that business or product, there would have been no difference to the overall cost incurred. Even if only 1% of a cost is attributable to the product in issue, it should still be taken into account (para 94).

ix) Finance charges, in particular interest payments on money loaned in relation to the relevant business, may be deducted as an allowable cost (paras 107-113)

x) On the facts of the Celanese case, the costs of the plant using the patented process were to allocated on the basis of volume, not turnover (paras 116-127).

xi) Profits should be assessed net of tax (paras 128-139).

36. The issue between the parties relates to items (v), (vi) and (vii) above. There is no argument about the other propositions and I accept them.
37. Mr Fernando submits that fixed costs or overheads are irrelevant in an account of profits. He argues as follows. Take an existing business selling entirely lawful goods. The business has overheads of (say) £100. For the purpose of this example these fixed overheads costs never change. The company sells goods for £2 each and they each cost £1 to make and sell. If the business sells 200 items, its turnover is £400 and its cost of sales is £200. Its gross profit is £200 and its net profit, net of overheads is £100. Now imagine that business starts selling an infringing item as well. It sells the infringements for £3 each and they cost £1.50 each to make and sell. If 100 infringing items are sold, that infringement has earned the company a further £150 profit (i.e. £300 - £150). So the profit the company has derived from the infringement is £150 and £150 is the sum to be paid over on an account of profits. Mr Fernando submits that general overhead costs are irrelevant. In effect the gross profit in relation to the infringing items is to be paid over.
38. Mr Fernando submits that this conclusion was reached by the High Court of Australia in Dart v Decor [1994] FSR 567. He referred in particular to the passage from p573 to p574 which refers to the earlier Australian judgment Colbeam v Stock Affiliates [1972] RPC 303 (Windeyer J). In that section the majority (Mason CJ, Deane, Dawson, and Toohey JJ) cited Windeyer J's statement that any costs directly attributable to the sales in question were deductable but not "any part of the general overhead costs, managerial expenses and so forth".
39. Mr Hacon did not agree. He submitted first that as a matter of precedent I am bound by Celanese, and Laddie J held to the contrary. A proper proportion of fixed, centrally incurred overhead costs should be deducted. Mr Hacon also submitted that as a matter of principle that was the right thing to do in any event, given that the idea is to assess the profits actually made by the infringement. Any relevant cost should be deducted.
40. In my judgment Mr Hacon is right for the reasons he has given. Furthermore it also seems to me that Dart v Decor does not support the breadth of Mr Fernando's submission. That case decided that in some circumstances some general overheads, including fixed costs were indeed deductable. The court rejected the trial judge's direction that no part of the general overheads costs were allowable as a deduction. In any event since I am bound by Celanese, I will take the approach urged on me by Mr Hacon.

Parallel importing

41. When goods are imported from one member state and sold in another, the importer sometimes repackages them and re-affixes the trade mark to the goods. Does this amount to trade mark infringement? The answer is governed by decisions of the European Court of Justice. In Bristol-Myers Squibb v Paranova (Joined cases C 427, 429 & 436/93) [1996] ECR I-3457 the Court of Justice summarised and elaborated upon previous decisions on the point (including in particular Hoffmann La Roche v Centrafarm [1978] ECR 1139).
42. In the language of the Court of Justice in that case, a trade mark owner may legitimately oppose the further marketing of a pharmaceutical product where the importer has repackaged the product and re-affixed the trade mark unless the five criteria are satisfied:

(1) it is established that reliance on trade mark rights by the owner in order to oppose the marketing of repackaged products under that trade mark would contribute to the artificial partitioning of the markets between Member States; [ … ];

(2) it is shown that the repackaging cannot affect the original condition of the product inside the packaging; [ … ];

(3) the new packaging clearly states who repackaged the product and the name of the manufacturer in print such that a person with normal eyesight, exercising a normal degree of attentiveness, would be in a position to understand; similarly, the origin of an extra article from a source other than the trade mark owner must be indicated in such a way as to dispel any impression that the trade mark owner is responsible for it; however, it is not necessary to indicate that the repackaging was carried out without the authorization of the trade mark owner;

(4) the presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark and of its owner; thus , the packaging must not be defective, of poor quality, or untidy; and

(5) the importer gives notice to the trade mark owner before the repackaged product is put on sale, and, on demand, supplies him with a specimen of the repackaged product.

[paragraph 3 of the answers to the referred questions]

43. One obvious consequence of this line of authority is that, even if goods have been repackaged correctly and satisfy all the other conditions, the sale of such goods can be an act of trade mark infringement purely as a result of a failure to give prior notice by the importer. In the various Dowelhurst cases questions arose about that principle. In Glaxo v Dowelhurst No 2 [2000] FSR 529) Laddie J invited the Court of Justice to reconsider this notice point. In paragraphs 109 to 138 of his judgment he considered the notice condition in detail and at paragraph 139 concluded that:

it appears to be the law that a proprietor can complain about repackaged goods which have had the mark reapplied to the packaging if no prior notice has been given by the importer. His right to do so appears to be unqualified and, in particular, it is not dependent on showing that the activities of the importer will cause the proprietor or his marks any harm.

44. Questions were referred to the Court of Justice and answered in a judgment dated 23^rd April 2002 known as Boehringer I (Boehringer Ingelheim KG and others v Swingward Ltd and others Case 143/00 and Merck Sharp & Dohme GmbH v Paranova Parmazeutika Handels GmbH Case C-443/99) [2003] Ch 27. In that judgment the Court of Justice maintained the notice condition.
45. The case returned to Laddie J, he gave judgment on 6^th February 2003, Boehringer Ingelheim KG and others v Swingward Ltd, [2003] ETMR 89 and the matter went on appeal to the Court of Appeal. In their judgment on 5^th March 2004, Boehringer Ingelheim KG v Swingward Ltd, [2004] EWCA Civ 129 a further series of three groups of questions were referred to the Court of Justice. The third group of questions related to the case in which the parallel importer had failed to give notice but that this was the only reason the goods infringed. The opinion of Advocate General Sharpston was handed down on 6^th April 2006 and the judgment of the Court of Justice given on 26^th April 2007. They are reported together as Boehringer Ingelheim KG and others v Swingward Ltd case C-348/04 [2007] ETMR 1164. This case has been referred to as Boehringer II.
46. In Boehringer II, the questions referred which related to the failure to give notice were as follows:

Notice

(3) Where a parallel importer has failed to give notice in respect of a repackaged product as required by the fifth condition of Bristol-Myers Squibb and Others, and accordingly has infringed the proprietor's trade mark(s) for that reason only:

(a) is every subsequent act of importation of that product an infringement or does the importer only infringe until such time as the proprietor has become aware of the product and the applicable notice period has expired?

(b) is the proprietor entitled to claim financial remedies (i.e. damages for infringement or the handing over of all profits made by infringement) by reason of the importer's acts of infringement on the same basis as if the goods had been spurious?

(c) is the granting of financial remedies to the proprietor in respect of such acts of infringement by the importer subject to the principle of proportionality?

(d) if not, upon what basis should such compensation be assessed given that the products in question were placed on the market within the [European Economic Area] by the proprietor or with his consent?"

47. This question was addressed in paragraphs 55 to 64 of the Court's judgment. Here the Court decided that it was incumbent on the parallel importer itself to give notice. It is not sufficient if the trade mark proprietor is notified by other sources (paragraph 55). They decided that if the proper notice has not been given, the importer infringes on the occasion of any subsequent importation of the product, as long as he has not given notice (paragraph 56). In paragraph 57 the Court recorded the arguments of the parties in the case. The proprietors were arguing that a failure to give notice should be penalised in the same way as for marketing spurious goods while the importers were arguing that a failure to give notice cannot give rise to financial remedies assessed in the same way as if the goods were spurious.
48. The court went on in paragraphs 58 and 59 to note that Member States are required by Community law generally to choose the most appropriate forms and methods to ensure effectiveness of directives and that when, as here, Community law does not lay down any specific sanctions, it is incumbent on national authorities to adopt appropriate measures which must not only be proportionate but also sufficiently effective and a sufficient deterrent to ensure that the Directive is fully effective.
49. In paragraph 60 to 62 the Court held that the trade mark owner's right to prevent parallel importing of products which, while not spurious, have been marketed in breach of the requirement to give notice "is not different from that enjoyed by the proprietor in respect of spurious goods". In both cases the products ought not to have been marketed. They then said this:

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.

50. This paragraph is the focus of the debate in the case before me. Before dealing with it I will complete the analysis of the Court of Justice's judgment. The judgment concludes, in paragraph 64, with an answer to the third (notice) question posed as follows:

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.

51. Mr Fernando contends that the Court's judgment simply means that a proprietor is entitled to claim financial remedies on the same basis as any other trade mark case. So in the UK a proprietor is entitled to claim damages or an account of profits. Having elected to conduct an account, the account is exactly the same as it would be in any other case. The failure to give notice means that all of Medik's sales are infringing sales. As they are infringing sales, then they are to be accounted for like any other infringing sales.
52. It is difficult, said Mr Fernando, to think of anything that could be more proportionate than an account. An account properly held deprives the infringer of the profit from his infringement. It is not punitive but equally ensures that the infringer does not benefit by a single penny from the infringement. The remedy is directly proportionate to the wrong.
53. Finally Mr Fernando submits that it is too late for Medik to advance these points given the basis on which it consented to judgment and provided disclosure. I will deal with this last submission separately.
54. Mr Hacon contends otherwise. He submits that the Court of Justice did two things. First they held that a national measure which allowed a proprietor in these circumstances to claim financial remedies on the same basis as if the goods had been spurious, was not in itself contrary to the principle of proportionality. That means that the claimants are entitled to the remedy of an account of profits in this case and Medik cannot object to it in principle. Thus Medik accepted that the claimants could elect for an account and did not take the point at the stage of the order of HHJ Fysh QC on 14th June 2010. However Mr Hacon contends that the Court went on to hold that in determining the amount of the financial remedies in the circumstances of the case, the national court had to take into account "in particular of the extent of damage to the trade mark proprietor caused by the parallel importer's infringement" as well as the principle of proportionality. That is true whether the financial remedy is an account of profits or an enquiry as to damages.
55. Mr Hacon submits that the sort of damage the Court has in mind is that which relates to the purpose of the notice provision in the first place. That purpose can be discerned from the Bristol-Myers Squibb case itself. In Hoffmann La Roche the Court had appeared to suggest that the notice requirement was for the purposes of consumer protection (paragraph 12 of the judgment). It is not clear why that should be so and in any event the way the Court there dealt with it was intertwined with another condition which could be said to be necessary to protect consumers, i.e. a requirement that the importer states on the new packaging that he has repackaged the goods (i.e. BMS (3)). In Bristol-Myers Squibb the Court explained that the purpose of the requirement for notice was two fold:

i) to give the trade mark proprietor an opportunity, before the product goes on sale, to check that the repackaging neither (a) affects the original condition of the product nor (b) has been done in such a way that the presentation of the mark after repackaging is likely to damage its reputation; and

ii) to afford the trade mark proprietor a better possibility of protecting himself against counterfeiting.

[Judgment paragraph 78]

56. Mr Hacon also submits that assistance can be gained from the opinion of Advocate General Sharpston QC in paragraphs 67 to 80. Here, submits Mr Hacon, the AG clearly expressed the view that since BMS(5) was a procedural condition unlike the other four conditions which were substantive in nature, the breach of that condition should attract a sanction distinct from the sanctions applicable if the other, substantive conditions are breached (paragraph 72). If the only condition breached is BMS(5) there should not be no sanction at all since the breach is not trivial, there should be a sanction and it should be effective and dissuasive but it should not be equal to the sanction applicable for breach of the substantive conditions (paragraphs 73 - 76).
57. As regards the Opinion of the Advocate General, Mr Fernando submits that it was not adopted by the full Court and therefore does not represent Community law.
58. In my judgment the following propositions are to be derived from the authorities culminating in Boehringer II.

i) First, the purpose of the notice provision is to give the proprietor an opportunity to check the repackaging before the product goes on sale and to afford the proprietor a better possibility of protecting himself against counterfeiting.

ii) Second, the remedy of an account of profits is available for a breach of the notice provision (BMS (5)). Had Medik objected to the order of HHJ Fysh QC, they would have failed in that objection.

iii) Third, in assessing the amount of the financial remedy in a case like this, the national court is required by Community law to consider the extent of damage to the trade mark proprietor caused by the parallel importer's infringement and the principle of proportionality.

59. Taking the section in paragraph 55-64 as a whole, it seems to me that what the Court is getting at is as follows. First the Court has recognised that there are different kinds of case in which the BMS (5) condition has been breached. Although this is not stated expressly, it seems to me to be a key premise for the Court's reasoning and is made clear by the AG at paragraph 75.
60. The Court first decides that the proprietor's right to prevent – i.e. stop such sales (by injunction) – is not different from any other case. However in terms of financial remedies, the breach being merely a failure to give notice might lead one to think that no financial remedy would be available. That extreme position is rejected. The Court decided that a right to claim a financial remedy, just as in any other case of infringement, is not "in itself" contrary to proportionality. So the proprietor can make a claim for financial remedies. Furthermore merely focussing on proportionality alone might lead to a trivial amount being awarded, given the nature of the conduct in question. So for example one might be tempted to award only a trivial or token sum if, at the root of the case, there is only a failure to give notice and no breach of the substantive conditions. The Court did not accept that either. Even though such a token or trivial sum might appear proportionate in some cases, the Court decided that that is likely to be an inappropriate outcome because the remedy also has to be effective and a sufficient deterrent. This can be seen in the second sentence of paragraph 64 where the Court to some extent contrasts a sanction which is proportionate with one which is sufficiently effective and a sufficient deterrent. The correct amount is one which is both proportionate and also an effective deterrent.
61. What criteria are to be used in order to determine whether the outcome is one which achieves those objectives? The answer is to have regard to proportionality and the extent of the damage to the proprietor caused by the infringement. I believe the decision the Court reached was that the amount of the financial remedy depends on all the facts and circumstances. Giving the proprietor the right to claim the remedy on the same basis as if the goods were spurious is not wrong "in itself". A proprietor may be able to justify a claim like that. However the facts may not justify it.
62. This means that the fact that it was a failure to give notice which renders the goods infringing, is relevant. So also it would be relevant if other BMS conditions were breached. Although the Court does not make the point explicitly, it seems to me to necessarily follow from the judgment as a whole. If one asks – to what must the remedy be proportionate? – the answer must be – all the circumstances. Those circumstances include the reasons why the goods are infringing, i.e. the breaches of the BMS conditions. One does not simply say: BMS (5) has been breached, therefore the goods infringe, therefore they are to be treated like any other infringing goods, therefore we can now forget why it is that they are infringing goods and assess the financial remedy accordingly. If one did do this then one would be treating all infringements in the same way. One would be treating goods which infringe only because of a breach of BMS (5) as if they were spurious goods. The Court went out of its way not to say that.
63. Mr Hacon submits that the damage being referred to by the Court of Justice here relates back to the purpose of the notice provision in the first place. I certainly agree that purposes of the notice provision need to be kept in mind when considering the issue of proportionality and question of damage to the proprietor. So for example if a failure to give notice by an importer has in fact hindered a proprietor's battle against counterfeiting that would be relevant. To take another example, if a company was selling both parallel imported and counterfeit versions of the same goods and therefore avoided giving notice of the parallel imports in order to hide the counterfeits, that would be highly material.
64. However to ignore other elements of the circumstances as a whole does not seem right to me either. The Court was not seeking to confine or limit the enquiry. The purpose of Mr Hacon's submission was to lead me to ignore the evidence from the claimants in this case as to the profit they say they have lost as a result of the infringements. Leaving aside arguments about the facts and evidence, in principle the figures the claimants seek to deploy are calculated on a conventional basis of lost profit due to lost sales. These would be the same figures if the goods were spurious and damages for lost sales were claimed. In my judgment the Court of Justice were not saying that such evidence was irrelevant in principle. It all falls to be considered and I reject Mr Hacon's submission that the scope of the enquiry is a limited one.
65. A specific question arose as to the state of knowledge of the proprietor. Advocate General Sharpston suggested in paragraph 77 of her opinion that the question of knowledge of the trade mark owner may be relevant in making a proportionate assessment of the financial remedy in question. It seems to me that this is another part of the overall circumstances of the case. Knowledge is relevant.
66. There was some suggestion in argument that the references to the extent of damage by the Court were founded on a misunderstanding. The Court was thinking of an inquiry as to damages and did not have in mind the financial remedy of an account of profits, which, under English law is not concerned with damage to the proprietor but profits wrongly made by the infringer. I do not accept that submission. The question referred to the Court expressly made reference to a financial remedy of handing over profits – see question 3(b).
67. The upshot of the Court's judgment in Boehringer II is that, in assessing the amount of the financial remedy, the result may turn out to be just the same as the one which would be arrived at if the goods were spurious but on the other hand it may not be. That is what paragraph 63 is getting at. If the Court of Justice had decided that the assessment of the amount of the financial remedy in this sort of case was always going to be precisely the same as the case in which the goods were spurious, they would have said so. It could have been stated in very short and simple terms. It was not stated that way.
68. Pulling this together, the approach I should adopt is the following:

i) Assess the account on normal basis under English law;

ii) Consider the extent of damage caused to the proprietor by the infringement and the issue of proportionality, in all the circumstances of the case;

iii) Decide what final sum should be awarded having regard both to the sum assessed on the account at step (i), and the factors considered at step (ii).

69. The outcome may be that the sum awarded is the sum produced at step (i). That would be the same as the outcome if the goods were spurious and it may well be justified in a given case. Equally however the outcome may be a lesser sum. It is unlikely that the result will produce a token or nominal amount since that would not be an effective remedy or a sufficient deterrent.

What is the effect of the consent order for judgment?

70. There are two disputes about the effect of the consent order for judgment in this case dated 14^th June 2010. First Mr Fernando submits that it is not open to the defendants to submit that nil or a token sum should be awarded on the account as a result of Boehringer II. He argues that in effect the submission is one that no account should be taken at all. Since the court had already ordered an account (at the claimants' election), he says that the argument is not open to the defendants. I do not agree. As I have held already, the ECJ made it clear that an account in itself was appropriate and so the defendants could not object to the Order made by HHJ Fysh QC. Whether, in the taking of the account and applying Community law, the result ends up at a token sum is a matter for the account.
71. Second the parties disagree about whether there was a BMS (3) point in this case. BMS(3) requires the new packaging to state clearly who repackaged the product. I confess I have some difficulty in understanding the precise scope of the dispute. I believe it is common ground that I am not being asked to adjudicate whether any actual label Medik did use would satisfy the third Bristol-Myers Squibb condition. As I understand it Mr Fernando contends that the basis of the judgment is that the defendants are in breach of both BMS (3) and BMS (5). He submits that this is so having regard to the pleadings on liability which preceded the order for judgment.
72. The BMS (3) condition is referred to in the Particulars of Claim and so, Mr Fernando submits, since breach of BMS (3) was pleaded, the consent order which provides for the inquiry or account determines the whole case as pleaded and thus the account is concerned with BMS (3) as much as BMS (5).
73. The claimants also contend that certain notification letters (which were not admitted and are addressed below) would not have satisfied BMS (3) either. I think the point is that if one reads the letter, one can tell that the label Medik are going to use will not satisfy BMS (3). Finally I have had my attention drawn to a change in the label Medik used in September 2009 which is described in the Further Information provided by Medik. Before that date the relevant bit of the label apparently read "imported from EU by Medik Ostomy Supplies Ltd, Harrow" and afterwards the label read "imported from EU and repackaged by by Medik Ostomy Supplies Ltd, Harrow" (emphasis added). I should record that Medik do not accept this amounts to a breach of BMS (3) and deny that the claimants have even contended that the Further Information reveals a breach of BMS (3).
74. I do not accept Mr Fernando's submission for two separate reasons. First it seems to me that the Order of 14^th June 2010 is quite clear. Its second recital sets out the admission on which the order is based. That is an admission that the defendants have infringed by importation, repackaging and distribution without giving adequate notice. No other admission is made. That is the admission on which all the orders are based. Indeed the order for the account (paragraph 5) is actually expressed by reference to a defined term "infringing products" which is defined in the second recital and by reference to the admission about failure to give notice. Second I do not agree that breach of BMS (3) was pleaded in the Particulars of Claim in a manner sufficient to get Mr Fernando's point off the ground in the first place. What were pleaded were breaches of BMS (5). BMS (3) is mentioned only once, in paragraph 6(4)(b) in which the claimants reserved the right to take the point in future. Nothing further was pleaded by the claimants on that score.
75. Finally the claimants take a further point against Medik's reliance on Boehringer II. It does not strictly arise from the Order of 14th June itself but from the disclosure given as provided for in that order. The claimants contend that by giving the disclosure they did, Medik have conceded that their sales are infringing and that the profit earned from the sales is to be disgorged. I do not accept that the fact Medik have given disclosure in the way they have and pursuant to the Court's directions has any effect on the issues I have to decide. As I have said above, it seems to me that Medik had no basis on which to prevent an account relating to their sales going ahead if that was the remedy the claimant elected. Giving disclosure is a procedural step in proceedings and I would be very reluctant to find that a choice a party made about what to disclose, particularly in a case like this, could have a knock on effect on the substantive issues.
76. Accordingly the BMS (3) point is not live on this account.

(i) Assess account on normal basis under English law

77. I have rejected the claimants' submission of principle that I can ignore fixed overheads costs altogether. In my judgment in this case some portion of at least some fixed overhead costs are properly to be attributed to the infringing goods and some basis must be found for arriving at a proper portion of those costs. There is a general dispute about apportionment. Should costs be apportioned by units sold or the value of those sales? The claimants' contend that costs should be apportioned by units whereas Medik contend for apportionment by value. Once I have decided that question I need to consider the various cost categories and decide whether and to what extent they are properly deductable. It is possible that different bases for apportionment should be applied to different cost categories. Finally I must decide how many infringing products were sold.
78. A point arose concerning late evidence from Mr Watts and Mr Badiani about apportionment. Medik sought permission at trial to rely on a second report of Mr Watts and a fourth statement of Mr Badiani. This evidence sought to elaborate a case on apportionment of costs by value. Mr Badiani's statement sought to provide the evidence on the issue and then the consequential calculations were done by Mr Watts. Mr Fernando objected to this evidence on the ground (a) that it was too late; and also (b) that it should not be admitted without proper disclosure. None had been given. On the first day of trial (2^nd November) I heard the application and decided to admit the evidence but not order any disclosure. My reasons would be given in this judgment. In the event a further development in the trial led to Mr Badiani's witness statement being withdrawn. My reasons for admitting the evidence and refusing disclosure can be stated shortly as follows:

i) This case is proceeding in the Patents County Court. Proportionality is always a relevant consideration as is the cost of taking a step as compared to the benefit of that step.

ii) The court has the power to exclude evidence (CPR Pt 32 r32(1)(2)).

iii) The application, although late, is not so late as to be refused on that ground alone. The experts had met and agreed a joint statement in July 2011. That statement made clear (paragraph 3.8) that there was a dispute between Mr Geale and Mr Watts on the issue. Mr Watts' position was that while he agreed that as a general rule units sold was a more appropriate basis on which to apportion costs in relation to certain costs such as repackaging, overheads should in the main be attributed by turnover (i.e. value).

iv) The parties were not able to say how much of a difference this point would make to the final figures. Given the figures I have been provided with it seems to me to be a point which is likely to be worth tens of thousands of pounds but not hundreds of thousands of pounds.

v) Refusing to let Medik rely on this material at all would be unjust given that the issue had been identified in July as between the experts. However the claimants contend that if the evidence comes in disclosure should be given. The cost of requiring disclosure at this stage would be large and the exercise would be likely to derail the trial.

vi) It seems to me that the most proportionate course is to let the evidence in but not order disclosure. The absence of disclosure will go to weight. When I informed the parties of my decision during the trial I indicated that the absence of disclosure is something which would be a matter which may be very significant on the question of weight. It may well lead to the court giving no weight at all to some or all of the material which has been put in in relation to the two new witness statements. This is particularly so bearing in mind that much of it or all of it involves information which is peculiarly in the knowledge of the defendant.

79. The matter did not end there however because when time came for Mr Badiani to be called as a witness a dispute arose, which had been simmering already between the parties, as to the scope of his cross-examination. Mr Badiani would not be prepared to answer a question which would (in his view) divulge the identity or even geographical location of his suppliers. Mr Fernando's case was that such cross-examination was appropriate in this case. Mr Hacon indicated on instructions that rather than be placed in a position in which he might be required to answer such a question and be in contempt of court for not answering it, Mr Badiani would not give evidence. I resolved that matter during the hearing on the second day and my reasons are set out in my judgment [2011] EWPCC 41. In the result Mr Badiani was not called as a witness and his statements do not stand as evidence in the proceedings.

Apportionment – unit or value?

80. This issue related to the apportionment of costs other than repackaging costs. Mr Watts' opinion was that the various costs (save for the premises) should be apportioned by value of the goods (i.e. the turnover or selling price). Mr Geale's view was that apportionment should be by units across the board. Apportionment by value assists Medik because the goods at issue sell at a higher price than other Medik goods.
81. The purpose of apportionment of costs is to try and arrive at a fair figure for the costs properly to be regarded as relevant to a product or activity – in this case the parallel importing and repackaging of products. It seems to me that it is important to be clear at the outset that apportionment is both an approximation and a matter of judgment. In some cases it might be the case that it would be possible at least in theory to analyse costs down to microscopic detail and allocate them appropriately either as being relevant to the activity in question or not. However life is too short and/or the necessary data may be unavailable now even if it was available in the past. So an apportionment is carried out as an approximation. In other cases apportionment is not an approximation at all. Some costs are indivisible, e.g. the rent on the whole premises. If a business sold two products in equal numbers, which required equal time, effort and staff, cost the same to buy and earned the same revenue, one might say a fair apportionment of the rent on the premises was 50:50. That is not an approximation. It is a judgment about what is a fair and reasonable way of reflecting the reality of the business.
82. What one is always trying to do, whether as an approximation or as a matter of judgment, is to try and identify the extent to which a given product employs the relevant resources of the business. In a business with two products, one of which employs two thirds of all the resources and the other one third, it would be fair and reasonable to apportion the costs accordingly.
83. Although one could in theory employ different approaches for different costs, again life is too short and the rational approach in this case is to choose one approach (leaving aside premises). The choice I have is between units or value.
84. Mr Hacon put an example to Mr Geale in cross-examination. The example related to staff costs to be apportioned between two products. One was to assume that staff spend twice as much of their time on A as on B and the price of A is twice that of B. However that example did not support allocating cost by price and Mr Geale did not accept it. His answer was that he would allocate by time. He wanted to know if the reason that more time was needed was reflected in the fact that the price was higher.
85. I am not satisfied that costs should be apportioned by turnover in this case. They should be apportioned by units. My reasons for this are as follows.
86. Medik is not a manufacturer, it is a trading business. Medik buys goods in and then sells them on at hopefully a higher price. For goods which are not repackaged, the sale price is therefore generally just a function of the purchase price (plus a margin). The sale price is not a function of work carried out by Medik on the goods. For goods which are not repackaged, the only processes Medik performs on the goods are to bring them in, warehouse them and send them out.
87. Mr Geale worked out that the average sales price per unit of repackaged Dansac and Hollister products was much higher (£32 - £39 per unit) than Medik's other products (£13-£20 per unit). However, for a given Dansac or Hollister product, the item may be sold in the UK without repackaging or it may be sold repackaged. This case is only concerned with the repackaged version of that item. A key piece of evidence is that, for a given product, Medik's sales price for that product is the same whether it is repackaged or not. Thus repackaging does not influence the relative sales price of the product as compared to other products being sold by Medik. The fact the repackaged goods sell at a higher price is not because of repackaging, it is because the underlying products just happen to sell for a higher price. Bearing in mind that repackaging costs are being dealt with separately, it seems to me that this supports Mr Geale's opinion that apportionment by units and not by value or turnover is the appropriate way to apportion general costs. From the point of view of the general costs of the business, one unit is much like another.

Cost categories

88. The cost categories are:

i) Premises costs

ii) Notional charges for directors

iii) Medik repackaging staff

iv) Clinisupplies repackaging staff

v) Medik general staff

vi) Clinisupplies general staff

vii) General overheads of Medik

Premises costs

89. The claimants contend there should be no deduction of premises costs. I disagree. There is a share of the premises costs which in my judgment should be deducted to truly reflect the profit derived from the infringements in this case.
90. Mr Watts' view was that the share of occupied warehouse shelving space was a fair way of apportioning these costs. It seemed to me that there was something to be said for that approach since in general terms it did appear that the goods to be repackaged required a relatively high usage of warehouse space. While other goods could come in and out of the warehouse quickly and did not need longer term storage, the repackaged goods needed to stay in place for longer and required storing.
91. However the figures Medik contended for cannot be used because of what emerged at trial. It turned out that the warehouse had been laid out before the infringements began and that there was no steady relationship between the infringing products and other repackaged products. Looking at each year separately might have been a way of dealing with these problems but that is not what the information given to Mr Watts allowed him to do and he had not done so.
92. Accordingly in my judgment the right thing to do is apportion a share of the premises costs on the same basis as the other overheads, by units.

Notional charges for directors

93. This issue arose as follows. Medik accepted that there was authority that directors' emoluments are not attributable. It is Le Plastrier v Armstrong-Holland (1926) 26 S.R. (N.S.W) 585 and the relevant passage is this statement by Harvey C.J:

Under no circumstances can he, in my opinion, deduct interest in his capital employed in the business. Under no circumstances can he claim any remuneration to himself or under any circumstances can he claim in my opinion any director's fees for carrying on the business.

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94. Mr Hacon submitted that this is not surprising since directors may be free to pay themselves out of all proportion to their market worth and it would introduce a chance for abuse if their emoluments in statutory accounts were allowable. Mr Fernando did not disagree with this rationale.
95. Mr Watts did not think the actual director's emoluments were allowable either so instead he sought to find the market rate for their actual work and apportioned that. Mr Fernando submitted that this was not legitimate because it is a notional charge. One must take the defendant as one finds it and Mr Watts naturally accepted that these charges were notional and not what actually happened.
96. Mr Hacon submitted that Mr Watts' approach was fair in the circumstances since it reflects a proper fee for the work which the directors did in fact do.
97. I refuse to allow these notional charges. The principle is that one takes the defendant as one finds it. The emoluments which were in fact taken out of Medik are not deductable. It is not right to then substitute for them a fee which could have been charged but was not.

Medik repackaging costs

98. The parties agree these should be deducted. I am not aware that there was a dispute about this issue which needed to be resolved.

Clinisupplies staff

99. Medik has a sister company called CliniSupplies and Mr Watts had allowed a cross-charge between the businesses to cater for repackaging carried out by staff actually employed by CliniSupplies. I have real doubt that this charge for CliniSupplies staff is allowable. The volume of repackaging work did not vary materially over the period and yet in 2006 and 2007 Medik had spare capacity to assist CliniSupplies. On that basis it seems to me that a fair inference to be drawn is that Medik itself could handle all its repackaging work. On that basis I doubt there is any reason to attribute any CliniSupplies costs to the relevant business in this case. On the other hand part of taking a defendant as one finds it involves accepting that even if a cost was unnecessary, if it was incurred then it falls to be considered.
100. A real problem is that the way in which matters were handled between CliniSupplies and Medik was in fact by a series of cross-charges in the company accounts which were (in the words of Medik's Financial Controller Mr Pathmanathan) performed on an arbitrary basis. Mr Watts sought to determine what the correct cross-charges should have been for CliniSupplies. Although I can understand why that might have been attempted, it seems to me that it runs counter to the principle that one takes the defendant as you find them. In fact what were charged were arbitrary cross-charges. Those are not properly attributable since they were arbitrary and once they are put to one side, it seems to me to be wrong in principle to invent actual charges which were not in fact employed and then deduct those.
101. I will not allow CliniSupplies repackaging staff costs.

Medik general staff

102. Mr Fernando submitted that since the infringement accounted for a very small part of Medik's business, it is right to conclude that the general staff costs would be unaffected by the infringing business. In my judgment that is not the right approach. A proper share of those costs can be fairly regarded as relevant to the infringements in this case. They should be apportioned on the same basis as other general overheads.

CliniSupplies general staff

103. There was also a suggestion that other CliniSupplies staff costs could be apportioned. This issue stands or falls with the CliniSupplies repackaging staff. I will not allow it either.

General overheads of Medik

104. A proper share of these general overheads should be allowed, apportioned as for the other general costs, by units not turnover.

Assembly reports and total sold

105. Medik contend they have disclosed all the sales of relevant goods to the claimants. The claimants do not accept that. Documents called Assembly Reports were disclosed and are an accurate record of the volume of relabelling and repackaging for the periods they cover. However there are gaps. For the relevant period of roughly four years, gaps for more than 700 days exist. The claimants submit that it is inconceivable that there was no relabelling of relevant products in the missing periods. Medik say this is all wrong. They have disclosed the relevant reports. No relevant activity took place in the gap.
106. Mr Geale was permitted to carry out a checking process for certain products. He found nothing missing or wrong in the materials he was checking but the nature of the checking process means that he would not have been able to tell if other repackaging of different relevant products had taken place. One thing Mr Geale did find was that for the products he checked (3 Hollister and 8 Dansac) there was only one purchaser of Dansac products and one for Hollister. Mr Fernando pointed out that in a letter of 21^st October Medik's solicitors had indicated they had 9 customers and submitted it was incredibly unlikely that the products chosen for the sample just happened to be products bought by only one customer. His point was to show that there must be more going on that was catered for in the disclosed documents.
107. There is no doubt that the numbers of relevant products bought by Medik is higher than the number repackaged. The difference can be seen by its effect on the gross profit figures. The claimants contend, based on number of products purchased, that the figure should be £546,150 whereas, based on the Assembly Reports but otherwise on the same basis the figure is £445,864. It may be noted that although it can be said that Assembly Reports for half the period are missing, the difference in numbers is about 20-25%.
108. Medik say the difference is simply because many products were sold without repackaging and are therefore not infringing. The claimants contend that in the absence of a proper explanation for the gaps in the Assembly Reports, I should infer that all the products purchased were in fact repackaged and should be accounted for.
109. Mr Badiani was the witness whose evidence would have verified the numbers of products in question but for the reasons I have explained, he did not give evidence. If I had heard from Mr Badiani then this is an issue on which his credibility as a witness may have played a part.
110. However on the other hand I am quite satisfied that Medik did sell non-repackaged versions of these goods. Thus to simply use the figures for goods purchased would certainly produce a number which was too high. It seems to me that, unverified though they are, I have no other realistic option but to accept the figures contended for by Medik. I will do so.

(ii) Consider the extent of damage caused to proprietor by the infringement and the issue of proportionality, in all the circumstances of the case;

111. A number of issues arise:

i) The claimants' statement of case on their estimated extent of the damage suffered by the infringement;

ii) Whether the claimants have suffered any damage of the kind Mr Hacon submits is relevant

iii) Actual knowledge / notice of the repackaging.

112. Following my refusal to strike out the paragraph in Medik's statement of case which raised the Boehringer II point I gave leave to the claimants to file a statement of case on their estimated extent of the damage they had suffered by reason of the infringement. This was filed on 13^th July 2011 with a statement of truth. The claimants' case based on this document was this:

i) Medik had infringed the claimants' trade marks by selling the products. Those products ought not to have been sold.

ii) Had Medik not sold them, the claimants (through their relevant subsidiaries) would have sold equivalent products (i.e. products with the same product codes).

iii) The claimants have therefore suffered damage in the form of loss of profits on those sales. All profits earned by the subsidiaries ultimately benefit the relevant claimant.

iv) The claimants did earn a profit on the sale of the imported goods when they were first marketed in the EEA, albeit a smaller profit than it would have been if the product was sold in the UK. To do the exercise fully and correctly discounts would need to be taken into account as would sales to hospitals.

v) The claimants' loss, L = P_UK – P_EEA where P_UK is the profit which would have been made from sale in the UK of the product and P_EEA is the profit actually made on sale in the relevant EEA country.

vi) The claimants' costs of sales are approximately the same throughout the member states.

vii) Since the claimants do not know where the goods actually came from, assumptions have had to be made.

viii) In total, based on this approach, the claimants contend that their losses are [ xxx]. The figures were provided in a confidential schedule. Pending argument as to the form of order to be made the total will remain confidential. Rather than produce two versions of this judgment at this stage (one confidential version including the figure and a public version with the figure redacted), I will simply complete this judgment in its present public form. I propose to deliver a short further judgment when the form of order is settled. That will address the figure and the question of confidentiality.

113. Medik sought disclosure from the claimants on these issues before trial. I refused because it seemed to me to be disproportionate to do so. This is after all an account of profits and not an enquiry into damages. As Mr Hacon himself submitted, it is inconceivable that when the ECJ referred to the extent of damage to the trade mark proprietor they had in mind imposing an inquiry as to damages of the usual kind.
114. Furthermore, Medik's primary case is that this information is irrelevant because it is not the kind of damage the ECJ were referring to in Boehringer II. Mr Hacon submitted that the right question to ask was what would have happened if adequate notice had been given and the right answer was – exactly the same sales would have been made by Medik. Thus the loss calculated this way is nil. While I agree that the claimants' approach to assessing damage to the proprietor does not relate to the purposes for which the notice provision was imposed and does treat the infringing goods as if they were spurious goods, it nevertheless seems to me that it does fall to be taken into account. I have already decided that all the circumstances fall to be considered.
115. On the figures themselves Mr Hacon contended that the document from the proprietor was short and contained extravagant unsupported numbers. He did not accept that even calculated as they have been, the claimants "losses" (if that is what they are) would have been as large as stated.
116. Of course just as Medik contend that these figures are irrelevant, so too do the claimants. Mr Fernando does not rely on these figures because he says that under Boehringer II the claimants are entitled to an account on the normal basis irrespective of the fact that this case arises from a breach of BMS (5).
117. It does not necessarily follow that the sale of a parallel imported product creates a loss to the proprietor. Take two countries A and B in which the market price in A is lower than the market price in B. If the market is like that then a parallel importer has the scope to make a profit by buying in A and selling in B, as long as the price difference is large enough to cover his own costs. However the proprietor's profit in both countries might be the same because his costs of sales in A might be lower than in B. In such a case the proprietor has not "lost" any profit because he earns the same profit on the sale whether it is in country A or country B.
118. I also note that it does not necessarily follow that every sale by Medik was a lost sale to the claimants' UK business. There may well have been other competitive products on the market which the customers would have bought if they could not get the Dansac and Hollister branded goods at the price Medik were selling. If that is right then while some Medik sales may be sales lost to the claimants in the UK, some others may not be. However none of this was explored in evidence even summarily.
119. The material filed by the claimants here seems to me to justify a finding that had the sales of repackaged products in this case not taken place, then the claimants would have earned a substantial profit. Whether it would have been as much as the sum referred to in the statement of case is hard to gauge in the circumstances but it seems to me to be safe to say that it would be at least comparable to if not more than the gross profit earned by Medik.
120. Mr Hacon submitted that the claimants have not suffered any damage of the kind he says is relevant, i.e. relating to the purposes for which the notice provision was provided for. I agree. There is no evidence of any problem of counterfeiting in this case which has been affected one way or the other by the failure to give notice in this place. Moreover this account is based only on a breach of BMS (5) and no other BMS conditions.
121. Mr Hacon submitted that the claimants actually knew all along about the repackaging by Medik. I have not accepted Mr Willys' testimony that they did not know about Medik's repacking or relabeling activities.
122. A further point relating to the claimants' knowledge are the letters in Medik's disclosure. There is a letter dated 27^th November 2000 from the solicitors Charles Russell addressed to Hollister Limited. It states that in accordance with EU free circulation rules Medik is now importing and distributing certain Hollister products (called Moderma). Also in evidence is a letter dated 23^rd March 2005 from Medik to Hollister Ltd. This makes essentially the same statement about Hollister products called Stoma care products. The claimants did not admit these letters were ever sent to or received by Hollister Ltd (or any other company in the claimants' group). They also denied that these letters could be effective notice in accordance with the BMS conditions. Medik contended that the letters were sent and contended they are effective notice. However, as recorded in the order of 14th June 2010, Medik there conceded that proper notice had not been given and that therefore the sales were infringing. The orders for an inquiry or account were made on that basis.
123. The authenticity of the letters as documents is not challenged and I can take it therefore that they are genuine documents found in Medik's files, however I have not heard from a witness who says he sent either letter. I am not satisfied either letter was ever sent.

(iii) Decide what final sum should be awarded having regard both to the sum assessed on the account at step (i), and the factors considered at step (ii).

124. I can dismiss the suggestion that I should award a token, nil or nominal sum in this case. It seems to me that on the facts of this case, to award such a sum would fail to produce a financial remedy which was effective and a sufficient deterrent to ensure that traders did give the proprietor notice. Whatever one may think of the juridical basis for the BMS (5) notice requirement, it is a confirmed part of our law and traders in these circumstances are required to do it.
125. Given that I have only had to decide the issues of principle on the account and have not had to delve into the figures, I do not know where the final sum for the profits calculation will end up. However I do know that it will range somewhere between about £100,000 and about £ ½ Million depending on the cost deductions to be worked out. I have considered whether I need to know the actual resulting sum before I perform this step in the process. I do not need to know the precise figure for the following reasons. Whatever sum I award should scale in proportion to the extent of the infringing activity and the number to be arrived at by the accountants will do that. That is proportionality of the simplest kind. All that is required is to apply the relevant costs deductions. To award a fixed sum in this case which did not depend on the number of infringing goods would not be proportionate at all. Accordingly since I am not going to award a fixed sum and since I know the range within which the final figure will be, I do not need to know the precise figure in order to be able to deal with the issues in this judgment.
126. Should I simply award that total sum derived from the account? In my judgment I should not for the following reasons. First this is not a case in which the purposes for which the notice provision was created have been engaged. It is not suggested (for example) that Medik avoided giving notice for some collateral reason such as to hide a counterfeiting operation. There is no evidence that any anti-counterfeiting strategy of the claimants was hindered by the lack of notice from Medik. Second I have found that the claimants knew Medik were repackaging or relabeling their goods. I have no evidence that the claimants knew of the extent of Medik's activities in this case but the basic fact of their knowledge is relevant in any event. In a case in which the infringement arises only from a breach of BMS (5), the fact that the claimants knew about the activity at least to some extent is a reason why the financial remedy should not be as much as that in other cases, such as when other BMS conditions are breached or the goods are spurious.
127. It seems to me that the right way to approach the matter is that I should award a fraction of the profits arrived at on the account which in my judgment is a fair and proper fraction in all the circumstances and bearing in mind the extent of damage to the proprietor and proportionality.
128. Factors tending to a lower fraction are: the fact that the infringement arises only from a breach of BMS (5), the claimants' knowledge in this case and the lack of any impact on the purposes for which the BMS (5) condition was created. Factors tending to a higher fraction are: the need for the remedy to be effective and a sufficient deterrent, the fact that had the claimants made the sales which in this case were infringing sales, they would in all probability have earned more by way of profits themselves than Medik's gross profit. Thus whatever sum I award I am tolerably sure that I am not giving the claimants more than they probably lost. Although that is not normally relevant on the English account of profits, it is hard to see how it is not at least a relevant consideration as a result of Boehringer II.
129. I will award the claimants half of Medik's profits. That seems to me to be an effective deterrent to dissuade those engaged in repackaging and relabeling from not giving notice which accords with being proportionate to the reality of this case as a breach of a procedural requirement and nothing more.

Conclusion

130. Once the correct profit figure has been determined by the accountants based on this judgment (and if I need to resolve any further disputes I will do so) then the order I will make is that half that sum be paid by the defendant to the claimants.