Blizzard Entertainment SAS & Anor v Bossland GmbH & Ors

In an account of profits, costs are directly deductible only where they are solely and wholly associated with the actionable conduct. Costs which support both the actionable activity and other business are overheads. A proportion of overheads may be deducted only where the costs would not otherwise have been incurred, or where the actionable business would have been replaced by non-actionable business. The account must prevent unjust enrichment without penalising the accounting party. Incremental costs, such as commissions on sales, may be deducted where the evidence permits a fair allocation. Interest for a commercial claimant is ordinarily assessed by reference to the established commercial rate above base rate.

The claimants had obtained judgment by consent against the defendants for copyright infringement and inducement of breach of contract. The judgment concerned the subsequent account of profits. The court had to determine which worldwide business costs were deductible from the defendants’ United Kingdom revenue, how tax should be treated, and the appropriate rate of interest.

The central issues were the boundary between direct costs and overheads, the application of the overhead-deduction rules to a single worldwide business, the treatment of affiliate commissions and tax, and the appropriate commercial rate of interest.

1. The account was to be conducted so as to prevent the defendants from being unjustly enriched by deductions for costs which would have been incurred irrespective of the actionable conduct, while avoiding an unjust penalty. The governing approach was derived from Dart Industries Inc. v Décor Corp Pty Ltd [1994] FSR 567 and applied through Hollister Inc. v Medik Ostomy Supplies Ltd [2013] FSR 24 and OOO Abbott v Design and Display Ltd [2016] EWCA Civ 98.

2. Direct costs were confined to costs solely and wholly associated with the defendants’ actionable United Kingdom activities. Costs which also supported the defendants’ worldwide business were overheads. Such overheads were deductible only to the extent that they had been increased by the United Kingdom activities, or would otherwise have been incurred in non-actionable business.

3. The defendants’ server, worker, software, legal and managing-director costs were overheads and were not deductible. The evidence showed that the United Kingdom operation neither increased those worldwide costs nor replaced other business. The only general deduction allowed for sales costs was the agreed sum of €30,943 for transaction fees.

4. Affiliate commissions increased incrementally with sales and were direct costs in principle. A deduction of 3.6 per cent of the relevant worldwide affiliate costs was allowed as a fair approximation of the costs attributable to United Kingdom sales. A proportionate tax deduction was also permitted, calculated by reference to the available tax evidence.

5. Interest was awarded on a simple basis at 1.4 per cent, being 1 per cent above the assumed 0.4 per cent average base rate. The appropriate function of interest for a major commercial claimant was compensation for the cost of additional borrowing, not the rate applicable to small borrowers.

6. Judgment was therefore given for the claimants on the account, subject to the deductions and interest described above.