Decision regarding accounts of profits – Ooo Abbott v Design & Display Limited

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Summary

The Court of Appeal in Design & Display Ltd v Ooo Abbott and another (24 February 2016) has decided that:

In an account of profits the defendant is liable only for profits derived from the infringement, and not for profits made by non-infringing sales, even if these non-infringing sales would not have been made if the infringing sales had not been made. Also, if the infringer would, but for the infringement, have manufactured and sold other (non-infringing) products, then to the extent that its actual overheads would have been used in sustaining that alternative production or sale, they may be deducted from the amount of the account of profits.

This decision should be borne in mind in any account of profits where profits have arguably been made from non-infringing activities closely associated with the infringing activities when assessing the likely amount of the account of profits.

Background

Ooo Abbott brought an action for infringement of European Patent (UK) No. 1816931 against the two defendants Design & Display Limited and Eureka Display Limited at IPEC (then the Patents County Court).

On May 2013 IPEC issued a judgement that the Patent was valid and infringed by the defendants. Ooo Abbott then elected for an account of profits. Eureka Display Limited made a Part 36 offer to settle, and as a result the trial of the amount of the account of profits went forward against the defendant Design & Display Limited only.

The patent related to shop fittings, specifically snap-in inserts used for fixing shelves and brackets to panels. The inventive concept was summarized at the IPEC as "not just the idea of an insert made of a resilient metal (which was known)," but rather "the composite idea of an insert made of such a metal and its having a particular shape and its interacting with the slot of the panel in a particular way, such that the metal insert could engage with the panel by snap-in means." Although in principle the inserts and matching panels could be obtained from separate sources, in practice customers would usually purchase both together.

The IPEC account of profits trial awarded the defendant's entire profit on sales of infringing displays, on the basis that although only some consumers bought the displays because of the inventive concept of the patent in suit, the defendant was "going to make a sale of inserts and panels both, or no sale at all. . . . Because the sales went together, the sale of the inserts caused (in the relevant sense) the sale of the panels in which they were incorporated. It was also foreseeable that the sale of the panels would be a consequence of the sale of the inserts”.

The IPEC also refused to allow the defendant's general overheads to be deducted from the profits they had made, allowing only costs attributable solely to their infringing business to be deducted. Arguing, regarding general overheads, that: “for any of these to be deductible from gross profits it is necessary … to establish that either (a) the sum claimed represents an increase in the relevant overhead which would have not have occurred but for the acts of infringement or (b) its business was running to maximum capacity such that the infringing business … displaced an alternative business”.

Design & Display Ltd. appealed against the awarded account of profits.

Issues

The Court of Appeal framed the appeal as presenting two issues:

  1. Whether Design & Display are liable for the whole of the profits made on the sale of panels sold together with infringing inserts.
  2. Whether Design & Display are entitled to set off any part of their general overheads against the gross profit for which they are accountable.

Decision – Issue 1

In an account of profits the defendant is liable only for profits derived from the infringement, and not for profits made by non-infringing sales, even if these non-infringing sales would not have been made if the infringing sales had not been made.

Reasoning

On the first issue, the Court of Appeal decided that the first instance judge had misdirected himself, stating that: “the legal error that the judge made was to ask whether the sale of the panel plus insert would have happened separately rather than to ask himself how much of the profit on the sale was derived from the infringement. In a case in which the infringement does not "drive" the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement.”

The Court of Appeal further explained that in addition the first instance judge was incorrect in saying that "because the sales went together, the sale of inserts caused … the sale of the panels…", stating that: “The mere fact that the two went together is not … sufficient to establish that the whole of the profit earned on the composite item was derived from the invention."

The Court of Appeal stressed that the purpose of an account of profits is to recover the actual profits made by the infringer, and not to compensate the patentee for any losses they have suffered as a result of the infringement.

Decision – Issue 2

If the infringer would, but for the infringement, have manufactured and sold other (non-infringing) products, then to the extent that its actual overheads would have been used in sustaining that alternative production or sale, they may be deducted from the amount of the account of profits.

Reasoning

On the second issue, the Court of Appeal decided that the first instance judge had incorrectly conflated a number of alternatives in his self-direction, stating in his summary that: “in any case where a defendant seeks to deduct an element of general overheads it will be for it to prove its business was running to capacity or that but for the infringement it would have sold other products or that its overheads would have been lower if it had not infringed”, and subsequently stating that: “if the defendant was running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted, the apportioned overheads incurred by the infringing business … may be deducted”.

The Court of Appeal decided that this conclusion was an incorrect statement of the law, and that running to maximum capacity was not a threshold condition which had to be met, instead stating that: “if the infringer establishes that but for the infringement it would have manufactured and sold other (non-infringing) products then to the extent that its actual overheads would have been used in sustaining that alternative production or sale, those overheads may be deducted in computing the relevant profits for which the infringer must account.”

After deciding these questions of law, the Court of Appeal concluded that on the available facts it was not possible to assess the profits to which the patentee was entitled, and the question of apportionment of profits was returned to IPEC.