Designs for Life: Remedies

Designs are key assets for many businesses and there are several aspects that are vital to success. In this guide from our Designs for Life series, we take a look at remedies.

Damages

It is important to consider what damages one could either claim from an infringer or could be expected to pay if found to have infringed another's rights. Damages payments are sometimes very significant, while other times there is a risk that they can be dwarfed by the costs of the litigation (which depends both on the damages at stake, as well as the way the case has been fought).

General principle - damages are compensatory

1. Damages awards by the English courts are generally compensatory, intended to put the party who has been injured, or who has suffered, in the same position as they would have been in if they had not suffered the wrong. The claimant is entitled to recover loss that was foreseeable, caused by the wrong, and not excluded from recovery by public or social policy. It is rare (but not impossible) for a claimant to be awarded "punitive" damages, namely those which are purely intended to punish the defendant for its wrongdoing regardless of the claimant's loss.
2. There are two different ways of assessing the level of recompense: damages; or an account of the defendant's profits. The winning claimant has the option to elect which they would like, and generally the court will order a certain level of disclosure from the defendant before the election needs to be made.

Assessing damages

1. Within the damages head, there are two ways to assess the amount due. One is loss of profits, and the other is a reasonable royalty.
2. If the claimant can prove that a sale made by the defendant to the design represents a sale that would otherwise have been made by the claimant, then the defendant is likely to be ordered to pay an amount equivalent to the profit that the claimant would have made on that sale. This is sometimes referred to as the "substitution principle".
3. It may, however, be difficult to prove that the defendant's sales have caused the claimant to lose sales. For example, if the claimant's products were more expensive than the defendant's infringing products, not all the sales by the defendant necessarily represent a lost sale for the claimant. Some of the defendant's customers might not have bought the item at all at the claimant's price.
4. In such circumstances, the court may adopt an alternative approach, that of the "reasonable royalty". It will calculate what hypothetical royalty the defendant might have paid the claimant, had the parties negotiated a licence for the defendant to use the claimant's design right. It is also possible for the court to employ a combination of the substitution and reasonably royalty methods.
5. What might a reasonable royalty be? The court assumes that both parties are willing to negotiate a licence; even if the parties are quite clear that in reality they would not have reached such a deal. However, the calculation is not entirely hypothetical; the court will take into account any opportunities which the licensee would have had to take a licence from elsewhere and the impact this would have had on the applicable royalty rate.
6. In Kohler Mira v. Bristan^[1], the defendant had infringed the claimant's unregistered design rights for showers. The judge held that a reasonable royalty was 30% on the defendant's 22.2% profit margin, or a royalty of 6.7% on the sale price of the infringing products.

Assessing an account of profits

If elected by a claimant as an alternative to damages, the court can order the defendant to pay an account of its profits from sales of the infringing products. The profits should be calculated by reference to the defendant's retail sale price, less the purchase price (or manufacturing cost) and any other deductible costs. For this purpose, deductible costs are costs associated solely with the defendant's acts of infringement rather than more general overheads, although in some circumstances deduction of a proportion of general overheads may be possible^[2].

Injunctions

As is often the way with IP rights, damages are not always the principal remedy sought for design infringement. Commonly, the claimant is much more interested in obtaining an injunction to prevent further infringing sales. An injunction is an order restraining a party from doing something, for example from continuing to infringe a design right.

Injunctions can be interim or final. Interim injunctions are those awarded before final judgment, often early in the proceedings. These can be a useful way to stop an infringer's acts immediately, but they are difficult to obtain and generally the party seeking one has to give an undertaking that if it goes on to lose at trial, it will pay damages to the injuncted party for the losses suffered as a result of the injunction. Therefore, interim injunctions are not without risk; even where the merits of the case are strong, the balance may not be in favour of the court granting an injunction.

A final injunction is more common. A final injunction comes after trial and the court’s judgment finding liability for infringement, and may end the ability of a party to use or sell products that infringe a specific IP right. Injunctions are powerful tools that halt infringement and, at least in theory, stop it from happening again.

The negative publicity of not only having to withdraw products from the market, but also being labelled an IP infringer can be highly damaging to a company's reputation, which should not be underestimated in some industries.

Gowling WLG's Brands, Advertising and Designs team is a leading designs law team and are actively involved in shaping designs law. We have acted on a number of the significant, reported designs law cases in the UK over recent years, and have been the proud holders of the MIP Designs Firm of the Year Award for four years (2019 - 2022). We act for a number of design-led clients.

Footnotes:

[1] [2014] EWHC 1931.
[2] OOO Abbott v Design & Display [2017] EWHC 932 (IPEC).