Woolley & Anor v Up Global Sourcing UK Ltd & Anor

On an account of profits for passing off, once substantial public misrepresentation has been established, the account ordinarily extends to all profits made from the tortious sale of the misrepresented goods. The court should not impose an impressionistic apportionment for customers who may not have been misled where the liability judgment has already established the relevant misrepresentation.

An infringer may deduct direct costs and increased overheads, but bears the evidential burden of proving that general overheads are properly attributable to the infringement. Where apportionment is unavoidable, the method must be supported by evidence and should reflect the relevant cost. Losses arising during the infringing period must be set off against profits. A genuine arm’s-length licence fee is not itself profit derived from passing off merely because the licensee later commits the tort.

The claimants had established passing off at a liability trial before Mr Robert Englehart QC, who ordered an injunction and gave them the option of an account of profits. The Court of Appeal dismissed the defendants’ appeal and left the order unaltered.

The claimants elected an account. They sought profits from the first defendant’s sale of watches bearing the Henleys mark, royalties received by the second defendant, and profits from the second defendant’s direct sales. The issues concerned the scope of the account, deduction and apportionment of costs, treatment of losses, and whether the second defendant’s licensing and retail activities generated recoverable profits.

1. Scope of the account. The order had to be read with the liability judgment and the Court of Appeal’s judgment. The finding that a substantial number of members of the public had been subjected to the relevant misrepresentation was conclusive between the parties. The account therefore covered profits made from passing off the Henleys watches as being, or connected with, Henley watches.
2. The court rejected a broad-brush percentage reduction based on the second defendant’s concurrent goodwill. Such an exercise would be speculative and practically incapable of logical justification. The middleman authorities were not confined to intentional misrepresentation or to goods described as instruments of deception. The first defendant was accordingly accountable for all profits from the relevant watch sales.
3. Costs. Applying Hollister inc. v Medik Ostomy Supplies Ltd [2013] FSR 502, direct costs and overheads increased by the infringement could be deducted. General overheads could not be allocated merely by proportion. The evidential burden rested on the infringer. That burden was not discharged for central overheads, transport costs, or the proposed purchase-and-sales-order methodology. Unit-volume apportionment was the least unsatisfactory method where apportionment was unavoidable.
4. The account covered the whole infringing period. Losses in the final year had to be set off against earlier profits, because the claimants were entitled only to profits actually made and not to a greater sum.
5. The royalties paid by the first defendant to the second defendant were not recoverable from the second defendant. The licences were genuine, arm’s-length commercial transactions. They authorised use of the second defendant’s mark but did not authorise passing off, and there was no finding of conspiracy or joint liability on that basis. Profits made by the second defendant from direct internet sales were recoverable, but no profit was proved in respect of watches transferred to its subsidiary at cost. The parties were directed to agree a schedule implementing the judgment.

• High Court (Chancery Division): liability was established by an earlier order of Mr Robert Englehart QC, who directed an injunction and an account of profits.
• Court of Appeal: the appeal from the liability order was dismissed on 26 July 2012, and the order remained unaltered.
• High Court (Chancery Division): the present judgment determined the basis of the account and directed the parties to agree the resulting figures.