ASSESSMENT OF DAMAGES IN INTELLECTUAL PROPERTY CASES
| Author | David LLEWELYN LLB (Hons) (Southampton University), BCL (Oxon); Solicitor (England & Wales); Deputy Dean and Professor (Practice), School of Law, Singapore Management University; Professor of Intellectual Property Law, King's College London. |
| Citation | (2015) 27 SAcLJ 480 |
| Date | 01 December 2015 |
| Published date | 01 December 2015 |
Some Recent Examples of “the Exercise of a Sound Imagination and the Practice of a Broad Axe”?
There are few cases outside the US that deal with the assessment of damages for infringement of intellectual property rights. When they do, as Lord Shaw said: “[It involves] the exercise of a sound imagination and the practice of the broad axe.” This article discusses decisions where the infringer has ended up paying at the low end of what it would have paid as a legitimate user. One of the fundamental rights of the owner of an intellectual property right is the freedom to decide if others can use it, so the courts' concern to avoid high awards can mean that damages awards may not reflect the value that society places on innovation and creativity.
1 The owner of intellectual property rights in both Singapore and the UK is vested with certain exclusive rights, the unauthorised use of any of which gives rise to the possibility of a court ordering a variety of remedies, including damages or an account of profits, an injunction, delivery up (or destruction on oath) of infringing articles and costs. As a general matter, the successful plaintiff is entitled at trial to an injunction to restrain further infringement1 and in addition can choose whether and how to pursue its claim for other remedies.
2 It is appropriate at the outset to sound a note of caution about use of the term “intellectual property rights” (“IP rights”), which has come into common use only relatively recently (previously, patents and similar rights were usually termed “industrial property”, with “copyright” and
“trade marks” generally treated separately).2 Indeed, the term “intellectual property” was defined for the first time in a UK statute only in 1981: s 72(5) of the Supreme Court Act of that year stated: “‘intellectual property’ means any patent, trade mark, copyright, registered design, technical or commercial information or other intellectual property”.3 Although useful shorthand, the fact is that the different legal rights included within the term “intellectual property” differ significantly in nature and scope: some are registered, others are not; some are monopoly rights (like the patent or the registered design), others are not (like copyright, which is a right to stop copying); some arise under statute, others at common law.3 As will be seen below, the different nature of the rights can cause difficulty when considering the proper basis for assessment of damages for their infringement or unauthorised use: what may seem sensible in relation to a monopoly right such as a patent that covers a novel product, which a third party cannot make without infringing, may well be doubtful when considering unauthorised use of a registered trade mark which the infringer did not need to have used in order to sell its products quite successfully.
4 Somewhat surprisingly for legal rights that, in the common law world at least, are in the main about money, or money's worth in the sense of securing a competitive advantage, cases on the assessment of damages for infringement of intellectual property rights are relatively few and far between outside the US. The principal reasons for this are, first, that once a defendant has been found by a court to infringe, an out of court settlement is usually cheaper and quicker, for both plaintiff and defendant, than proceeding to the separate inquiry as to damages that the procedural rules dictate in most cases (although, as explained below, this is changing); and, secondly, that the most important remedy for many successful plaintiffs is the injunction restraining further infringement rather than the often expensive and protracted process of obtaining an award of damages that then has to be enforced.
5 By its very nature, under which — on the basis of often incomplete or flimsy evidence — it tries to estimate the likelihood of certain events happening which were never in the contemplation of the parties, the inquiry that assesses damages (or an account of profits) for infringement of an intellectual property right not infrequently results in a rough and ready financial estimate by the court of “loss” (or profit) which neither party to the dispute views as totally satisfactory. Indeed, in the words of Lord Shaw of Dunfermline: “[the assessment of damages sometimes involves] the exercise of a sound imagination and the practice of the broad axe”.4
6 As long as the overall results are perceived to be as fair as can reasonably be expected when taking into account the many crystal ball gazing aspects of the process, this rough and ready cutting of the Gordian knot must be accepted and is practically inevitable. However, it must be said that there are certain aspects in the way recent cases in the UK have treated the assessment in intellectual property infringement matters that give rise to some concern as to whether the wronged plaintiff was adequately compensated for the infringement of its rights.
7 Seeking to overcome some of the evidential problems encountered by plaintiffs in trying to prove their loss in relation to a conventional damages claim, Singapore has introduced into its IP legislation in recent years the notion of “statutory damages”. However, this additional remedy has been introduced only for a particular category of registered trade mark infringement5 and for copyright:6 the traditional law of damages applies otherwise.
8 Although most intellectual property rights today owe their existence to statute rather than the common law, it is generally accepted that infringement should be treated as a statutory tort7 and therefore the rules relating to the award of damages in the law of tort apply. When it comes to the assessment of damages, no distinction is drawn between the tort of passing off and the registered trade mark that is a creature of a
detailed statutory regime. On the other hand, when it comes to the assessment of damages for breaches of confidence (or, as the IP lawyer may characterise them, misuse of trade secrets), different considerations may apply in view of the nature of the cause of action, which lies in equity rather than in the law of tort.9 The leading UK case on the assessment of damages in relation to “economic torts” such as infringement of IP rights arose from infringement of a patent: General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd8 (“General Tire”) in the House of Lords.
10 General Tire affirmed that the general rule is that the award of damages is to put the injured party (eg, the owner of the patent) back in the position he would have been in had the tort not occurred9 and that “two essential principles” apply: (a) the plaintiff has the burden of proving its loss; and (b) as the defendant is a wrong-doer, damages should be assessed liberally, bearing in mind that the object is to compensate the plaintiff and not to punish the defendant.10
11 In the Singapore Court of Appeal in Kickapoo (Malaysia) Sdn Bhd v The Monarch Beverage Co (Europe) Ltd,11 a case involving trade mark infringement and passing off, Andrew Phang JA summarised the position thus:12
[T]he overarching guideline is that the aim is to put the plaintiff in question (so far as is possible) in the same position it would have been if the wrong(s) had not been committed and that the plaintiff bears the burden of specifically proving its loss; put simply, the main aim is to compensate the plaintiff and not to punish the defendant (see the House of Lords decision of General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd[1975] 1 WLR 819 at 824 (which, while dealing with a patent
infringement, laid down general principles which are applicable in the present context as well)).
12 Those general principles laid down by Lord Wilberforce in
General Tire were:13
(a) If the plaintiff exploits the patent by manufacturing and selling goods at a profit and the effect of the infringement has been to divert sales to the defendant, the “measure of damages will … normally be the profit which would have been realised by the owner of the patent if the sales had been made by him”.
(b) If the plaintiff exploits his patent by granting royalty-bearing licences, “the measure of damages [the defendant] must pay will be the sums which he would have paid by way of royalty if, instead of acting illegally, he had acted legally”.
(c) Where it is not possible to prove either that there is a normal rate of profit or a normal royalty, damages fall to be assessed by considering what price could reasonably have been charged for permission to carry out the infringing acts.
13 Other intellectual property cases have held that, in common with the assessment of damages in other tortious claims, the plaintiff is entitled to recover loss that was (a) foreseeable; (b) caused by the wrong; and (c) not excluded from recovery by public or social policy.14 With regard to causation, it is not enough for the plaintiff to show that the loss would not have occurred but for the tort. The tort must be, “[b]y the application of the court's common sense”,15 a cause of the loss although it need not be the sole or dominant cause of the loss.16 An inquiry may require the court to make a comparison between, on the one hand, future events that would have been expected to occur had the tort not been committed and, on the other hand, events that are expected to occur, the tort having been committed. A rough and ready calculation is almost inevitable.17
14 As a general matter in the assessment of damages for tortious acts, where the plaintiff is required to prove a causal link between an act done by the defendant and the loss sustained by the plaintiff, the court must decide on the balance of probabilities whether the damages “directly and naturally arise from the tort”.18 If, on balance, the tortious act caused the loss (or, in other words, it was not too...
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