Lumos Skincare Ltd v Sweet Squared Ltd & Ors

On an account of profits following passing off, a jointly liable party must account for profits earned from supplying goods pursuant to the common design, even where the supply itself was not an act of passing off. The account remains territorially limited to profits connected with the goodwill and market protected by the injunction. Payments made before the overt tortious acts may be included where the goods were later used in implementing the common design. A defendant bears the evidential burden of proving deductible costs. General overheads are not deductible where the business was not operating at capacity, no non-infringing opportunity was displaced, and the expenditure would have been incurred regardless of the infringement.

The claimant had succeeded in a passing off action concerning nail-care products sold under the name LUMOS. The Court of Appeal reversed the first-instance decision and found a likelihood of confusion among end users. The defendants were jointly liable and were ordered to disclose information for an account of profits. Following further directions, the claimant elected an account rather than an inquiry as to damages.

The present hearing determined the defendants’ revenues, purchase and manufacturing costs, and allowable expenses. The principal issues concerned the liability of the United States manufacturer, the exclusion of non-UK sales, the treatment of goods paid for before the relevant period, the evidential burden concerning manufacturing costs, and the deduction of trade-show and catalogue overheads.

1. The Second Defendant was liable to account for profits earned from supplying LUMOS products to the First and Third Defendants. Its liability arose from the common design to pass off the products in the United Kingdom. The fact that the supplies themselves did not amount to primary acts of passing off did not prevent recovery of profits accruing from that design.

2. The account was territorially confined. Sales to customers in Ireland and elsewhere in Europe could not be included because the claimant’s goodwill and the established passing off related to the United Kingdom. The court rejected the suggestion that UK marketing activities automatically made foreign revenues recoverable.

3. Revenue from goods invoiced in August 2010 was included. Although payment preceded the overt acts of passing off, the goods were later put on the UK market and used as part of the common design. The timing of payment did not prevent the resulting profit from being attributable to the tortious scheme.

4. The evidential burden lay on the defendants to establish their costs. The Second Defendant discharged that burden sufficiently through accounting-software records showing gross profit and direct manufacturing costs. The court distinguished Hotel Cipriani v Cipriani (Grosvenor Street) Limited, where the defendant had provided no evidence and had abandoned the deduction.

5. Applying the approach in Hollister v Medik Ostomy Supplies Limited, no proportion of the trade-show or catalogue costs was deductible. The business was not shown to be operating at capacity, no non-infringing opportunity had been displaced, and the expenditure would have been incurred whether or not LUMOS had been included. Specific advertising, certain freight costs, and the evidenced airfare for Mrs Nordstrom were deductible; the unsupported airfare for Mr Nordstrom was not.

6. The account was stated at £24,461.48 for the First and Third Defendants and £17,842.66 for the Second Defendant. The First and Third Defendants were jointly and severally liable.

1. Court of Appeal: reversed the first-instance rejection of the passing off claim and found a likelihood of confusion among end users.
2. High Court (Intellectual Property Enterprise Court): determined the subsequent account of profits and ordered the First and Third Defendants to be jointly and severally liable for £24,461.48, with the Second Defendant liable for £17,842.66.