This article was first published in Kluwer Patent Blog, March 2016

Design & Display Limited v OOO Abbott & Anr, Court of Appeal of England and Wales (Sir Terence Etherton, Tomlinson LJ and Lewison LJ), London, UK, 24 February 2016, Neutral Citation Number: [2016] EWCA Civ 95

On 24 February 2016, the Court of Appeal (Lewison LJ giving the leading judgment) allowed an appeal against a decision of HHJ Hacon from the Intellectual Property Enterprise Court (“IPEC”) in relation to the assessment of an account of profits in a patent infringement case. Prior to this, on 30 May 2013, Birss J (sitting as a Judge of the IPEC’s predecessor court, the Patents County Court) had found that Design & Display (D&D) infringed Abbott’s patent for a snap-in insert for shop display panels (see here).

The appeal raised two questions: (i) is an infringer liable for the whole of the profits made on the sale of a composite product into which the subject matter of the patent has been incorporated (in this case the display panel sold together with the infringing insert); and (ii) is an infringer entitled to set off any part of its general overheads against the gross profit for which it is accountable? On the first question, HHJ Hacon had found that in relation to some sales, customers would have specified that they wanted panels and would have been indifferent about the choice of inserts. In these circumstances, because D&D chose to sell infringing inserts, the sale of the panels necessarily went hand in hand with the sales of the infringing inserts. He concluded that the scope of the profit derived from such infringement extended to the profit made from sales of panels in which the infringing inserts were incorporated.

However, the Court of Appeal held that the Judge’s legal reasoning was incorrect. In a case in which the infringement does not “drive” the sale, it is wrong to attribute the whole of the profit from the composite product to the infringement; in particular, it was wrong for the Judge to ask whether the sale of the panel plus insert would have happened separately. Instead, the Judge should have asked how much of the profit on the sale of composite item was derived from the infringement. The Court of Appeal observed that if the Judge had found on the facts that the infringing inserts were an “essential ingredient” of the composite product, then he would have been justified in declining to apportion the profit, but he did not make such a finding.

On the second question, D&D had argued it was entitled to set off part of its general overheads against the gross profit for which it was accountable. HHJ Hacon had refused the deduction indicating that in order for the apportioned overheads incurred by the infringing business to be deductible, the infringer must be “running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted”; he held that this was not shown on the evidence.

The Court of Appeal overturned HHJ Hacon’s decision, finding the Judge had incorrectly stated the law set out in Hollister Inc v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419 by finding that running to maximum capacity was a threshold condition which had to have the consequence that alternative business was displaced. The Court stated that Hollister (and Dart Industries Inc v Decor Corp Pty Ltd [1994] FSR 567) establishes that where an infringer demonstrates that, but for the infringement it would have manufactured or sold other (non-infringing) products, then to the extent that the overheads incurred in manufacturing/selling the infringing products would have instead been used to sustain that alternative non-infringing production or sale, those overheads may be deducted from the gross profits for which the infringer must account.

On the basis of the facts found by HHJ Hacon, it was not possible for the Court of Appeal to apply its legal findings and assess the profits to which the patentee was entitled. Accordingly, the case was remitted to the IPEC for reconsideration.

Read the judgment in English here.