Hollister Incorporated Dansac AS v Medik Ostomy Supplies Ltd

A trade mark proprietor who elects for an account of profits following infringement through failure to give the required notice of repackaging is entitled to a conventional account. The infringer’s net profits are not reduced by reference to the proprietor’s loss, knowledge of the activity, or the purposes underlying the notice requirement.

General overheads are deductible only so far as the infringer proves that they are properly attributable to the infringement. Relevant matters include increased overheads, surplus capacity and any opportunity to conduct non-infringing business. A simple allocation of fixed costs is insufficient.

The claimants owned UK and Community trade marks used for ostomy products. Medik imported products placed on the EEA market with the claimants’ consent, repackaged them and reapplied the marks. Medik infringed because it failed to give the prior notice required by the fifth condition established for repackaged parallel imports.

After Medik admitted infringement, the claimants elected for an account of profits. The Patents County Court, in [2010] EWPCC 40, awarded half of Medik’s conventionally assessed net profits after considering proportionality and the claimants’ loss. It also allowed a proportion of general overheads and found that 58,211 infringing products had been sold.

The claimants appealed against all three conclusions. Medik cross-appealed, contending that no profits should be awarded. The issues concerned the proper form of the account, the deductibility of overheads and the number of infringing sales.

1. The claimants’ appeal was allowed in part and Medik’s cross-appeal was dismissed. Failure to give the required prior notice was not merely a procedural deficiency. Repackaging was itself prejudicial to the specific subject matter of the marks unless the applicable safeguards were satisfied. Medik’s failure therefore rendered its importation and sales infringing and gave the claimants legitimate reasons to oppose further commercialisation.

2. Domestic law made an account of profits available for infringement of both UK and Community trade marks. An account serves a different purpose from damages. It strips the infringer of profits obtained through the infringement and does not compensate the proprietor for its loss. The remedy was compatible with the Community principles of proportionality, equivalence and effectiveness. It contained no punitive element and could be refused on equitable grounds if it would produce injustice.

3. The judge’s three-stage approach impermissibly combined an account of profits with an assessment of compensatory damages. Once a conventional account had been ordered, it was irrelevant to assess the claimants’ loss, their knowledge, whether the infringement affected the purposes of the notice condition, or whether those matters justified increasing or decreasing the award. The claimants were entitled to the whole of Medik’s net profits from the infringing activity.

4. An infringer may deduct direct costs and overheads increased by the infringement. Other general overheads are deductible only where the infringer proves that they are properly attributable to the infringing activity. Relevant circumstances include whether the business had surplus capacity, whether the infringement added a new line to an established business, whether overheads increased, and whether capacity would otherwise have been used for non-infringing products. Medik supplied no evidence establishing attribution. Its deduction for general overheads was therefore disallowed.

5. The challenge to the finding of 58,211 infringing sales failed. The judge had evaluated the available records and expert evidence. The claimants had not shown an error capable of displacing his factual conclusion.

1. Court of Appeal (Civil Division): In [2012] EWCA Civ 1419, allowed the claimants’ appeal on the form of the account and the deduction of general overheads, upheld the finding on the number of infringing sales, and dismissed Medik’s cross-appeal.

2. Patents County Court: In [2010] EWPCC 40, awarded the claimants half of Medik’s conventionally assessed net profits, permitted a proportionate deduction for general overheads, and found that Medik had sold 58,211 infringing products.