Damages for Patent, Design and Trade Mark Infringement

Introduction

In large part, the nature of intellectual property demands the issue of damages be considered at an early stage. For example, in a case of alleged trade mark infringement, where the registered trade mark is also an ‘artistic work’ under the Copyright Act 1968, it is relevant to know that a successful copyright infringement might entitle the applicant to additional damages, whereas these are not available as relief the court may grant in a successful trade mark infringement action.1

In this article, I will consider:

• the statutory basis for damages in respect of patent, design and trade mark infringement actions;
• the two more common approaches to the calculation of damages in these areas;
• the impact, if any, of a defendant establishing an innocent infringement defence;
• additional damages;
• overseas losses, and
• personal distress.

Although not dealing with copyright as such in this article, many principles applied in relation to other IPR are distilled from the jurisprudence of copyright cases and are therefore referred to herein.

The relevant provisions

The Federal Court and the prescribed courts have power to grant in an action for an infringement of patent,2 trade mark3 and plant breeder’s rights,4 an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits at the option of the applicant.

The nature of these damages

The infringement of a patent, design or trade mark is a tort. Proof of damage is not essential for the establishment of the action and the action therefore accrues at the date when the infringing act took place rather than when the applicant suffers loss.5

Damages are compensatory in nature. The measure of damages is the loss in value caused by the infringement of the copyright for example, as a chose in action6 or the amount by which the incorporeal right has been depreciated.7 Similarly expressed, the Full Court considered that ‘the purpose of an award of damages for breach of copyright “is to compensate the plaintiff for the loss which he has suffered as a result of the defendant’s breach”’.8

Usual approaches

The defendant is liable for all loss which is actually sustained by the plaintiffs as a natural and direct consequence of the unlawful acts of the defendant.9 Although there is no fixed method, the courts usually apply one of two approaches of assessing compensatory damages: the ‘loss of sales’ approach or the ‘licence fee’ approach.10

Loss of sales approach

A difficulty with this approach lies with the establishment of a case that rests solely upon the footing that a sale by the respondent is a lost sale by the applicant.

The mere use of a deceptively similar trade mark in respect of services of the same description for example will not raise for the court an inference that the custom acquired by the infringer would have been attributed to the applicant.11

In Elwood, the applicant sought compensatory damages applying a lost sales method in respect of two T-shirt designs.12 Elwood’s application was dismissed by the primary judge, but the appeal to the Full Court was allowed.13 In the hearing on quantum, referred back to the primary judge, Elwood sought to base its damages claim by taking an average of its sales figures and then making the assumption that if the respondent was not in the market, it would have continued to sell that average number of T-shirts each month extrapolated over the ensuing 3 years.

Gordon J rejected this approach in the case, on the basis that the facts did not support the contention of probable sales.

In this regard, her Honour said the T-shirt was an update of an Elwood design first run in 2005. Gordon J noted that the earlier T-shirt design itself only ran for 18 months, making it unrealistic to claim damages on the basis the T-shirt had a further 3 years of market life.

Notwithstanding, her Honour identified the following steps:

• Assume respondent sought applicant’s market share;
• Assume respondent’s sales = applicant’s lost sales;
• Discount preceding assumption to show not all sales would have been the applicant’s sales;
• Discount unit sales by the facts of the case.14

In Elwood, Gordon noted that there was no evidence, expert or otherwise which assisted in determining an appropriate discount factor. There was also no evidence to identify who was the market leader. There was however a starting point, the number of units sold and the price of each unit.15

Gordon J observed that even if the parties were selling to similar markets and at similar prices, it had been found that the applicant had failed to put forward sufficient evidence for the court to draw an inference as to whether some or all of the sales made by the respondent could be properly characterised as sales lost by the applicant.16

Some degree of speculation is expected in the court calculating compensatory damages: Norm Engineering at [295] ; Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd [2007] FCAFC 40 ; (2007) 157 FCR 564 at [35] . However the court may take into account the failure of the applicant to assist by providing proper sales data and relying solely on the proposition that the respondent’s sales equated to the applicant’s losses.

Some care must be taken in confusing the concepts behind the ‘lost profit’ or ‘lost sales’ approach and the alternative to damages, and ‘account of profits’.

In Aristocrat Technologies Australia Pty Ltd v Vidtech Gaming Services Pty Ltd (2006) 68 IPR 229 the primary judge considered that he lacked the evidence necessary to compute damages referrable to the applicant’s loss.17 His Honour proceeded to assess damages based on the respondent’s net gain, which the Full Court said was impermissible, as the applicant elected damages not an account of profits.18

The applicant in Aristocrat could have but did not contend that it lost some proportion of the sales made by the respondent, which would otherwise have been made by the applicant.19 The applicant’s case was based solely on the contention that it lost 400 units in sales which was not supported by the evidence.20

In the result, if the parties are competitors in the same areas, geographic and/or market sector, evidence beyond an assumption that the court will accept a unit for unit assessment is required. Notwithstanding, Finkelstein J considered the lost sales approach most appropriate between competitors. The applicant must show sales were lost to the respondent and quantify them. However, the courts acknowledge such a calculation may be difficult to determine with precision and that the applicant should be given some latitude in this regard.21

License fee approach

A very common approach, particularly with house plan cases,22 is the licence fee approach. With this approach, the court considers that the IPR owner’s loss is compensated by the payment of a fee, which would have been acceptable to the applicant for the use of the copyright works.

There is however, a further consideration with the licence fee approach. Where the applicant and respondent are competitors, it is unlikely that the applicant would have in fact, granted its competitor a licence. In the case of Eagle Rock Entertainment Ltd v Caisley,23 Tamberlin J considered the two forms. Relevantly, his Honour observed that a starting point is what the applicant required as a royalty if it was willing to grant one and the respondent sought it. If it is the case that the applicant would not have granted a licence, the loss to the applicant will be considered as a result of the respondent’s sale of unauthorised products.

The ‘licence fee’ method of assessment is appropriate, where an inference can be drawn that, if the respondent had a choice between paying the licence fee and not using the work, the infringer would have paid the licence fee.24

In AV Jennings Ltd v Bogdan,25  an appeal from the decision of a Federal Magistrate to the Federal Court on the liability issue of copyright infringement was allowed. In assessing the loss to Jennings, it was the project home builder’s evidence that it did not allow members of the public to build a house using a Jennings plan without using Jennings as the builder of that home.26 Jennings therefore sought the lost profit assessed by it as $45,125.00.

The self represented respondents argued that there was no evidence that they were going to retain Jennings to build their home even though Jennings quoted on the construction, so there was no loss. Greenwood J agreed.27 His Honour further found, that the respondents built the home for themselves, not for resale, nor were they in the business of building and selling homes.

Accordingly, Greenwood J found, amongst other things, that the respondents were not likely to infringe again as the house was built as their home.

Greenwood J determined that the licence fee approach and the lost profit approach were not appropriate. His Honour chartered another course, starting with the profit margin. His Honour found that the applicant’s profit came as a result of the aggregation of services Jennings provided from start to finish. Greenwood J decided to ‘disaggregate those services and apportion some part of the profit to the use of the plan as an analogue of loss suffered by Jennings’ by reason of the unauthorised use.28

Greenwood J considered that the contribution of the copyright in the plan at about 10%, the balance of the profit being referable to the building quantities. On that basis his Honour arrived at a range of damages between $2,972.00 and $4,101.00, awarding the average, $3,536.00.29

Innocent infringement

The establishment of the ‘defence’ of innocent infringement impacts upon the ability to recover damages in some cases.

Designs

In the Designs Act, the court may refuse to award damages, or reduce damages which would otherwise be awarded, or refuse to make an order for an account of profits, where the respondent establishes innocent infringement. A respondent does so under the Designs Act, in the case of primary infringement, if they were not aware of the design registration and had taken all reasonable steps to ascertain if it was registered. In the case of secondary infringement, the respondent was not aware, and could not reasonably have been expected to be aware, that the design was registered .

Patents

The Patents Act also makes provision for innocent infringement.30 The provision is similar to the Designs Act in that the court may refuse to award damages, or to make an order for an account of profits, in respect of an infringement of a patent if the defendant satisfies the court that, at the date of the infringement, the defendant was not aware, and had no reason to believe, that a patent for the invention existed. However, there is an assumption of such knowledge where the product is marked as being patented in Australia, unless otherwise established.

Trade Marks

There is no equivalent provision in the Trade Marks Act as such. There are defences based on the establishment of good faith use.31 For example, the use is to indicate the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic, of goods or services.

Good faith would also be a basis upon which the respondent seeks to establish to the court the defence, based on a case that he or she may obtain registration in his or her own right,32 such as a case based on ‘honest concurrent use’ of a deceptively similar mark.33

Additional damages

Almost all of the main IPR regimes have now in place, the ability in stakeholders to seek relief from the Federal Court or a prescribed court, for an additional amount from an award of compensatory damages, in the nature of punitive damages taking into account the conduct of the respondent and the public interest consideration of deterring similar conduct. Each statutory regime should be carefully considered, as they vary slightly in the matters considered.

The Designs Act 2003 provides the simplest form of the provision at s 75(3), taking into account ‘the flagrancy of the infringement and all other relevant matters’. Other regimes stipulate some of those ‘other relevant matters’, as in the provision contained in s 122(1A) of the Patents Act 1990, which is reflected in the draft provision proposed to be added to s 126 of the Trade Marks Act 1995.34 In both, flagrancy of the infringing conduct, the conduct of the respondent after the infringing conduct and after being notified of the allegedly infringing conduct, are relevant matters. The matters to be considered are not exclusive but must be relevant to such an award.

Assessment of loss overseas

Infringement is relevant if done in Australia.35 However, the courts have been prepared to include compensation for sales lost overseas as a result of infringing conduct within Australia.36 In Aristocrat Technologies Australia Pty Ltd v Vidtech Gaming Services Pty Ltd, Wilcox J considered overseas sales prices would have been relevant, but did not make an award on this basis as there was insufficient evidence.37

Personal distress

Compensatory damages for infringement of IPRs may include compensation for personal suffering, anger, hurt feelings or insulting behaviour.38

In Milpurrurru, von Doussa J considered that damages under s 115(2) of the Copyright Act could include damages for the personal distress and potential embarrassment and contempt within the communities of the artists. Evidence was lead that the infringements caused embarrassment to certain Aboriginal artists by the unauthorised use of their artistic works through the design of carpets.39

The court noted that in the cultural environment of the artists the impact upon them could be extensive. The problem which presented itself was that the calculation was complicated by the fact that compensatory damages for personal and cultural hurt would vary from artist to artist, and ‘assessment along these lines would not have been in accordance with the principles of equality (aggregate liability to the applicants as a group)…’ 40

His Honour found that the amount could more comfortably be characterised as a discretionary amount under additional damages under s 115(4).

Conclusion

Each case will depend on its own facts. For IP lawyers the take away points are:

1. Consider at the beginning of the case the question of damage. Even though it may be likely that the quantum aspect of the case might be heard separately, a well constructed case on damage is a powerful tool at mediation.

2. Consider elements which impact upon the shape of the damages claim:

(a) What is the actual loss to the applicant?

(b) Are the parties competitors?

(c) Would a licence be granted?

(d) Is a lost sales approach unrealistic?

(e) Is there reputational loss?

(f) Loss of opportunity to franchise or licence?

3. If you cannot construct a credible case for compensatory damages then there is little point in seeking injunctive relief and the sooner the client knows that the better.

The focus must be the amount of actual loss suffered by the IPR owner and how that may be quantified. In cases where the concern is to stop the offending conduct, appropriately framed undertakings by the respondent may quickly shift the focus onto the applicant’s case for damages, which the IPR advisers should be prepared to outline.41

Footnotes

1. Item 29 of Schedule 5 Part 3 of the Exposure draft of the Intellectual Property Laws Amendment (Raising the Bar) Bill 2011, proposes to extend the jurisdiction of the court in s 126 of the Trade Marks Act 1995, to enable the award for damages of a punitive nature, in addition to compensatory damages.
2. Patents Act 1990 (Cth) s 122(1).
3. Trade Marks Act 1995 s 126. Note that the power is subject to the provisions of s 127, which effectively disentitles the applicant to damages or an account in respect of a period of non-use which the court has determined, gives rise to a an order for removal of the mark from the register under s 92(4).
4. Plant Breeder’s Act 1994 (Cth) s 56(3).
5. Passing off claims, which often accompany trade mark infringement claims, do require damage as the third element required to establish the claim.
6. Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] Ch 323 per Lord Wright MR at 336; [1936] 1 All ER 177 ; Prior v Lansdowne Press Pty Ltd [1977] VR 65; (1975) 12 ALR 685 ; A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (No 2) (1996) 34 IPR 332 at 336—7 (Fed C of A — Drummond J) ; Polygram Records Inc v Raben Footwear Pty Ltd (1996) 35 IPR 426 at 444 (Fed C of A — Foster J); appeal to the full Federal Court on other issues: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 ; Eagle Rock Entertainment Ltd v Caisley (2005) 66 IPR 554; [2005] FCA 1238 at [10], per Tamberlin J.
7. In MJA Scientifics International Pty Ltd v SC Johnson & Sons Pty Ltd (1998) 43 IPR 287 at 319.
8. Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Limited (in liquidation) [2007] FCAFC 40 (Black CJ, Jacobson, Rares JJ, 29 March 2007) at [23], referring to Interfirm Comparison (Aust) Pty Limited v Law Society of New South Wales (1975) 6 ALR 445 at 446 (Bowen CJ); Bailey v Namol Pty Limited [1994] FCA 1401; (1994) 53 FCR 102 at 111 (Burchett, Gummow and O’Loughlin JJ).
9. A G Spalding & Bros v A W Gammage Ltd (No 2) (1918) 35 RPC 101.
10. MJA Scientifics International Pty Ltd v SC Johnson & Sons Pty Ltd (1998) 43 IPR 287 at 319.
11. See Lahore, Patents, Trade Marks and Related Rights Volume 1A [58,475] referring to The Magnolia Metal Co v The Atlas Metal Co (1897) 14 RPC 389 at 402 ; cf Leather Cloth Co v Hirschfield (1865) LR 1 Eq 299 .
12. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378.
13. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2008] FCAFC 197 (23 December 2008).
14. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633 (12 June 2009) at [13].
15. Elwood from [15].
16. Elwood at [22] referring to Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74 ; (2008) 166 FCR 358 at [25] to [26] per Jessup J.
17. Aristocrat at [118].
18. Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Limited (in liquidation) [2007] FCAFC 40 (Black CJ, Jacobson, Rares JJ, 29 March 2007) at [3] and [4] (Aristocrat full court).
19. Adopted by Emmett J in Sony Computer Entertainment Aust Pty Limited v Stirling [2001] FCA 1852 at [8].
20. Aristocrat full court at [35].
21. TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151 (20 February 2007) at [207] referred to in Krueger Transport Equipment Pty Ltd v Glen Cameron Storage and Distribution Pty Ltd (No 2) (2008) 79 IPR 81 at [34].
22. Tolmark Homes Pty Ltd v Paul (1999) 46 IPR 321 (Fed C of A).
23. Eagle Rock Entertainment Ltd v Caisley (2005) 66 IPR 554; [2005] FCA 1238 at [11], [12]. See also Nominet UK v Diverse Internet Pty Ltd (No 2) [2005] FCA 1773 at [42]—[47], per French J .
24. Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69 at 75; Microsoft Corp v Atifo Pty Ltd (1997) 38 IPR 643 at 647 per Tamberlin J (Fed C of A).
25. [2009] FCA 307 .
26. Ibid at [79].
27. Ibid see [80] to [99].
28. Ibid [98].
29. Ibid at [99].
30. at s 123.
31. Trade Marks Act ss 122(1)(a)(b) or (c).
32. Trade Marks Act s 122(1)(f).
33. Trade Marks Act s 43(3).
34. It should be noted that the proposed amendments to the Trade Marks Act in item 29 of Schedule 5 Part 3 of the Intellectual Property Laws Amendment (Raising the Bar) Bill 2011 contains an error at 2(c)(ii) in that the reference to ‘patent’ should be a reference to ‘trade mark’.
35. Copyright Act 1968 (Cth) ss 36 and 101.
36. See Eagle Rock Entertainment Ltd v Caisley (2005) 66 IPR 554.
37. (2006) 68 IPR 229 at [117].
38.  Milpurrurru v Indofurn Pty Ltd (1994) 30 IPR 209 (Fed C of A).
39.  Milpurrurru at 243-4.
40. Lahore “Copyright and Designs’ at [36,230].
41. Bing! Software Pty Ltd v Bing Technologies Pty Limited (No 1) [2008] FCA 1760 (Collier J, 25 November 2008) at [105]. See also Roche Therapeutics, Inc v GenRx Pty Ltd [2007] FCA 83 where interlocutory injunctive relief refused in part by the undertaking of the respondent to keep a record of sales. Emmett J considered that the method by which the patentee would recover its profit through exploitation was through sales.