Patents: calculation of account of profits

The Intellectual Property Enterprise Court (IPEC) has assessed what proportion of sales of entire articles sold with infringing inserts should be included in an account of profits, and when it was appropriate to deduct general overheads from profits on infringing business. 

Background

Section 61(1)(d) of the Patents Act 1977 entitles a patentee to claim against an infringer an account of the profits derived by him from the infringement.

Facts

A sued D for infringement of its patent for snap-in shop display panels. The patent was held valid and infringed and A elected for an account of profits. 

The IPEC set out the points of principle, from which the parties calculated the sum payable by D. D appealed. 

The Court of Appeal allowed the appeal (www.practicallaw.com/1-625-2388). It held that the IPEC was incorrect both on the principles of apportionment of profit and on deduction of overheads, and remitted the case to IPEC.

Decision

The IPEC set out revised principles to enable the parties to calculate the profit, if any, due to be paid by D to A.

Deciding which part of the profits made by the infringer in the course of his infringing business fell due to the patentee involved two steps. First, the invention must be identified. Generally an invention disclosed in a patent would be that set out in a claim. However, in an inquiry as to damages or an account of profits it was necessary to the focus on the narrower idea of "inventive concept" as distinguished from the invention. Second, the profits (if any) made by the defendant from his use of the invention must be identified, taking into account convoyed goods and/or products into which the subject matter of the invention is incorporated.

The Court of Appeal had identified two circumstances in which a losing defendant in a patent action ought also to account for profits from sales of goods other than those which precisely embodied the invention: firstly, where the invention related to an essential feature of those goods; secondly, where those goods would not have existed had the defendant not infringed the claimant's patent. These two criteria were alternatives. If either was satisfied, apportionment was not appropriate.

The "essential feature" meant that the protected feature of the product was functionally and/ or commercially the most significant part of the whole. However, it could be that from the point of view of some buyers the relevant feature was essential while from the point of view of others it was not. Similarly, it was possible that if the protected feature had not been available for use, some of the entire goods would have come into existence, but fewer of them. In those cases the court ought to make a partial apportionment: the infringer had to account for the profit on a proportion of the entire articles.

In addition, if sales of the products embodying the patent infringed "drove" the sales of other goods, the latter qualified as sales of convoyed goods and the defendant was accountable for profits on those sales. The term "drove" meant there had to be a causative link between the sale of the convoyed goods and the consequential sale of infringing goods. This meant there was a perceived compatibility, functional interaction, or some other connection of that nature between the infringing goods and the putative convoyed goods or services. The sale of the putative convoyed goods or services had to be consequential upon the sale of the infringing goods or services, and the sale of the infringing goods or services had to constitute the primary purchasing decision.

The evidential burden in relation to the profits due to a successful claimant was on the infringer, including the issues of whether the defendant had to pay to the claimant his profits on entire articles or an apportioned part of the profits and whether there were sales of convoyed goods for which the defendant had to account. The relevant evidence was more likely to be in the control of the infringer than the claimant.

The Court of Appeal agreed that the inventive concept was the composite idea of a metal insert interacting with the slot of the panel, such that the insert could engage with the panel by snap-in means. Where panels were sold with inserts, they were either sold with infringing inserts incorporated in them or the two were sold simultaneously but separately. In the case of panels with incorporated inserts, it was probable that only a small proportion of the defendant’s customers wanted the infringing insert and no substitute. As it was very difficult to determine this proportion accurately, it should be estimated as 10% of those sales, and the entire profit on those sales would be payable by D.

Panels bought separately from the infringing inserts ought not to be treated the same way as panels in which the infringing inserts were incorporated. In cases where customers specified a wish to buy the infringing inserts because of the advantages they offered, the inserts drove associated sales of compatible panels which were convoyed sales, because, if the defendant not been able to provide those inserts, it was likely that those customers would have gone elsewhere for panels. The estimated proportion of those sales of the panels driven by the sales of accompanying inserts in that way was 10%.

Where the customer did not specify infringing inserts, D still made infringing sales requiring determination of what proportion of the profit on the sales of the panels was to be apportioned to the invention: that is, to the inserts and the slots in the panels into which the inserts fitted. It made no difference whether the inserts were incorporated before or after sale. One possible approach was by reference to function. The function of the panel was to act as a frame on which goods could be displayed. One of the requirements of the design was to have a slot compatible with the inserts used. That was a minor, but not insignificant part of the whole function. The best way to estimate the correct figure was to separate the profit on panels and inserts. A was entitled to the whole of the profit made on the relevant inserts plus 10% of the profit made on the panel.

The IPEC also determined whether costs incurred by D in his infringing business might be deducted from the gross relevant profits assessed by the court in an account of profits. Costs associated solely with D's acts of infringement were to be distinguished from general overheads which supported both the infringing business and D's other, non-infringing, businesses. D was entitled to deduct the former costs from gross relevant profits. A proportion of D's general overheads could be deducted from gross relevant profits unless the overheads would have been incurred anyway even if the infringement had not occurred, and the sale of infringing products would not have been replaced by the sale of non-infringing products. The evidential burden was on D to support a claim that costs specific to the infringement and/ or a proportion of general overheads were to be deducted from profits due to A.

Comment

The difficulties in this case illustrate why successful patent infringement claimants usually elect for an award of damages rather than an account of profits, except in the simplest cases.

Case: Abbott and another v Design & Display Ltd and another [2017] EWHC 932 (IPEC).

First published in the June issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.