Factual and Procedural Background
This opinion concerns the taking of an account of profits pursuant to an Order made by Judge Arnold following a trial held on 20-21 January 2014, where the Defendant was held liable for trade mark infringement and passing off. The Order requires the Defendant to account for profits accruing from those infringements.
The hearing before the current judge took place on 1-2 and 4 March 2016, involving oral evidence from several directors of the Defendant and expert witnesses including forensic accountants and a merchandising expert. By the end of the trial, the issues had narrowed to a limited number of principles, with the parties agreeing that the judge should decide these issues of principle, after which they would agree the financial consequences.
The Plaintiff is a casual clothing manufacturer and proprietor of a registered Community Trade Mark featuring a distinctive left-facing cock pheasant logo ("the Mark"). The Defendant operates as a retailer through department stores and online, selling various product lines including its own label "Linea" menswear brand.
Between November 2011 and March 2013, some Linea products sold by the Defendant bore a logo of a right-facing pigeon with a top hat and bow tie ("the Logo"), referred to as "Pigeon Goods." The sale of these Pigeon Goods was held to infringe the Plaintiff's Mark, with the original judge finding that the Defendant took unfair advantage of the reputation of the Plaintiff's trade marks.
The Plaintiff contended that all profits from the infringing sales should be disgorged, with any doubts resolved in its favor. The Defendant disputed aspects of the accounting and evidence related to the infringing goods, including whether certain items bore the Logo and whether labels were removed from some garments.
The judge accepted the Defendant's evidence on disputed points such as the non-sale of particular items with the Logo and the removal of labels from heavy knitwear, rejecting global deductions based on evidential uncertainties.
Legal Issues Presented
- Whether the Defendant is entitled to deduct a proportion of its general overheads from the profits made from the infringing goods, and if so, how to determine the appropriate amount.
- Whether the infringing goods displaced non-infringing goods of the same type and style, affecting overhead apportionment.
- How to apportion the general overheads fairly between the infringing sales and the Defendant's overall business.
- Whether the entire profits from the sale of infringing goods should be disgorged or only the portion attributable to the infringement.
- Whether directors' emoluments should be excluded from deductible overheads.
Arguments of the Parties
Plaintiff's Arguments
- The Plaintiff argued that all profits from the sale of the infringing goods should be disgorged, resolving any doubts in its favor.
- It was submitted that certain items lacking clear records should be presumed to have been sold with the Logo.
- The Plaintiff challenged the Defendant's evidence regarding label removal and submitted that global percentage deductions should be applied to adjust for evidential gaps.
- It was argued that certain overhead costs, such as directors' emoluments and expenses related to abandoned ventures, should be excluded from deductible overheads.
- The Plaintiff contended that the Sales Revenue basis for apportionment was unsatisfactory and that overhead apportionment should reflect the actual nexus between costs and infringing sales.
Defendant's Arguments
- The Defendant maintained that certain disputed items were not sold with the Logo, supported by credible witness evidence.
- It argued that the remedy of an account of profits is not penal and that the Plaintiff must take the Defendant as it finds it, including any inefficiencies.
- The Defendant submitted that the infringing goods displaced non-infringing goods of the same type and style, and thus general overheads should be apportioned accordingly.
- It contended that the appropriate basis for overhead apportionment varies by cost category, with property-related costs apportioned by sales area and others by sales revenue.
- The Defendant argued that directors' emoluments are part of general overheads and should not be excluded absent evidence they exceed industry averages.
- The Defendant accepted that certain expenses related to abandoned ventures should be excluded but submitted that their amount was de minimis.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Jack Wills Limited v. House of Fraser (Stores) Limited [2014] EWHC 110 (Ch) |
Establishing liability for trade mark infringement and passing off. |
Formed the basis for the order requiring an account of profits for infringing sales. |
| Design & Display Limited v. OOO Abbott and another [2016] EWCA Civ 95 |
Principles for deducting general overheads in account of profits following patent infringement. |
Guided the court in determining whether overheads incurred would have been sustained absent the infringement. |
| Dart Industries Inc v. D cor Corp Pty Limited [1994] FSR 567 |
General principle that overheads should be apportioned if opportunity to sell alternative products was foregone. |
Applied to assess whether the Defendant's overheads were increased by infringement. |
| Hollister Inc v. Medik Ostomy Supplies Limited [2012] EWCA Civ 1419; [2013] FSR 502 |
Clarification on when general overheads may be deducted and relationship to capacity and forgone opportunities. |
Used to reject the Defendant's argument that capacity was a threshold condition for overhead deduction. |
| Meters Limited v. Metropolitan Gas Meters Limited (1910) 27 RPC 721 |
Damages assessment principle that infringer cannot avoid liability by claiming similar results could have been achieved non-infringingly. |
Distinguished from overhead apportionment issue; court rejected its applicability to overhead deduction question. |
| Woolley v. UP Global Sourcing UK Limited [2014] EWHC 493 (Ch); [2014] FSR 37 |
Application of overhead deduction principles in account of profits cases. |
Distinguished on facts; failure to meet criteria for overhead deductions in that case. |
| Cartier v. Carlile (1862) 31 Beav. 292 |
Necessity of apportioning profits attributable to infringement when multiple causes exist. |
Supported the principle that profits must be apportioned between infringing and non-infringing causes. |
| Hotel Cipriani SrL and another v. Cipriani (Grosvenor Street) Limited and others [2010] EWHC 628 |
Requirement for broad brush apportionment of profits where multiple causes contribute. |
Applied to direct that only the profit attributable to infringement be disgorged, not entire profit. |
Court's Reasoning and Analysis
The court began by reaffirming that the account of profits is a remedial, not penal, measure requiring disgorgement of profits attributable to infringement. The Plaintiff must accept the Defendant as found, including any inefficiencies.
The court accepted the Defendant's evidence concerning disputed items and label removal, rejecting the Plaintiff's call for global percentage deductions to address evidential uncertainties.
Regarding overhead deductions, the court relied on the principles established in Design & Display Limited and related authorities. It identified the key factual questions as whether the Defendant would have incurred the same overheads absent infringement and whether infringing sales displaced non-infringing sales sustained by those overheads.
The court found no effect of infringement on general overheads and concluded that the infringing goods displaced non-infringing goods of the same type and style, both in store and online. It rejected arguments that web sales and shop sales should be treated differently for displacement purposes.
On apportionment of overheads, the court acknowledged the artificiality of the two proposed bases—Square Footage and Sales Revenue—and determined a nuanced approach was required, applying the Square Footage basis for property, depreciation, and establishment costs, and the Sales Revenue basis for employment, distribution, store support centre, and finance costs.
The court rejected the Plaintiff's exclusion of concession sales revenue in calculating proportions, reasoning that concession sales contribute to overheads and should be included to fairly attribute costs.
In relation to the apportionment of profits attributable to infringement, the court applied the settled law that only profits driven by the infringement should be disgorged. It found that the Logo was not the essential ingredient driving sales, as the same goods were sold before and after the infringement period without the Logo, and there was no evidence of increased sales or margins due to the Logo.
The court accepted the forensic accountant's approach to apportionment based on trademark licensing rates, fixing the proportion of profits attributable to infringement at 41%.
The court addressed post-draft judgment issues, including directors' emoluments and expenses related to an abandoned venture. It held that directors' emoluments are generally deductible overheads absent evidence they exceed industry averages, and that the small amount of costs related to the abandoned venture should be excluded but made no global deductions.
The court ordered a further hearing to finalize the sum due on the account of profits and resolve outstanding matters, directing the parties on procedural steps for that hearing.
Holding and Implications
The court's final decision is that the Defendant is required to disgorge 41% of the profits made from the sale of the infringing goods, calculated after deducting appropriate general overheads apportioned on a nuanced basis as detailed.
This decision balances the original findings of infringement with the evidence that the infringing Logo did not drive sales, ensuring that only profits attributable to the infringement are recovered.
The ruling clarifies the application of established principles on overhead deduction and profit apportionment in trade mark infringement cases involving retail and multi-channel businesses, but does not establish new precedent beyond applying settled law to the facts.
The case is adjourned for a further hearing to determine the precise sum payable and resolve remaining procedural issues.