Jack Wills Ltd v House of Fraser (Stores) Ltd

An account of profits is compensatory rather than penal. The proprietor receives profits properly attributable to the infringement, and must accept the infringer’s business as it was actually conducted.

General overheads are deductible where the infringer would have incurred them in any event and would have sold non-infringing products sustained by those overheads. Capacity is not a threshold requirement. The relevant question is displacement.

Where infringement is not the driver or essential ingredient of the sale, the court must apportion the profit attributable to the infringement. The apportionment may be broad-brush and should use the least unrealistic method for each category of overhead.

The claimant owned trade marks featuring a pheasant wearing a top hat and carrying a cane. Following an earlier trial, Arnold J held the defendant liable for trade mark infringement and passing off in respect of clothing bearing a similar pigeon logo: [2014] EWHC 110 (Ch).

This hearing concerned the resulting account of profits. The parties agreed the gross margin and asked the court to determine issues of principle concerning displacement, the deductibility and apportionment of central overheads, and the proportion of profit attributable to the infringement. The remaining financial consequences were to be agreed or determined at a later hearing.

1. General overheads. The governing question was whether, absent infringement, the defendant would have carried on a non-infringing business sustained by the overheads used to sustain the infringement. The test was not dependent on whether the business operated at capacity. The relevant conditions were that the overheads would have been incurred anyway and that infringing sales would have been replaced by non-infringing sales. This followed the approach in Design & Display Ltd v OOO Abbott [2016] EWCA Civ 95, applying the principles derived from Dart Industries Inc v Décor Corp Pty Ltd [1994] FSR 567 and Hollister Inc v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419; [2013] FSR 502.
2. The evidence showed that the Pigeon Goods displaced substantially identical Linea goods without the logo. The same conclusion applied to shop and online sales. The defendant therefore established the necessary displacement and was entitled in principle to deduct an appropriate contribution to general overheads.
3. Employment, property, establishment and depreciation costs were general overheads. Promotions, store-support costs and most consultancy costs were considered by reference to whether they were attributable to the defendant’s trading activities as a whole. The unidentified store-support consultancy costs and onerous lease costs were excluded. Directors’ emoluments were deductible in principle, absent evidence that they exceeded the sector average. A small Abu Dhabi expense was not attributable to sustaining the infringement, but was de minimis.
4. Apportionment required a nuanced approach. Activity-based costing would have been preferable, but disproportionate. The square-footage basis was appropriate for property, depreciation and establishment costs. The sales-revenue basis was the least unrealistic method for employment, finance and other remaining costs, subject to appropriate treatment of net concession revenues.
5. The profit attributable to the infringement had to be separated from profit attributable to the goods generally. The Logo did not drive the sales and was not the essential ingredient of the products. A broad-brush apportionment was therefore required. Applying the evidence of the defendant’s expert, 41% of the profits from the infringing items was recoverable.
6. The proceedings were adjourned to a further hearing to determine the sum due and outstanding consequential matters.

The judgment records an earlier trial before the High Court at which Arnold J found trade mark infringement and passing off and ordered an account of profits: [2014] EWHC 110 (Ch). The present judgment determined principles governing that account and adjourned the proceedings for calculation of the sum due.