Damages for passing off and interfering with website: some calculations laid bare

Harman v Burge [2014] EWHC 2836 (IPEC) is a 29 July 2014 decision from Judge Richard Hacon in the Intellectual Property Enterprise Court for England and Wales that throws further light on how to set about an inquiry into damages following the successful conclusion of an action for passing off and unlawful interference in trade.

Harman sued following interference by Burge with a website, http://www.doonevalleyholidays.co.uk (since shifted to http://www.exmoorcoastholidays.co.uk/), which fronted a holiday business that he had initially bought from Burge. The court awarded Harman damages for lost profits -- but how were they to be calculated? The judge's 68-paragraph judgment reduced the sum awarded by taking into account the fact that Harman had twice relocated his business after the infringing acts and that he had also discontinued a Google AdWords campaign which had been designed to recover the profile of the website, suggesting that there was no need for the campaign after the disruption to the website had been reduced. The court however also awarded Harman the cost of mitigating the damages he suffered, including the cost of Harman's AdWords campaign and the fees which he paid to an IT consultant in order to regain control of the website.

The initial calculation relating to Harman's damages claim of £122,562, reproduced above, was compiled by Thayne Forbes (chartered accountant and director/co-founder of Intangible Business Limited), whom the judge found to be "a witness doing his best to assist the court. His evidence was a mixture of careful detail and quite significant assumptions, but [he] freely acknowledged where he had made those assumptions".

Following the court's analysis, it was whittled down to a more modest but presumably still rewarding £39,701.

On the plus side, it's good to see a junior court such as IPEC get to grips with the financial issues and deal with them so efficiently.  On the down side, it's sad that this order was made more than two years after a consent order of June 2012 disposed of the issue of liability, and that it took two days of hearings to get through the issues raised here -- a long time in relation to the tightly-timetabled court.

High Life loyalty scheme: the sky's the limit for damages?

In "Lawsuit Claims Miller High Life Loyalty Program Infringes Patent", Techdirt features the news that Carlson Marketing Worldwide is suing beermaker MillerCoors over the latter's "Miller High Life Extras Loyalty Program." The US patent in question, 6,039,244, relates to a "method of building up a data bank containing customer data and/or for the organization of a rebate or coupon system".

One wonders whether a patent owner suing in respect infringement of a loyalty scheme patent has its eyes on a reach-through claim to the profits and/or the accrued goodwill created through the operation of the programme.  Any thoughts?

"User" basis available for assessment of trade mark damages

A week or so ago IP Finance reviewed a Scottish decision on assessment of damages inflicted on a brand ("Damages for damaging a brand: Tullis Russell v Inveresk", here). Now here's news of another brand damages assessment exercise, this time from England and Wales, in National Guild of Removers & Storers Ltd v Silveria (t/a C S Movers) [2010] EWPCC 15 (12 November 2010), a Patents County Court decision of Judge Birss QC.

In this case, a trade association sought damages for trade mark infringement by four defendants in separate actions, which were joined on the issue of an inquiry into damages.  According to the judge, there was no reason in principle why damages should not be available, calculated on a "user" basis for trade mark infringement and for passing off, as they were for patent infringement.  It was unnecessary for a trade association to show that it had suffered any lost sales. In reaching a fair assessment of the damages awarded against each of the defendants, including one which had never been a member of the Guild, the judge looked at the post-termination provisions in the Guild's rules which applied at the time of the infringement.  Taking them into account, he considered that a fair assessment was that each defendant should pay £200 per week for the unauthorised use of the Guild's marks (this figure was slightly lower for one defendant, where different versions of the rules were applicable).

Judge Birss QC set out the legal basis for his reasoning as follows:

"In General Tire v Firestone [1976] RPC 197 Lord Wilberforce set out two essential principles in valuing a claim for damages for patent infringement, first that the claimant has the burden of proving its loss and second that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the claimant and not punish the defendants ... Plainly these principles apply to registered trade mark infringement and passing off.

In each of the four cases before me the infringement consists of the unauthorised use by the defendant of the claimant's name and/or one or more of the claimant's marks or logos. In many trade mark cases the infringer's use of the infringing mark will lead to sales of the relevant goods which are lost to the claimant. In such a case damages can be calculated by assessing the profit lost as a result of losing those sales. In these cases however the claimant's business does not work in that way and the defendants have not caused that sort of loss to the claimant.

The kind of damage suffered by the claimant in these cases in financial terms can be regarded as the loss of the royalty which they should have been paid in return for use of their trade marks by the defendants. This remains so even though the defendants' use did not result in any lost sales of goods to the claimant. As a preliminary matter I need to decide whether such damages are recoverable in a trade mark and passing off case. ...

In patent cases there is no doubt that such damages can be claimed .... Such damages have been described as being assessed on a "user" principle, i.e. as a reasonable royalty for the unlawful use of the claimant's property even though there has been no sale lost to the claimant. In Dormueil Freres v Feraglow [1990] RPC 449 Knox J was unwilling to award an interim payment in respect of damages calculated on this basis in a case of trade mark infringement and Knox J's decision is cited by the authors of Kerly's Law of Trade Marks and Trade Names (14th Ed, paragraph 19-133) for the proposition that it has been doubted that the user principle is applicable to trade marks. The authors point out however that Knox J did not decide that such damages were not available at all, he simply refused them on an application for an interim payment.

In the copyright case Blayney v Clogau St Davids Gold Mines [2002] EWCA Civ 1007, [2003] FSR 19 (see pp 369-370) the Vice-Chancellor (Sir Andrew Morritt) (with whom Rix and Jonathan Parker LJJ agreed) rejected the submission that damages on the user principle could not be extended from patents to other forms of intellectual property. The Vice-Chancellor dealt with Dormueil Freres on the basis that Knox J's reluctance to apply the principle in a trade mark case was understandable given the nature of the application before him.

Finally in Irvine v Talksport [2003] EWCA Civ 423 [2003] FSR 35 the Court of Appeal consisting of Jonathan Parker LJ (with whom Schiemann and Brooke LJJ agreed) considered a passing off case about celebrity endorsement. The claimant was a famous motor racing driver who earned substantial sums endorsing various products and services. The Court of Appeal upheld the judgment of Laddie J that the defendant had falsely represented that the claimant had endorsed its radio station by using the claimant's image and thereby committed acts of passing off. The Court of Appeal also dealt with damages, holding that the principles in the patent cases General Tire, Meters and also A.G. fur Autogene Aluminium Schweissung v London Aluminium Co Ltd (No. 2) (1923) 40 RPC 107)) were applicable (paragraphs 97-104) such that the damages represented a reasonable endorsement fee on the facts of the case, assessed by asking what was the fee which the defendant would have had to pay in order to obtain lawfully that which in fact it obtained unlawfully. ... It is notable that Dormueil Freres does not appear to have been cited to the Court of Appeal in Irvine v Talksport but it seems to be to me absolutely plain that if it had been, the Court of Appeal would have come to the same conclusion. It would be wholly bizarre to find that unlicensed celebrity endorsement of the kind arising in that case was indeed an act of passing off but to then find that no damages were available for it, when an endorsement fee was precisely how the claimant operated his business in this respect. Moreover to say that the lost fee for the endorsement depended on whether the action was about a lost sale (i.e. a lost endorsement which the claimant would have accepted (for a fee)) and that no damages would be payable at all if Eddie Irvine would never have endorsed the radio station (so no lost sale of an endorsement) seems to me to be unreal.

In my judgment, as a matter of principle, where a defendant uses a mark without permission and thereby infringes a registered trade mark or commits an act of passing off, that act is capable of damaging the claimant's property in the mark (see s14(2) of the Trade Marks Act 1994) or property in the goodwill attaching to his business. That is so whether or not a lost sale has taken place. It is the same kind of damage as the damage to a patent monopoly caused by an infringing sale which is not a lost sale to the patentee and for which a reasonable royalty is payable. It is an invasion of a (lawful) monopoly. Thus there is no reason in principle why damages should not be available, calculated on a "user" basis for trade mark infringement and for passing off. Of course it will be a question of fact in any given case to decide the amount of such damages".

Juries and IP damages: a random and unsettling factor?

In "Don Johnson profit payout doubled to $51.2m", the BBC reported last week on the decision of a Los Angeles court to increase -- by a factor of rather more than two -- the quantum of damages awarded to actor Don Johnson for his contribution as intellectual originator and actor in all 122 episodes of US police TV drama Nash Bridges. The original award, a paltry $23.2, was ordered after jurors confirmed Johnson's claim that he owned 50% of the show's copyright.  The defendants are reportedly going to appeal.

Contra Costa Times adds some further detail.  Documents filed by attorneys for defendant Rysher Entertainment say that the judge and not the jury should have interpreted the copyright ownership contract which, they maintain, entitled Johnson to half the show's profits only after deductions were made for distribution, production and other costs. More disturbingly for those of us who are not used to the way things are done in the United States:

"According to a sworn declaration by trial juror Jason Scardamalia, the panel originally decided to give Johnson $15 million. However, the majority of the jurors agreed with one panel member's suggestion that Johnson deserved interest because he had not had access to the money for many years, Scardamalia said".

"I disagreed and said that I did not know why we were calculating interest," Scardamalia stated.

After pondering an additional 10 percent interest, 11 of the 12 jurors finally settled on adding an annual 5 percent to the $15 million from 2001 - the year the show ended - until 2010, Scardamalia stated".

The notion of leaving either the construction of contract terms or the calculation of an award of damages to a jury is alien to most other jurisdictions.  Interpreting a contract is not so serious, since the range of options available to a jury is relatively close to the sort of things a trained judge might come up with.  However, the assessment of damages in US IP litigation appears to have a degree of randomness to it which, this writer respectfully suggests, must surely make it more difficult for the parties to assess best- and worst-case scenarios when considering whether and, if so, how, to settle without recourse to a court decision.

$20 million award to Versace: any details?

News broke last week of a damages award of $US20 million to Italian fashion house Versace by a court in Los Angeles in a vast counterfeiting and trade mark case in the United States.

According to Versace, investigators moved in on 72 retail stores in southern California and Arizona in 2003 and charged 110 people with selling counterfeit goods bearing brand names owned by the company. The company said the compensation was "the highest ever obtained by an Italian company in a case brought abroad in defence of their brand name".

I've received emails asking me if I know any more about this case and about the make-up of the huge cash award (which I don't). Do any readers have anything to add, since all the news items on the internet seem to be based on the same press release.

How much is the use of "Lindsay" worth?

"Lindsay Lohan wants $100M over E-Trade ad" is the headline of an article by Kieran Crowley in the NY Post (thanks, Miri Frankel, for the link). The article reports that actress, model, singer and general purpose celebrity Lindsay Lohan is commencing legal proceedings against financial company E-Trade before the Nassau County Supreme Court. Ms Lohan maintains that a boyfriend-stealing, "milkaholic" baby in its latest commercial -- who happens to be named Lindsay -- was modelled on her. Damages of $100 million are sought for her pain and suffering.

The advertisement in question is part of a series starring babies who play the stock market. It depicts a boy apologizing to his girlfriend via video chat for not calling her the night before.
"And that milkaholic Lindsay wasn't over?" the baby girl asks him suspiciously. "Lindsay?" the boy replies, just before a baby girl sticks her head into the frame and slurs, "Milk-a-what?"

According to Stephanie Ovadia, the attorney acting for Ms Lohan, her client has the same single-name recognition as Oprah or Madonna: "Many celebrities are known by one name only, and E-Trade is using that knowledge to profit".

Without prejudice to the issue of liability, the interesting issue is the claim for damages and the basis of its assessment. While it is stated that "since the spot was seen by hundreds of millions of people watching the Super Bowl and Winter Olympics finals, the firm has garnered great profits". It does not appear however that an account of profits is sought. It would be good to see a judicial inquiry into damages, given Neil Wilkof's thoughtful piece on this blog earlier on the changing face of Super Bowl advertising. Maybe we would then get some guidance as to the quantification, in terms of profit, of advertising which both boosts immediate sales and -- to the extent that it still does so -- enriches the brand's equity.

In any event, the convenient and arbitrary figure of $100 million is sought, this being made up of $50 million in exemplary damages, plus another $50 million in compensatory damages. IP Finance looks forward to the next developments.

Spanish court explains calculations in adidas award

In what is apparently the first occasion on which a Spanish court has given an explanation of the basis for its calculations, the Madrid Provincial Court this September awarded €1,829,969 to adidas for infringement of its well-known ‘three-stripe’ trade mark by D Matteo Jin and three corporate defendants.

In its claim adidas sought recovery of (i) its expenses incurred in investigating the infringement; (ii) loss of profit (this being said to be the price that the infringers would have paid in order to obtain a licence) and (iii) damages for injury to the reputation of its mark as a result of the infringement. As to loss of profits, adidas's expert witness calculated the hypothetical royalty that the defendants would have had to pay to adidas based on

• a variable royalty (an average based on the total sales of infringing products) and
  
• a minimum guaranteed royalty (to be paid regardless of the total sales of infringing products).
  

The court accepted adidas’s argument that a minimum guaranteed royalty should be granted to the trademark holder regardless of the total sales of infringing goods. Considering the factors identified by the expert witness to calculate the minimum guaranteed royalty were reasonable and technically well-founded, the court granted an annual minimum guaranteed royalty of €855,568 (ie, €1,711,136 for two years of infringement), though the issue of the variable royalty was not dealt with since the amount of sales by the defendants was unknown.

The court added that this compensation was separate, cumulative and compatible with other types of compensation set forth by the law. On this basis, with regard to the damage to the reputation of the mark a further sum of €112,398 was awarded.

Source: Leticia Lloret, Grau & Angulo, Madrid, writing for the World Trademark Review.

Madonna seeks giant privacy payout in UK litigation

The Guardian has reported that pop icon Madonna is claiming more than £5 million in damages from the Mail on Sunday newspaper, which admitted a breach of privacy and copyright infringement following its publication of private photographs of her wedding to film director Guy Ritchie. If Madonna succeeds, she will have created a new UK record for a pay-out in a privacy case (the current record is the £60,000 recently awarded to Formula One boss Max Mosle after revelations concerning his sex life were published in the News of the World).

The singer had accused the Mail on Sunday of breaching her privacy and copyright by publishing pictures of her wedding in the Scottish Highlands, eight years after the event, following news that her marriage to Ritchie had broken down. The wedding was said to have been "wholly private" though the photos were said to have been surreptitiously copied by an interior designer at Madonna's home in Beverly Hills.  The paper is said to have paid just £5,000 for them. A decision from Mr Justice Eady is expected in the New Year.

[Thanks, Birgit Clark, for supplying this information].

Microsoft reduces provision for damages in Alcatel-Lucent suit

Bloomberg is reporting that Microsoft has apparently reduced its provisions for a potential damages claim in its long-running suit with Alcatel-Lucent concerning patents relating to audio file compression. The story in Bloomberg is not complete, but reading between the lines it seems that the story refers to the recent judgment issued against Microsoft by a jury in San Diego which awarded USD 1.52 Billion against Microsoft [Bloomberg says USD 2 Billion]. Had Microsoft been found guilty of "willful infringement" then these damage claims could have been increased by up to three times. In other words, Microsoft needed to make provision for a maximum claim of USD 4.5 Billion.

However, a decision by the US Court of Appeals for the Federal Circuit last summer revised the standard for establishing willful patent infringement. In re Seagate Technology the Court of Appeal decided that triple damages would only be awarded if there was clear evdience of objective recklessness in infringing the patent.

Clearly Microsoft do not think that they have been reckless in infringing the Alcatel-Lucent patent - and indeed are defending themselves in the San Diego trial. So instead of making a provision of USD 4,5 Billion in their accounts, they only need to make a provision of USD 1,5 Billion. A massive saving of USD 3 Billion (which Bloomberg states is USD 4 Billion and points out is 41c a share).

Microsoft have already issued a statement stating that they will be appealing and pointing out that they have already taken a licence to the German Fraunhofer Institute's MP3 patent portfolio.

Calculating patent damages in the US

Via NERA Economic Consulting I've just come across an article, "Patent Damages and Real Options: How Judicial Characterization of Non-Infringing Alternatives Reduces Incentives to Innovate", by the triumvirate of Gregory Leonard, Jerry Hausman J. Gregory Sidak -- all US academics with impressive credentials. According the note on NERA,

"The legal framework under which patent damages are calculated changed substantially after the Federal Circuit decided Grain Processing Corp. v American Maize-Products Co. in 1999. Grain Processing eased the restriction on the set of non-infringing substitutes available in the but-for world by allowing an infringer to claim that it would have offered a non-infringing product that, although not actually sold in the marketplace, was technically feasible at the time and could have been made commercially available relatively quickly.

[The authors] examine a factor that the authors see as one of the decision's most important economic ramifications: the grant of a free option to the infringer. Although it is widely appreciated how Grain Processing has made it more difficult for patent holders to claim lost profits damages, it is less well understood how Grain Processing has affected the incentives of companies to risk litigation by using patented technology (without a license) rather than to avoid infringement by using an economically inferior non-infringing technology".

This decision presumably contrasts unfavourably for patent owners, when compared with the position in the European Union following the implementation in 2006 of the IP Enforcement Directive, which makes it easier for patent claimants to obtain lost profits damages and has incentivised them to invest in litigation.
Abstract here.

Calculation of trade mark infringement damages in China

Via Pam Chestek comes this item from Michael Atkins' excellent Seattle Trademark Lawyer weblog. He writes:

"The December 2007 issue of China Intellectual Property magazine had a nice write-up about the Starbucks Corp. v. Shanghai Xingbake Cafe Corp. Ltd. trademark infringement case that Shanghai’s No. 2 Intermediate People’s Court decided last year. The case ... was important because it was the first time China’s new Trademark Law had been applied to a famous trademark.

Besides the detailed summary of the case, what I found most interesting was its explanation as to how the court calculated its RMB 500,000 ($64,000) damages award. Here’s an excerpt:

“The compensation claimed by the plaintiffs totalled RMB 1,060,000 including RMB 500,000 for economic losses and RMB 560,000 for reasonable expenses and legal fees. The defendants argued that the calculation of the plaintiffs’ profits was groundless, and thus should not be admitted. The defendants had no objection to the manner of collecting the notarization fee and legal fees, but held that the defendants’ lawyers spent too much time in collecting evidence proving the trademarks were well-known.

“The court held that it was on the basis of the profits made by the defendants from the infringement that the plaintiffs claimed compensation for economic losses. The amount of profits was calculated on the basis of the notarized statistics of the defendants’ customer volume. Although some factors on the formation of the defendants’ profits were taken into account at the time of calculation, the said amount is not completely objective and reasonable. Therefore, the court did not adopt this calculation for determining the amount of profits. The claim of the plaintiffs should be upheld for the retainer, notarization fee and translation fee as well as other fees. In the present case, the defendants committed trademark infringement and unfair competition. The overlapping parts should not be calculated repeatedly in the determination of compensation. Since it was hard to determine the profits made by the two defendants from the infringement and the losses suffered by the two plaintiffs from the infringement, the compensation should be lawfully determined as RMB 500,000 in view of the specific circumstances.”

The article’s author, Lv Guoqiang, should know what he is talking about. He is vice president of the Shanghai No. 2 Intermediate People’s Court".