Hotel Cipriani SRL & Ors v Cipriani (Grosvenor Street) Ltd & Ors

An account of profits requires each defendant separately to disgorge the profit derived from its infringement. The claimant may not recover the same profit twice. A defendant cannot answer the claim by showing that similar profits could have been earned without infringement.

Where profit has several causes, the court may make a broad-brush apportionment. A distribution-of-costs calculation is a useful starting point, but it must be weighted where the relevant business components contribute unequally to profitability. Tax actually paid on infringing profits may be deducted if irrecoverable; unpaid tax is not deductible.

Following judgment for the claimants after a trial of claims for trade mark infringement and passing off, the claimants elected to take an account of profits. The infringement arose from the operation of a London restaurant under the Cipriani name. The first defendant operated the restaurant, the second defendant was its sole director, and the third defendant licensed the name and logo to the first defendant.

The defendants’ appeal against the liability judgment was dismissed before the account hearing. They did not participate in that hearing, although their expert report and financial records remained available. The court had to determine the profits separately derived by the first and third defendants from the infringement, including questions of attribution, expenses, tax and interest.

1. Account taken in favour of the claimants. Unlike joint liability for damages, an account of profits operates separately against each defendant. Each must disgorge the profits shown to derive from its infringement. The same profit cannot be counted again when distributed to a shareholder or another recipient through an existing right to share in company profits: paras 7–8.

2. The purpose of the remedy is to deprive the defendant of profits improperly obtained through infringement and transfer them to the claimant. It is no answer that comparable profits could have been earned by lawful means. Accrued profits are included even where payment has not yet been received. Where one head of profit has infringing and non-infringing causes, the court may apportion it on a broad-brush basis: para 8.

3. The third defendant’s entire royalty entitlement under the licence derived from infringement. The Cipriani name was the predominant element of the licensed logo, and the associated goodwill was appendent to the use of the name and logo. No operating-cost deduction was allowed because the third defendant abandoned its claim to costs and produced no supporting evidence. The court would not speculate about facts which that defendant could have proved: paras 11–15.

4. The distribution-of-costs approach provided a rough starting point for attributing the first defendant’s profits, but required weighting because cost items do not necessarily contribute equally to profitability. A 5% return on functional restaurant costs was appropriate. A return-on-capital approach was unsuitable for a low-capital, high-running-cost restaurant business. Of the remaining profit attributable to intangibles, 79% was attributed to infringement by comparing the contractual charges for the name and logo with those for management services: paras 17–23.

5. The third defendant was accountable for £5,304,000 to 1 March 2010, subject to credit for the £1 million interim payment order, with a further £79,000 accruing monthly until infringement ceased. The first defendant was accountable for £1,392,000 to that date, with a further £38,000 accruing monthly. Incomplete months were to be apportioned daily: paras 24–26.

6. Tax actually paid on attributable profits was deductible where appropriate, but unpaid tax was not. Interest was awarded at 1% over LIBOR and was to be calculated by reference to each year’s profits from the midpoint of that year or relevant part-year. The first and third defendants were ordered to pay the claimants’ costs of the account on the standard basis: paras 9, 15, 23 and 27–28.

• Court of Appeal: On 24 February 2010, the defendants’ appeal against the liability judgment was dismissed.
• High Court: On 9 December 2008, Arnold J gave judgment for the claimants on trade mark infringement and passing off. On 7 May 2009, he ordered an account of profits and gave directions for its determination.