About the authors:
Chloe Sellers is a trainee paralegal at Appleyard Lees, working in the trade mark team in Leeds with a wide variety of clients. She enjoys learning about the challenges companies face when filing a trade mark.
Chris Hoole is a partner, dual-qualified solicitor and chartered trade mark attorney, experienced in contentious and non-contentious intellectual property (IP) matters, including trade marks, designs, copyright and patents.
Working closely with a range of businesses, from blue-chip multinationals to SMEs, Chris provides tailored strategic and commercial advice to help IP-conscious businesses better protect and police their IP rights.
Vishal Dattani is a trainee trade mark attorney. Vishal’s background in law means that he can decipher the key legal components in potentially complex situations. He is therefore able to raise issues, identify opportunities and offer creative solutions in an objective way.
Vishal works with a variety of clients ranging from SMEs to large corporations across a range of sectors, including food & beverage start-ups to large fashion retailers.
“Damages inquiries are rare in intellectual property cases”. Fortunately, every now and again, a case is heard on inquiry, providing practitioners and rights holders with a practical refresher on the calculation of damages in UK proceedings.
On 20 December 2021, David Stone (sitting as a Deputy Judge of the High Court), handed down his lengthy decision on damages in the long-standing case of Original Beauty Technology Co. Ltd & Ors v G4K Fashion Ltd & Ors[1]. The damages inquiry followed the finding of UK and EU unregistered design right infringement by OhPolly (owned by G4K Fashion Limited) (the Defendant) in early 2021[2].
Having found a total of 15,393 infringing garments, the court awarded damages to Original Beauty Technology Co. Ltd (the Claimant) in the sum of £450,124.56, more than double that of the Defendant’s gross profit. In this article, we explore how the Court reached that calculation and the key factors determining the overall amount, including the flagrancy of the Defendant’s actions.
Background
The Claimant, better known as House of CB, is a British fashion retailer, initially started by seventeen-year-old Conna Walker in 2010 specialising predominantly in luxury dresses. OhPolly was founded in 2015 and is a rapidly growing global-fashion brand selling affordable women’s clothing and shoes internationally.
In 2016, Oh Polly launched a range of bandage style garments, closely mirroring the earlier designs of House of CB.. In April 2021, the Court found that the Defendant had copied the Claimant’s brand choices, pointing out similarities in the look and aesthetics of the garments in question.
Within the main body of the judgement, it was said; “It was common ground that Ms Henderson cannot draw. She also cannot use any of the available computer assisted design programs. Her evidence was that she designed by looking at trends from images she had collected in her Dropbox, designed the details of each garment in her head, and then looked for images of existing garments which she could use to show the factory what it was she wanted made. There are no documents which (and no other witnesses who) back up this aspect of her account of her design process.” The Defendant was able to produce the goods at a lower cost due to the nature of the materials used and their commercial pricing strategy. Naturally, this diverted sales from the Claimant. A few examples are shown below of the infringing products:
(C1)/(D1)
C1 is a dress with a halter top (Original Beauty / House of CB), whereas the infringing design D1 (OhPolly) is a very similar halter top but with leggings to make it a one-piece jumpsuit.[3]
(C2)/(D2)
Whilst C2 (Original Beauty) and the infringing D2 (OhPolly) are made from different fabrics, the evidence suggested that the products were primarily bought after a consumer viewed them on a screen implying that the main point of sale was online. This meant that arguments relating to post-sale differences between the products were largely irrelevant.[4]
In total, the court found [7] out of [20] designs to infringe. It stressed that the Claimant had based their designs upon the Claimants website images, the judge also refused “the Defendants’ request to institute the disclosure pilot and refused most of the Defendants’ requests for specific disclosure”.
The parties failed to reach an out of court settlement on damages, leading to the inquiry hearing in October 2021.
Applicable law
In reaching his decision on quantification, the Judge applied the test set out in Ultraframe (UK) Limited v Eurocell Building Plastics Limited.[5] Whilst a patent matter, it is also applicable to unregistered design rights:
“(i) The general rule is that the measure of damages is to be, as far as possible, that sum of money that will put the claimant in the same position as he would have been in if he had not sustained the wrong.
(ii) The claimant can recover loss which was (i) foreseeable; (ii) caused by the wrong; and (iii) not excluded from recovery by public or social policy. It is not enough that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss. …
- v) Where a claimant has exploited his patent by manufacture and sale he can claim (a) lost profit on sales by the defendant that he would have made otherwise; (b) lost profit on his own sales to the extent that he was forced by the infringement to reduce his own price; and (c) a reasonable royalty on sales by the defendant which he would not have made”.
The Judge concluded on the amount payable under each part of the test which we will now discuss in turn.
Lost Profit
The Claimant and Defendant largely agreed on the approach to calculating lost profit damages due to the factual evidence of design infringements correlating to loss of sales at the Claimants expense. The calculation was based on the following equation:
“Lost profit = number of lost sales of the Infringing Garment (Lost Sales) x total per-unit profit for the Claimants’ garments incorporating the respective Infringed Design (Per Unit Profit)
Lost Sales = total number of Defendants’ sales of Infringing Garment x P”.[6]
The value of P, however, was disputed. P represents the probability that a consumer would have purchased the original garments from the Claimant had the infringing garment not been available.. The Judge concluded that P = 0.2 (for every 100 sales the Defendant made, 20% of sales were lost by the Claimant), awarding £74,827.92 in lost profits.
Reasonable Royalty
The most challenging limb due to the hypothetical nature that the Judge had to assess was reasonable royalty, a hypothetical agreement that would have been reached, based on a notional licence to use House of CB’s unregistered design rights for the infringing products.
As neither parties had ever entered into a comparable agreement to licence their designs, there were no past facts to ascertain what the parties may have established. Reasonable royalty is crucial in damages case as it seeks to compensate for lost opportunity, reimbursing what profit could have been established if the Defendant had licenced the design right. The Judge had to exercise his judicial discretion relying on expert evidence from accountants, the factual circumstances with both businesses being largely successful attracting customers based on previous ‘trends’, and key case law relating to the assessment of reasonable royalty.
The forensic accounting evidence submitted in the case was held insufficient for a judgement to be based upon, therefore, the judge assessed factors including pricing practices, and models of business. He concluded a further £75,276.64 be awarded to Original Beauty, equating to 10% of the Defendants sales namely £4,00 per design.
Additional Damages
Additional damages act as a deterrent to prevent the Defendant and other parties from infringing the rights holder’s designs.
In this case the Defendant accepted that additional damages should be awarded to the Claimant due to prior misconduct. The Defendant had previously been told by the Claimant to stop using the Claimants images as an example to send to their own factories on numerous occasions, OhPolly, being a well-established and successful company, should have clearly known that copying of competitors images leading to the manufacture and sale of infringing designs over a period of 4 years amounts to a clear flagrant infringement.
The Claimant was therefore awarded supplementary damages in the sum £300,000, with the aim to deter the Defendant from repeating their mistakes. Additional damages rely on what sum of money would be proportionate and appropriate regarding the scale of the company to stop the infringer and deter others. This calculation weighs heavily on the specific facts of the case, hence why a large sum was awarded under these circumstances with the infringer being a successful international company. Conclusion
The judgment provides helpful guidance for IP practitioners regarding quantifying loss in IP cases, a rare but complex task. Interestingly, the quantification of loss profits damages did not form the bulk of the award, with the finding of flagrancy representing an increase of 200%. Therefore, whilst the decision provides a structured calculation of infringement, it must still be approached with some caution, with every case, particularly in relation to flagrancy, turning to its facts. That said, it is an encouraging decision for IP rights holders, acting as a significant deterrent to repeated, slavish acts of infringement.
If you have any queries relating to this article or in relation to your Intellectual Property, please do contact Chris Hoole or Chloe Sellers.
[1] Original Beauty Technology Co. Ltd & Ors v G4K Fashion Ltd & Ors [2021] EWHC 3439 (Ch) (20 December 2021)
[2] Original Beauty Technology Company Ltd & Ors v G4K Fashion Ltd & Ors [2021] EWHC 1848 (Ch) (09 July 2021)
[3] Original Beauty Technology Co. Ltd & Ors v G4K Fashion Ltd & Ors [2021] EWHC 3439 (Ch) (20 December 2021)
[4] Original Beauty Technology Co. Ltd & Ors v G4K Fashion Ltd & Ors [2021] EWHC 3439 (Ch) (20 December 2021)
[5] Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd & Anor [2006] EWHC 1344
[6] Original Beauty Technology Co. Ltd & Ors v G4K Fashion Ltd & Ors [2021] EWHC 3439 (Ch) (20 December 2021)
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