In the final chapter of the successful trademark infringement proceedings brought by Jack Wills Ltd against House of Fraser (Stores) Ltd,(1) the High Court assessed the profits that the defendant retailer had to pay Jack Wills. The decision provides a useful explanation of the factors to be considered when undertaking an account of profits and should assist future litigants when calculating the likely value and deciding whether an account of profits would be the more appropriate remedy.

Facts

Claimant Jack Wills was founded in Devon in 1999 and is a leading clothing retailer selling its own brand of British heritage-inspired casual clothing brand targeted at 16 to 24-year-olds (although it also sells to consumers outside this bracket).

Jack Wills uses a logo consisting of a silhouette of a pheasant with a top hat and cane (referred to as 'Mr Wills'), which is embroidered on many of its items of clothing in a variety of colours. The black and white version of the logo (which was registered as both a UK and a Community trademark) is shown below.

Click here to view the image.

Defendant House of Fraser operates a chain of department stores across the United Kingdom. In addition to offering a variety of well-known clothing brands, it sells its own range of clothing and housewares under the brand name Linea. From November 2011, House of Fraser introduced a logo consisting of a silhouette of a pigeon with a bow tie and top hat on a selection of its Linea menswear garments (shown below).

Click here to view the image.

In October 2012 Jack Wills discovered the sale of the Linea menswear garments displaying the pigeon logo and commenced proceedings for trademark infringement and passing off against House of Fraser.

In January 2014 the High Court concluded that Jack Wills' logo had been infringed by House of Fraser's pigeon logo. The judge concluded that there was a likelihood of confusion between the two logos due to a number of factors, including the distinctive character of the Mr Wills logo and the conceptual similarity of the marks. Following the decision, Jack Wills applied for an account of profits.

Decision

The parties agreed that House of Fraser had used the pigeon logo on its Linea products from November 2011 until March 2013 and that the gross profit from sales of those products was £591,532. Jack Wills argued that it was entitled to all of the profits from the sales. However, Judge Pelling, who was sitting as a High Court judge, held that Jack Wills was entitled to 41% of the net profits from House of Fraser.

Principles to be applied

The judge noted two general principles that had to be balanced against Jack Wills' claim:

  • An account of profits is not a penal remedy. Instead, it is a mechanism by which an infringer is required to pay to the trademark owner all profits properly attributable to the infringement; and
  • If a trademark owner elects to accept an account of profits as a remedy in preference to damages, it is required to take the infringer "as it found it" – for example, it cannot argue that the infringer should have been more efficient in its sales or sold infringing goods at a higher margin.

The court also noted that, as highlighted in the recent Court of Appeal decision in Design & Display Ltd v Ooo Abbott,(2) an infringing defendant is entitled to offset a proportion of its general overheads (attributable to the infringement) that would have sustained a non-infringing business. This raised two factual questions – whether House of Fraser could show that:

  • the same overheads would have been incurred even if the infringement had not occurred; and
  • the sale of infringing products would have been replaced by the sale of non-infringing products, which would have been sustained by the overheads used to sustain the infringement.

On the first question, it was common ground that the infringement had no effect on general overheads. On the second, the judge found that House of Fraser had sold similar non-infringing goods before, during and after the relevant period. He also noted that web sales should be treated the same as shop sales.

Apportioning deductions for overheads

The judge stated that for an overhead to be deductible, the expenditure must be wholly or partly attributable to the infringer's trading activities as a whole, incurred during the relevant period.

Agreed overheads for which apportioned deductions were made were:

  • employment;
  • property;
  • establishment; and
  • depreciation.

The overheads on which there was some dispute (and on which the judge was required to make various rulings) were:

  • operations;
  • store support costs; and
  • finance.

In order to arrive at a fair proportion of deductible overheads, the parties agreed that dividing the deductible costs by the total sales area of House of Fraser's business and then multiplying that by the area occupied by the infringing goods was appropriate for apportioning property, depreciation and establishment costs (the 'square footage' basis).

The judge decided that the least unrealistic way of apportioning the other categories of overheads was on a "sales revenue basis" – that is, dividing deductible costs by total sales during the relevant period and then applying the resulting percentage to the infringing sales.

Further apportionment to account for infringement

The judge also considered whether there should be some further apportionment to account for House of Fraser's acts of trademark infringement and passing off. He noted that, unless there was a finding that an infringement drove the sale, there had to be an apportionment to account for the fact that the profits were those properly attributable to infringing use, rather than all profits arising from the sale of an item.

In this case, the evidence did not allow one to conclude that the infringement drove the sale of the infringing products or was the essential ingredient in the infringing products. The same lines of Linea clothing were sold by House of Fraser both before and after the infringement (ie, without the pigeon logo). There was no evidence that the inclusion of the pigeon logo had any significant or lasting effect on sales.

Balancing all of these factors, the judge considered that an apportionment of 41% of House of Fraser's net profits would strike a fair balance (based on a royalty rate of 1.5% for the use of third-party brands).

Comment

This decision, together with the recent Court of Appeal decision in Design & Display Ltd v Ooo Abbott, provides much-needed guidance as to how to approach account of profits calculations, deductions for overheads and possible further apportionment for the infringing acts.

Of course, there will always be matters requiring additional judicial guidance to determine a fair apportionment based on particular facts. However, the reasoning applied by the court seeks to strike a commercial balance when assessing a fair remedy for account of profits and should provide many litigating parties with a framework for negotiating and agreeing the amount payable following the trial of an infringement claim (and help to avoid the need for further hearings).

For further information on this topic please contact Jeremy Drew or Georgia Davis at RPC by telephone (+44 20 3060 6000) or email (jeremy.drew@rpc.co.uk or georgia.davis@rpc.co.uk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) Jack Wills Ltd v House of Fraser (Stores) Ltd [2016] EWHC 626 (Ch), March 21 2016.

(2) [2016] EWCA Civ 95.

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