Judge Hacon, the new-ish resident at the Intellectual Property Enterprise Court, has issued a useful summary of the principles applicable to calculating damages for design infringement in Kohler Mira Ltd v Bristan Group Ltd [2014] EWHC 1931 (IPEC) concerning fancy bathroom shower units.  The decision covers a lot of ground. 

1 – “Innocence”

For UK unregistered designs, no damages are payable where “the defendant did not know, and had no reason to believe, that design right subsisted in the design”.  The defence does not apply to unregistered Community Designs.  Both were in issue.  A first question arose as to whether the point had to be pleaded in the main action, or whether (as here) it could be left until the enquiry as to damages.  The Judge held that he had a discretion as to whether to allow the point in at such a late stage, but that policy reasons ruled against it in this case.  The quoted policy reasons, it seems to me, would apply in the vast majority of IPEC cases.   Nowithstanding that, the Judge went on to hold that the defence was not made out in terms which will be welcomed by owners of unregistered design right, but perhaps less so by competitors.  I quote in full (my emphasis):

“18.        I think the fallacy of the argument lies in the suggestion that in the normal course a defendant who comes across an article will have no reason to believe that design right subsists.  In the context of an industrial article, that will generally not be the case.  If the defendant picks up a stone from a beach, plainly a reasonable man in his position would have no reason to believe that design right subsists in its design.  By contrast, he is likely to have good reason to suppose that design right subsists in an industrial article.  He is deemed familiar with the law relating to UDRs, otherwise he could never reach any concluded view as to the subsistence of design right.  Also, part of his reasonable make up is the knowledge that industrial articles are commonly protected by UDRs.  He is not an innocent abroad.  Of course each case will depend on its facts.  For instance, it may be that a design is apparently so old that absent information to suggest the contrary, the reasonable man would have no reason to believe that design right still subsists in the design.  Alternatively, a defendant might make sufficient enquiries from which the reasonable man would conclude that design right does not subsist.  In grey areas, by which I mean where the circumstances are such that a reasonable man could entertain doubts either way about whether design right subsists, it is to be recalled that the test is whether he has no reason to believe.  The evidential burden in each case will also depend on the facts.”

When questioned, the defendant’s witness (a director) made it clear that he had believed there was no copying, not that there was no design right.

2.            Lost sales

The Judge held that Kohler could recover lost sales not only of protected products, but also of “convoyed” sales of products not covered by the designs in suit, following Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 (a patent case).  However, in this case, the defendant significantly undercut Kohler, so they could not assume that each of the defendant’s products was a lost sale.  Thus, “I think that Kohler probably lost some sales of showers because of Bristan’s sales of the infringing showers.  The problem is that it is impossible to reach any kind of rational view as to how many, save that probably the number is low … The losses claimed … are too speculative and too open to inaccuracy to provide a useful basis for calculating damages.  The evidence is insufficient to enable me, even approaching the matter on a rough and ready basis, to arrive at an assessment of damages on the loss of profit basis.”  So, no damages for lost sales.  It is unclear what kind of evidence, if any, could have persuaded the Judge to quantify a loss he thought existed.  The reality is that undercutting competitors do severely damage design owners –not only by lost sales, but also by price erosion and dilution of uniqueness or “aura of luxury” (for which, see below).

3.            Reasonable Royalty

Accordingly, the damages were calculated as a lost royalty on a “willing licensor/willing licensee” licence.  The case law on patent and design “licences of right” and compulsory licences indicates that where comparable licences are available, they provide the right starting point – however, that was not the case here.  Accordingly, the basis of the assessment was the “profits available” approach, in which the defendant’s profit on sales is calculated and then apportioned between the claimant and the defendant.  The defendant’s own figures indicated that they had made no profit but a thumping loss (which seems a little surprising).  This was on the basis of deductions of significant overheads, which the Judge disallowed, holding that the “profit” should be calculated in the same way as when taking an account of profits (an alternative remedy to damages in the UK).  Accordingly, the defendant had made a net profit of £742,878 on its infringing sales - an average profit of 22.2% on its sales price.  This was then apportioned following the general approach used by the IPO in NIC Instruments Ltd [2005] RPC 1. 

For the simple mechanical device of NIC, 25% of the infringer’s profit was awarded but here, the judge uplifted that to 30% since the designs “were something of a breakthrough in the industry”.  That resulted in royalty of 6.7% on net sales price. If this is so, then since an account delivers 100% of the profits made, whereas reasonable royalty damages only deliver around a third of the total, one wonders whether in future it will always be better to pursue an account of profits.

4.            Additional advertising expenses

The Judge refused to award anything on this head of damages as “I am left with no impression at all as to the quantum of extra promotion justifiable, assuming any was.”

5.            Moral Prejudice

Finally, the claimant sought an uplift of 10% on the basis of Art.13(1)(a) of the Enforcement Directive (2004/48/EC), on the basis of “moral prejudice” arising from ”the loss of exclusivity for a striking design”.  The Judge commented that this was really economic prejudice rather than moral prejudice, and awarded nothing.  “The one thing which is clear about ‘moral prejudice’ is that it relates to something which is not an economic factor.  I think it is likely to arise only in very particular circumstances …”

We have previously noted the decision of Judge Birss (as he was) in Utopia Tableware v BBP Marketing [2013] EWPCC 15, where he held that the following were valid grounds for grant of an interim injunction: 

• “ a loss of exclusivity in the unique shape of its glass
• reputation as a supplier of unique products will be damaged
• high quality image … will be tarnished”

Somewhat the same approach was taken by the US CAFC in Apple v Samsung.  All of these factors are real but unquantifiable, and hence fertile ground for interim relief, but by the same token, the sandiest of soil on which to build a claim for damages.  

This article was composed by David Musker.