Merck KGaA v Merck Sharp & Dohme LLC & Ors [2025] EWHC 2376 (Ch) Judgment: 19 September 2025, Mrs Justice Bacon

The recent High Court decision in Merck KGaA v Merck Sharp & Dohme LLC & Ors provides important guidance on the assessment of damages in trade mark and contract disputes, particularly where the parties have a history of global brand division and complex cross-border use. We look at the Court's decision and how this ruling shapes future trade mark and contract enforcement.

Background and procedural history

This long-running dispute centred on the use of the "Merck" name in the UK. The parties, both with historic ties to the Merck brand, made an agreement, as amended in a 1970 agreement to restrict the US entity's (Merck Sharp & Dohme LLC ("MSD")) use of "Merck" outside the USA and Canada.

However, Merck KGaA alleged that MSD breached this agreement and infringed its UK and international trade marks, particularly through online channels such as websites, email domains, and social media.

Litigation began in 2013 and included a 2016 High Court finding of breach and infringement, a 2017 Court of Appeal remittal on specific issues, and a 2020 High Court judgment confirming infringement in 23 out of 32 of the samples of the use of the word Merck by MSD. The present judgment follows an inquiry as to damages, after injunctive relief was granted in July 2020.

Key issues

The main questions before the Court were:

  • Whether damages should be assessed on the basis of a notional licence fee (so-called "user" or "negotiating" damages) for MSD's unauthorised use of the "Merck" mark.
  • If so, whether a comparables approach (using royalty rates from Merck KGaA's intragroup licences) was reliable, and if so, what adjustments and time period should apply.
  • Whether Merck KGaA could, on its pleadings, rely on an alternative economic benefits approach, and if so, how the notional licence should be quantified, including which benefits and costs to include, and how to account for inflation and discounting.

Licence fee damages: What was the Court's approach

The Court confirmed that licence fee damages are available for trade mark infringement and breach of contract where the right infringed is a valuable commercial asset, even if the claimant would not have actually granted a licence in reality. The test is whether a reasonable negotiation could be posited, not whether the parties would have agreed in practice.

The Court rejected arguments that there is a different rule for patents and trade marks, and found that neither section 46(1)(d) of the Trade Marks Act nor Article 21 of TRIPS precluded the award of such damages in this context.

Comparables approach rejected

Merck KGaA's expert had relied on a 0.33% royalty rate set for intragroup licensing, based on an EY benchmarking study. The Court found this approach fundamentally flawed: the EY study was statistically meaningless due to small sample sizes and lack of comparability - no evidential support for the adoption of any specific figure was found. As a result, the comparables methodology was rejected as a basis for quantifying damages.

Economic benefits approach adopted

Instead, the Court adopted an economic benefits approach, focusing on the incremental gains and avoided costs to MSD from its unauthorised use of the "Merck" mark. The hypothetical licence was assumed to run from 1 January 2010 (the earlier breaches were limitation-barred under German law) to 28 July 2020 (the date of the injunction). The Court's assessment included:

  • Avoided website costs (geo-blocking and mirrored MSD-branded sites), determined at £4.33 million, reflecting recurring costs over the licence period and attributing 40% of the global maintenance costs to the UK;
  • Avoided social media costs, determined at £781,703, based on disclosed data and similarly attributed to the UK; and
  • Avoided marketing costs, determined at £566,000, using a conservative proxy from Merck KGaA's global rebranding costs and focusing on the healthcare division as the most impacted area.

No allowance was made for avoided email migration costs, web traffic diversion, or staff training, as these were either not incremental to the hypothetical licence or not supported by reliable evidence. The Court also declined to apply a broad-brush uplift for unquantified benefits, in the absence of expert support.

Inflation and discounting

The Court required the damages figures to be adjusted for inflation, with the parties to calculate the precise sum. Importantly, the licence fee was assumed to be paid as a lump sum on 1 January 2010, requiring discounting to reflect the time value of money.

The Court favoured a risk-free discount rate, specifically the UK 10-year Treasury bond yield at January 2010 (4%), rather than MSD's weighted average cost of capital (WACC).

Outcome and practical implications

The Court held that licence fee/user damages were appropriate in principle, rejected the comparables/transfer pricing approach, and determined that the licence should be valued on the economic benefits approach. The final sum is to be calculated by the parties, subject to inflation and discounting as directed.

Key takeaways

  • Licence fee (user) damages are a robust remedy for trade mark and contract disputes, even where a licence would not have been granted in reality.
  • Internal transfer pricing rates and benchmarking studies are unlikely to be accepted as evidence of a market royalty unless they are statistically valid and genuinely comparable.
  • The economic benefits approach requires careful identification and substantiation of incremental benefits and avoided costs, with clear attribution to the relevant jurisdiction.
  • Courts will confine damages assessments to what is properly pleaded and supported by expert evidence; late or speculative claims are likely to be rejected.
  • For lump-sum hypothetical licences, expect the Court to apply a risk-free discount rate aligned to the licence term, not a corporate WACC.

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