Fendi Italia Srl & Ors v Rolo Fashion Limited & Anor

In a trade mark damages inquiry, lost profits may be awarded for sales displaced by infringement. A reasonable royalty may also be awarded for infringing sales that neither caused a lost sale nor damaged reputation, where the pleaded infringement involved taking unfair advantage under Trade Marks Act 1994, s.10(3). The user principle is not confined to marks ordinarily available for licensing. Quantification remains evidence-based: inadequate disclosure may justify a pragmatic estimate, but central assumptions about sales and substitution require support. Reputational damage, dilution and tarnishment require evidence. Alleged cynical infringement does not, without more, require further prejudice to be assumed under Regulation 3 of the Intellectual Property (Enforcement, etc.) Regulations 2006.

The claimants, owners of luxury fashion trade marks, obtained judgment in default against the defendants for selling counterfeit goods. The court conducted an inquiry as to damages on the papers. The claimants sought lost profits, a reasonable royalty for sales that did not displace genuine sales, and compensation for reputational damage, including dilution and tarnishment. They also relied on Regulation 3 of the Intellectual Property (Enforcement, etc.) Regulations 2006. The central issues were how to quantify lost sales despite incomplete disclosure, whether user-principle damages were legally available for non-substitution sales, and whether the evidence established reputational prejudice or justified an additional award under Regulation 3.

1. Lost profits. The court rejected the claimants’ assumption that every member of the WhatsApp group had bought an infringing product, but also rejected the defendants’ assertion that only a very small number had bought. Given the defendants’ inadequate disclosure, the court adopted the defendants’ income-based method in principle, using the defendants’ average selling price rather than the claimants’ average price. This produced an assumed 4,752 sales over 72 months. A 15% substitution rate was adopted, producing about 713 lost sales and a rounded award of £200,000.
2. User principle. The court considered the caution in Reed Executive plc v Reed Business Information Ltd [2004] EWCA Civ 159, but held that it did not prevent a reasonable royalty where the infringing sales did not displace sales by the proprietor and the proprietor would not ordinarily have licensed the mark. The remaining 4,039 sales were therefore compensable under the user principle. Although default judgment was not itself a merits finding, the unchallenged pleaded case required the court to assume for this inquiry that those sales involved unfair advantage under Trade Marks Act 1994, s.10(3). With no evidence supporting an ordinary licensing rate, a 3% royalty on the defendants’ selling price produced £13,000.
3. Reputation and Regulation 3. The evidence did not establish confusion, dilution, tarnishment or damage to reputation. The court qualified the suggestion in Henderson v All Around the World Recordings Ltd [2014] EWHC 3087 (IPEC) that prejudice beyond lost sales might be inferred for cynical infringement. Such prejudice was not to be assumed without evidence. No additional award was made under Regulation 3.
4. The defendants were ordered to pay the claimants collectively £213,000. The parties were requested to agree a draft order.