Damages for trade mark infringement: the "user principle" and a Haconian ruling

How much should an infringing user of another's intellectual property right be made to pay for the infringement? This question can never be comfortably answered by a one-size-fits-all rule since the following situations illustrate the different scenarios that may have to be faced:

* a malicious and deliberate infringer seeks to harm the IP owner and benefit himself by helping himself to that IP and using it for his own profit;

* a sweet and innocent party has no idea at all that it has participated in an infringement and feels most upset and embarrassed that it has done so;

* an infringement does not confer any identifiable benefit on the infringer but does adversely affect that ability of the IP owner to exploit his rights further;

* infringement takes place where a formerly licensed user doesn't notice that the licence has expired, or acts in breach of the terms of the licence when it is still current.

This could be expensive ... **

These scenarios, and many others either alone or combination with one another, reflect the fact that sometimes we intuitively feel that the defendant needs to be thumped around a bit and taught a good lesson so he won't do it again, while in other cases our sympathies lie with him: he may be no more morally culpable of trespass than the Monopoly player who, on a random shake of the dice, finds that he has landed on an expensive property that is bristling with houses or a hotel. Sometimes the IP right has been damaged by the infringement, while on other occasions it remains unscathed.

These scenarios and the issues they raise are important because, among other things, they affect the chances of the parties settling the dispute and agreeing a sum to be paid without the need of a judicial ruling and the possible subsequent involvement of accountants, actuaries and other experts in calculating real and theoretical outcomes. They also affect perceptions of whether the IP system is "fair". After all, if good, well-behaved claimants secure the same damages against nasty brutish defendants as nasty brutish claimants are able to collect against sweet, well-behaved defendants, have we treated two qualitatively different types of behaviour in the same way?

Bearing this in mind, courts of law are not ideally set up to judge the financial value of commercial or other behaviour. The number of principles relating to the assessment of a damages award is very much less than the number of possible forms of conduct of the parties. Having said that, some principles seem to fit quite a lot of cases and the "user principle" is one of them: this quantifies the sum payable to the successful claimant as the licence royalty that the defendant would have had to pay in order to make the infringing acts lawful.

The recent decison of Judge Hacon in the Intellectual Property Enterprise Court, England and Wales, in National Guild of Removers and Storers Ltd v Statham t/a Marrubi's Removals & Storage [2014] EWHC 3572 (IPEC), is a case in point. Here follows a guest post from our friend and fellow blogger Barbara Cookson on that very decision:

"When Judge Birss (as he then was) decided to use the user principle as a basis for calculating damages in a trade mark infringement matter, in National Guild of Removers and Storers (NGRS) v Christopher Silveria (here), it created something of a stir that even made its way across the pond into the illustrious debates held at INTA in 2011 as reported by the AmeriKat.

Now it seems to be taken for granted that this is the way to go, even though the only claimant receiving such damages is the NGRS. On 5 November Judge Hacon once again used the user principle to assess damages for an inadvertent use of the NGRS’s trade mark on the Really Moving website in an advertisement for the defendants' own removal business.

This time, however, the judge did not follow the approach of his predecessor and effectively enforce the contractual provisions in the membership agreement. That had led to an assessment of damages of £200 per week in the earlier case which, taking into account the small-scale of the defendants and the additional burden of costs, resulted in a heavy financial burden on the defendants.

Instead of looking into those clauses of the contract which, counsel for the infringer submitted, were unenforceable penalty clauses that could not be justified as a genuine pre-estimate of the loss which NGRS would suffer, Judge Hacon felt that the hypothetical licence that the parties would have negotiated should be based on the NGRS's membership fee -- which was very much less. He also found that the parties should be assumed not to have known with any precision how many hits the relevant pages would receive. This was because the defendants suggested that the only viewers of the forgotten advertisement were the NGRS and themselves. 

Although the judge commented that he had quite a lot of sympathy with the contention that the parties would have negotiated a licence taking the form of something less than full membership, he settled for the upper end of what the evidence showed was the relevant membership fee paid in the period 2010 to 2013, namely £1,800 per annum. He did however reproduce, in paragraph 24, the defence counsel's admirable calculation that sliced and diced the appropriate licence fee down to a mere £540. While the infringement continued for two and a half years, the judge felt that only membership for full years would have been offered: he therefore opted for a three-year assessment of user-based damages which came to £5,400 plus interest.

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The judgment records that "in the end the law on penalty clauses was (sensibly) not explored in depth". The use of "sensibly" in Judge Hacon's judgements is itself becoming something of a trade mark. It tends to mean that, from his perspective, the decision not to explore the law on penalty clauses was highly sensible because it resulted in a simpler judgment -- but, from the parties' perspective, it maybe wasn’t that wise in hindsight. In separate proceedings in the Milton Keynes County Court, the issue of penalty clauses in the NGRS contract also failed to be explored in depth. You can find some emotive reporting about that case here. Nowhere in this judgment is there any mention of the IP Enforcement Directive. Certainly in this case it would be very difficult to determine the amount of the actual prejudice suffered by the NGRS (if there was any, though, we have to accept that damages are always payable for admitted infringements) or whether £5,400 plus interest is appropriate to cover the costs of identification and research to find the illicit advertisement. 

None of the parties were present at the handing down of the judgment, so there was unfortunately no public discussion of costs. However, the judgment does disclose that the defendants had been asked to pay £27,000 and that they had made an open offer of £10,000 to settle the matter. It will be interesting to see whether this claimant tops the league of IPEC users when the UK IPO issues its long-promised research data on use of IPEC and its predecessor court.

Thanks, Barbara, says the IPKat, though he wonders whether the absence of any mention of the IP Enforcement Directive might be the consequence of it not being cited by either side in an action for which the allocated hearing time was probably not great.

Merpel's now toying with a new word: "Haconian", meaning "sensible because it avoids going into those places that will only get you into trouble if you go there".

** Cymbal plays Cat-opoly, from Cat Videos