Factual and Procedural Background
On 9th December 2008, Judge Arnold J delivered judgment for the claimants—Hotel Cipriani SRL, Hotelapa Investimento Hoteleiro SA, and Island Hotel (Madeira) Ltd—against the defendants, Cipriani (Grosvenor Street) Ltd, Defendant Director, and Cipriani International SA, following a 9-day trial concerning trademark infringement and passing off. The claimants elected for an account of profits, and on 7th May 2009, the court ordered an account to be taken before a judge, with directions for pleadings and evidence exchange, scheduling a hearing for March 2010.
The defendants served expert evidence first, followed by the claimants. The defendants appealed the 2008 judgment, but the appeal was dismissed by the Court of Appeal on 24th February 2010. The claimants had secured an interim payment order for £1 million from the third defendant, which was neither appealed nor complied with. The 2008 judgment held the first defendant liable for trademark infringement and passing off by operating a restaurant under the name "Cipriani London," with the second and third defendants liable as joint tortfeasors.
The first claimant operates the renowned Hotel Cipriani in Venice and holds a community trademark for the name "Cipriani" covering restaurant services. Arnold J granted a permanent injunction restraining the defendants' use of the name in relation to the restaurant, stayed pending appeal. Following the appeal dismissal, the defendants had a two-month grace period to comply before the injunction took full effect. The court was tasked with determining the profits the defendants must disgorge from May 2004 until compliance with the injunction, assumed to be on or about 23rd April 2010.
After initially defending the account proceedings, the defendants chose not to appear at the account hearing post-appeal dismissal. They requested their expert be called for evidence later but did not otherwise participate. The court declined to call the expert, relying instead on the written reports and oral submissions from the claimants' counsel.
Legal Issues Presented
- What is the appropriate measure of profits to be disgorged by each defendant in an account of profits following trademark infringement and passing off?
- How should the court apportion profits attributable to infringing use versus non-infringing goodwill or other elements?
- Should the account of profits be calculated on a pre-tax or post-tax basis, and how should tax be treated in this context?
- What is the appropriate rate and method for calculating interest on the disgorged profits?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Potton v Yorkclose [1990] FSR 11 |
Purpose and principles of an account of profits in intellectual property infringement cases |
Summarized the objective to deprive defendants of profits made by wrongful acts and transfer them to claimants; guided apportionment where profits have multiple causes. |
| Celanese v BP [1999] RPC 203 |
Account of profits including treatment of accrued profits and apportionment; approach to tax deductions |
Supported principle that profits include accrued profits; endorsed approach to tax treatment and apportionment of profits in infringement context. |
| O'Sullivan v Management Agency [1985] 1 QB 428 |
Tax treatment in account of profits claims |
Provided basis for deducting irrecoverable tax actually paid from profits; the court adopted this approach for tax deductions here. |
Court's Reasoning and Analysis
The court first distinguished between joint liability for damages and individual liability in an account of profits, emphasizing that each defendant must disgorge profits derived from infringement separately without double counting. The court accepted the claimants' approach of pursuing the first and third defendants only, leaving the second defendant aside due to the nature of profit distribution.
The court adopted well-established principles from precedent concerning the purpose of an account of profits, the inclusion of accrued profits, and the necessity of apportionment where profits stem from multiple causes.
Regarding tax, the court followed a pragmatic approach from Celanese v BP and O'Sullivan v Management Agency, allowing deduction of irrecoverable tax actually paid but not tax not yet paid.
For the third defendant, the court analyzed the licensing agreement granting exclusive rights to use the trademark and logo, concluding that all royalties payable under the licence derived from infringement, rejecting the defendant's expert's apportionment that only 10% was attributable to infringement.
The first defendant's profits were analyzed using a "distribution of costs" approach to distinguish between functional activities (e.g., food, rent, staff) and intangible elements (e.g., branding). The court accepted the claimant's expert's lower return on costs percentage (5%) as more appropriate for a low-capital, high-running-cost restaurant business.
To apportion profits attributable to infringement, the court used the ratio of royalties payable under the licence (11.5%) to management fees (3%) as a proxy for the contribution of the infringing use of the name, resulting in a 79% attribution to infringement-related intangibles. The court accepted this ratio due to lack of contrary evidence from defendants.
The court calculated the respective profits for both defendants up to 1st March 2010 and set monthly accruals thereafter, with no deductions for costs or taxes for the third defendant due to lack of evidence, and appropriate tax deductions for the first defendant.
Interest was awarded at a simple rate of 1% over LIBOR, but the court ordered interest to be calculated on a yearly basis, reflecting the rising profit curve, rather than a flat midpoint calculation.
Finally, the court ordered the defendants to pay the claimants' costs on a standard basis, subject to assessment if not agreed.
Holding and Implications
The court ordered the defendants to account for profits derived from the infringing use of the Cipriani trademark and logo from May 2004 until compliance with the injunction, with specific profit amounts calculated and interest to be applied at 1% over LIBOR on a yearly basis.
The third defendant's profits from the licence amounted to approximately £5.3 million up to March 2010, with ongoing monthly accruals thereafter. The first defendant's profits attributable to infringement were calculated at approximately £1.39 million up to March 2010, with monthly accruals continuing thereafter. The defendants must pay the claimants' costs of the account proceedings.
No broader new precedent was established; the decision applies settled principles to the specific facts of the case, emphasizing careful apportionment of profits and pragmatic tax treatment in accounts of profits following trademark infringement and passing off.