Alan Nuttall Ltd v Fri-Jado UK Ltd & Anor

An interim payment on account of damages should be limited to the sum which the claimant can safely be assumed to recover in any event. The court must adopt a conservative approach where factual or legal issues remain unresolved, and may disregard heads of claim that cannot be assessed with sufficient confidence. A claimant’s duty to mitigate does not ordinarily require it to avoid the defendant’s infringement. Where the alleged mitigation concerns whether the defendant would have infringed at all, rather than whether the claimant could have avoided loss, the issue may not properly be one of mitigation.

The claimant had succeeded at trial in establishing that its patent for a heated self-service food display cabinet was valid and infringed by the defendants’ Multi-Deck Mark 2 cabinets. The Court of Appeal dismissed the defendants’ appeal. The claimant elected an enquiry as to damages and applied under Civil Procedure Rules 1998, Part 25.7(1)(b), for a £1 million payment on account.

The defendants accepted that an interim payment was appropriate but offered £70,000. The application concerned the likely recoverable lost profits, a reasonable royalty, and whether the claimant’s conduct in pursuing an initially wider infringement case should reduce the payment.

1. The application was governed by the requirement in Civil Procedure Rules 1998, Part 25.7 that an interim payment must not exceed a reasonable proportion of the likely final judgment. Adopting the guidance in Ultraframe v Eurocell [2005] EWHC 2111 (Ch), the essential question was what sum could safely be assumed to be recoverable in any event. Complicated factual disputes and difficult legal issues should not ordinarily be resolved on an interim payment application. A part of a complex claim could nevertheless be used where it represented an irreducible minimum, assessed conservatively.

2. The evidence did not permit a confident estimate of the number of sales the claimant would have made absent infringement. There were unresolved disputes concerning customer demand, competing products, the performance of the claimant’s cabinets, and the extent to which particular sales would have been lost to other suppliers. Lost-profit damages therefore could not safely be used as the basis for the interim payment.

3. The claimant had also failed to provide sufficiently reliable evidence to justify assuming a gross marginal profit of 40 per cent. The court therefore used a notional reasonable royalty. In assessing the royalty, it was appropriate to consider the defendants’ estimated profit on the infringing sales and to adopt a profits-available approach. The distributor’s profits were excluded because the distributor was not a party and its costs were unknown.

4. A conservative royalty rate of 5 per cent of the defendants’ sales price represented the sum recoverable in any event. The proposed reduction based on mitigation was rejected. The defendants’ case was that, had the claimant abandoned its allegation concerning the Mark 1 cabinet earlier, they would have sold that cabinet instead of infringing with the Mark 2. That concerned the alleged avoidance of infringement itself, rather than the avoidance of loss. In any event, there was no evidence that the claimant could reasonably have anticipated that course.

5. The claimant was awarded £156,000 on account of damages, being 5 per cent of the defendants’ sales price. The court would hear further argument on the form of order if agreement could not be reached.

1. Patents Court: on 12 June 2008, the patent was held valid and infringed by the defendants’ Multi-Deck Mark 2 cabinet. The claimant was awarded an enquiry as to damages or an account of profits.

2. Court of Appeal: the defendants’ appeal against validity and infringement was dismissed by ex tempore judgment on 24 November 2009.

3. High Court (Patents Court): the present application for an interim payment was granted in the sum of £156,000.