After an initial triumph over House of Fraser (Stores) Limited, a recent court decision will have ruffled the feathers of Jack Wills Limited.
Back in 2014, Arnold J found that Jack Wills' pheasant trade mark was infringed by House of Fraser's application of a pigeon logo to clothing, such as knit wear. While such a finding deals with the issue of a party's liability, it does not deal with the level of financial compensation payable to the brand owner.
The brand owner is entitled to consider some basic sales information and elect between receiving damages (essentially, how much it has lost, often calculated on the basis of a reasonably royalty) or an account of profits (essentially, how much the infringer has gained). If a party elects for an account of profits then, following some further disclosure, an amount will be determined as to the profit made from the infringement.
Where the costs of and revenue generated by an infringing product can easily be identified within a business, there is often not a great deal to argue over. The pressure of mounting legal costs usually forces the parties to make offers and counter offers which often results in a relatively quick settlement. A judgement in relation to an account of profits is therefore a rare bird.
However there are occasions when a disagreement over principles applied to the calculation can result in significant differences in the amount each party considers due. In those circumstances, recourse to the court is more likely.
Jack Wills and House of Fraser had very different views as to the value of the account. Jack Wills considered it to be in the region of £600,000 and House of Fraser, around £50,000.
Jack Wills' calculation was based on the sales revenue less VAT and direct cost. House of Fraser argued that other deductions should be made for general overheads and apportionment.
An account is intended to ensure that an infringer should be deprived of any profit attributable to wrongful acts. However it is not intended to be punitive and should not extend beyond the account.
Although there was plenty of discussion around the requirement for a Defendant to work at capacity before general overheads can be deducted, the judge considered the question should be whether House of Fraser has demonstrated that:
In applying the facts, the judge decided to treat online sales in the same way as shop sales. He recognised that existing House of Fraser own-brand lines were simply given the infringing logo and that if the infringing goods had been replaced, they would have been replaced with substantially similar garments without the infringing logo.
As a result, in this case, an apportioned deduction for general overheads such as property, employment and operations should be made.
Jack Wills favoured dividing the deductible costs by the total House of Fraser sales area and multiplying it by the area occupied by the infringing goods ('Square Foot basis').
House of Fraser favoured a sales revenue basis.
The judge concluded that the Square Foot basis should apply to property, depreciation and establishment costs and that the least unrealistic way of treating others was on a sale revenue basis.
Unless the infringing element of a product is the 'essential ingredient' of the whole product, there should also be an apportionment to recognise the value of the non-infringing aspects of the product.
In this case the infringing goods were clothing with a value independent of the infringing logo. Looking at license rates paid by House of Fraser in the relevant period, the judge's overall conclusion was that Jack Wills should recover 41% of the profits (calculated as above) made from the sale of the infringing clothes.
It is reported that House of Fraser made a number of settlement offers. Importantly, Jack Wills failed to beat one made early on. As a result, Jack Wills has been ordered to pay House of Fraser's costs from the expiry of that offer.
This judgement makes it clear that a precise analysis is often not possible and that some accounting basis are imperfect. However, this decision, (along with a case earlier this year, Design & Display Limited v 000 Abbott  EWCA Civ 95), is welcome guidance, particularly for retailers, as to how to calculate accounts of profits.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.