Court of Appeal provides guidance on determining an account of profits

17.05.2016

In a decision dated 24 February 2016, the Court of Appeal (Lewison LJ giving the leading judgment) allowed an appeal of the decision of HHJ Hacon in the Intellectual Property Enterprise Court (“IPEC”) in Design & Display Limited v OOO Abbott & Anr regarding the correct approach to determine an account of profits. The Court of Appeal provided guidance on when an infringer may be liable for the whole profits made when composite products comprising an infringing part were sold, and when a party will be entitled to set off part of its general overheads against the profit.
The account of profits to which a patentee is entitled must be “derived by him from the infringement”. The correct approach is to identify the invention (which is not necessarily co-terminous with the scope of the claims) and then to decide what profit the infringer derived from that invention. The Court of Appeal held that HHJ Hacon had correctly identified the invention (a snap-in insert of a particular material and shape, which interacted with a panel in a given way), but had erred in considering that the whole profit of a composite product (panel plus insert) was derived from the invention. Where sales of products go together, it is wrong in principle to attribute the whole of the profit of the composite item to the infringement, unless the infringement “drives” the sale or the infringement was “the essential ingredient in the creation of the defendant’s whole product”. In the current case, customers required a panel with an insert, but were indifferent to the type of insert provided. Therefore the profit of the composite product should have been apportioned.
In considering whether to allow Design & Display to set off part of its general overheads, the Court of Appeal confirmed that if the infringer would have manufactured or sold non-infringing products had he not infringed and would have incurred overheads in supporting that manufacture or sale, he ought to be allowed a proportion of his general overheads. Contrary to the finding of HHJ Hacon, “running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted” was not a threshold condition to allow set off.
As the Court of Appeal was unable to assess the profits to which the patentee was entitled on the basis of the facts found by HHJ Hacon, it ordered that the case be remitted to IPEC for reconsideration.

Louisa Jacobs

Author