Factual and Procedural Background
This opinion concerns an account of profits following a prior judgment by Judge Birss on 30 May 2013, in which the Claimants' European Patent (UK) No. 1 816 931 was found valid and infringed by the Defendants. The patent relates to a snap-in insert made from resilient metal, such as aluminium, used in slatwall display panels for shops. The Defendants manufacture and sell retail equipment, including these panels and inserts. The Claimants elected for an account of profits, and directions were given to resolve specific issues related to sales, profits, and costs associated with the infringing products.
Following a settlement between the Claimants and the Second Defendant, the account proceeds only against the First Defendant ("Design & Display"). The court addresses issues including the length and price of infringing aluminium extrusions sold, entitlement to profits from sales of slatted panels incorporating those inserts, quantities sold, gross profits, allowable cost deductions, and the applicability of a statutory defence under section 62(1) of the Patents Act 1977.
Legal Issues Presented
- What was the length in metres of clip-in aluminium extrusions found to infringe the Patent sold by the Defendant during the relevant period, and at what sales price?
- Are the Claimants entitled to claim profits from the sale of slatted panels sold together with the clip-in aluminium extrusions?
- If entitled, what were the quantities and sales prices of such panels sold by the Defendant?
- What were the gross profits made by the Defendant from the sales determined under issues 1 and 3?
- What allowable costs may the Defendant deduct from the gross profits?
- From what date was the Defendant aware, or had reasonable grounds for supposing, that the Patent existed for the purposes of section 62(1) of the Patents Act 1977?
Arguments of the Parties
Claimants' Arguments
- Objection to arbitrary deductions proposed by the Defendant for scrap and discounts on incorporated inserts, particularly challenging the basis for the discount deduction.
- Asserted that the inventive concept is embodied largely in the snap-in insert and partly in the interaction of the insert with the panel slot, thus the profits from the sale of panels incorporating the inserts should be accounted for.
- Contended that the Defendant’s argument that cessation of infringing insert sales did not affect panel sales was irrelevant as the Defendant must account for profits caused by infringement regardless of alternative profitable courses.
- Identified a specific labour cost directly and solely attributable to the infringing business (cutting slots in panels) to be deducted from gross profits.
- Argued that the Defendant failed to establish entitlement to deductions from gross profits for general overheads under the relevant legal principles.
Defendant's Arguments
- Proposed two 10% deductions from incorporated inserts sales: one for scrap wastage and one for discounts applied to incorporated inserts.
- Asserted that the inventive concept was limited to the insert alone, not its interaction with the panel.
- Claimed that sales of panels were unaffected by the sale or cessation of infringing inserts, implying no causal link for profits from panel sales.
- Applied a proportional allocation of general overhead costs to the infringing business based on revenue proportions, seeking to deduct these from gross profits.
- Raised a defence under section 62(1) of the Patents Act 1977, asserting lack of knowledge or reasonable grounds to suppose the Patent existed.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Celanese International Corp. v BP Chemicals Limited [1999] RPC 203 |
Principles of causation in accounts of profits and damages for patent infringement. |
Applied to determine that profits must be causally linked to infringement; profits from independent business activities are excluded. |
| Hollister Inc v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419; [2013] FSR 24 |
Limits on costs deductible from gross profits in an account of profits. |
Followed to establish that only direct costs and increased overheads due to infringement are deductible; general overhead allocations require evidential proof. |
| Imperial Oil v Lubrizol [1996] 71 C.P.R. (3d) 26 |
Legal causation in determining profits attributable to infringement. |
Referenced to support the principle that profits must arise from infringement, not merely coincide with it. |
| United Horse Shoe and Nail v Stewart (1888) 5 R.P.C. 260 |
Profits must be earned by use of the patented invention. |
Used to underscore that patentees should not receive profits unrelated to the invention. |
| Dart Industries v Decor Corp. Pty Ltd [1994] F.S.R. 567 |
Accounting for opportunity costs and overheads when defendant runs at maximum capacity. |
Applied to interpret allowable cost deductions and opportunity cost considerations in overhead allocation. |
| Meters Limited v Metropolitan Gas Meters Limited (1910) 27 RPC 721; upheld (1911) 28 RPC 157 |
Scope of inquiry for damages extends to entire products embodying the invention, not just the infringing parts. |
Used to determine that profits from entire panels incorporating the inventive concept are relevant. |
| Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 |
Scope of recovery includes convoyed goods and services causally linked to infringement. |
Applied to include profits from non-infringing goods and services closely related to infringing products. |
| Woolley v UP Global Sourcing [2014] EWHC 493 |
Summary of principles on allowable cost deductions in accounts of profits. |
Reiterated principles from Hollister and applied to cost deduction issues in this case. |
| Kohler Mira Ltd v Bristan Group Ltd [2014] EWHC 1931 (IPEC) |
Procedural discretion in allowing late reliance on defences under statutory provisions equivalent to s.62(1). |
Followed in refusing to allow the Defendant to rely on s.62(1) defence raised late in proceedings. |
| Adobe Systems Inc v Netcom Online.co.uk Limited [2012] EWHC 446 (Ch) |
Procedural considerations relating to late defence pleadings. |
Referenced to support the approach to procedural fairness and timing of defences. |
Court's Reasoning and Analysis
The court began by considering the agreed facts and the evidence regarding the quantities and pricing of infringing inserts and panels. It accepted a 10% deduction for scrap wastage in incorporated inserts but rejected an additional 10% discount deduction due to insufficient evidential basis.
On the entitlement to profits from slatted panels incorporating infringing inserts, the court applied established legal principles of causation in accounts of profits. It held that profits must be caused by the infringement and that the inventive concept, which includes both the insert and its interaction with the panel slot, extends the scope of the account beyond the insert alone.
The court found that the sale of infringing inserts caused the sale of panels into which they were incorporated, and that it was foreseeable that profits from panel sales would arise as a consequence of the infringement. Arguments that the Defendant could have traded profitably without infringing were irrelevant to causation.
Regarding gross profits and allowable deductions, the court applied the principles from Hollister and related cases. It found that the Defendant failed to demonstrate that general overheads were increased by the infringing business or that the business was running at maximum capacity such that overheads could be apportioned. Consequently, only direct costs, specifically labour costs for cutting slots in panels, were allowed as deductions.
On the statutory defence under section 62(1) of the Patents Act 1977, the court held that the Defendant raised this defence too late and did not establish the necessary lack of knowledge or reasonable grounds for supposing the Patent existed. The court inferred that the Defendant’s sales personnel had reasonable grounds to be aware of the Patent from its publication in 2006.
Holding and Implications
The court held that:
- The Defendant is liable to account for profits from the sale of infringing aluminium snap-in inserts and the slatted panels incorporating those inserts.
- A 10% deduction for scrap wastage in incorporated inserts sales is allowed; no further discount deduction applies.
- Only direct costs directly attributable to the infringing business, specifically labour costs for machining panels, may be deducted from gross profits; general overheads are not deductible.
- The Defendant is not entitled to rely on the statutory defence under section 62(1) due to late raising and failure to prove lack of knowledge of the Patent.
The implications are that the Defendant must pay profits derived from infringement, including profits from panels incorporating the infringing inserts, reflecting the broad scope of causation in patent infringement accounting. The decision enforces strict evidential requirements for cost deductions and procedural fairness regarding defence pleadings. No new legal precedent was established; the ruling applies established principles to the facts of this case.