Calculating account of profits – trade mark infringement

Where a Court has determined that a trade mark has been infringed, the plaintiff (Plaintiff) must elect between receiving an account of profits or damages as a remedy.  This article discusses how the Courts have determined the total to be awarded to the Plaintiff where an account of profits is chosen .  In short, an account of profits requires the infringer to give up their ill-gotten gains to the party whose rights have been infringed.^[1]

The general rule about an account of profits

Section 126 of the Trade Marks Act 1995 (Cth) provides that a Court may, at the option of the Plaintiff, grant in an action for an infringement of a registered trade mark either damages or an account of profits.

The High Court in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 (Colbeam) was quick to uphold the statutory position that the remedies under the Act are alternatives.  That is, a Plaintiff may choose between an account of profits or damages.^[2]  It is important then, that a Plaintiff in these circumstances elects the remedy which most substantially compensates them for the wrong they have suffered.

Calculating the quantum of an account of profits

Windeyer J in Colbeam at pages 42-43 succinctly described the general principle of an account of profits as:

“…is that a person who wrongly uses another man’s industrial property – patent, copyright, trade mark – is accountable for any profits which he makes which are attributable to his use of the property which was not his.”

Similarly, in Liquideng Farm Supplies Pty Ltd v Liquid Engineering 2003 Pty Ltd [2009] FCAFC 7 (Liquideng) the Court considered again the principles relating to an account of profits.  In this case, the Court held at [35] the following:

“[a]n account of profits is designed to compensate the party whose rights have been infringed for the loss incurred by depriving the infringing party of profits improperly made by wrongful acts committed in breach of the [P]laintiff’s rights in order to transfer such profits to the [P]laintiffs. Mathematical exactness is not required but only a reasonable approximation.”

The process of attributing profit to the infringement of a trade mark is one which cannot be completed with mathematical certainty.^[3]  It may arise that there is inadequate evidence of costs and profits.  In such circumstances, the Court may take a pragmatic approach and estimate profits once the evidence available.^[4]

The proportionality rule

Windeyer J delivered two (2) judgments in respect of Colbeam.  It can be seen from the first judgment that a defendant (Defendant) will not be liable to account for profits which cannot be attributed to the infringement and instead are related to the intrinsic quality or value of the goods.  The scope of an account of profits cannot include profit which cannot be specifically and exactly reconciled with an infringement.^[5]

By way of analogy, profit derived from the sale of a painting which constitutes an infringement will be limited to the actual painting and will not include, for example, the frame.  Thus, the profit accountable includes the gross profit from the sale of infringing goods reduced by such sale’s expenses.  At page 37 in Colbeam, Windeyer J held:

“[t]he profit for which the infringer of a trade mark must account is thus not the profit he made from selling the article itself but, as the ordinary form of order shews, the profit made in selling it under the trade mark.”

The Court, then, will not be quick to unjustly enrich a Plaintiff who has had their trade mark infringed.  Instead, the Court will attempt to provide an account of profits that exactly corresponds with the benefit gained by the Defendant from the infringement.  This means that a proportional approach will be adopted.^[6]  For example, if it can be seen that an infringing good is 80% similar to a particular trade mark, then 80% of the profits derived from the sales illegally derived will constitute the account of profits.

Applying this principle, Windeyer J resolved to ascertain the sum received by the Defendant for the infringed goods sold and subtract from this amount various costs incurred.  These included the costs of obtaining, selling and delivering the infringed goods.  Arriving then at a specific number, the Court was open to ascertain how much of those profits made were attributable to the selling of the infringed goods, a process which may reduce the account of profits further.

Can overheads be deducted from an account of profits?

The case of Colbeam considered the overhead, managerial costs and other similar types of costs were not capable of being deducted from an account of profits.^[7]  Despite this, the Courts have seen fit to reduce an account of profits by such expenses.  In particular, the case of Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101 considered whether overhead costs might be deductible from profits resultant of the sale of infringing goods.^[8]  In that decision, the High Court considered Windeyer J’s Colbeam decision as confined to ‘side-line’ products.^[9]  The Court instead held that, generally speaking, in calculating the profit derived from a Defendant, a deduction may be made for overhead and fixed costs.^[10]

Returning to Liquideng, the Court heard submissions that the onus was on the infringer to establish the costs attributable to the sale of the infringing goods.  The Court held at [40] quoted Allsop J at [70] in Unilin Beeher BV v Huili Building Materials Pty Ltd (No 2) [2007] FCA 1615:

“… it is appropriate to deduct costs directly attributable to selling and delivering infringing articles from the revenue made from such sales and deliveries.  It may be appropriate to deduct a proportion of general overhead costs such as plant equipment and managerial costs.” 

Thus, Colbeam has been substantially reduced by the High Court and subsequent decisions of the Federal Court.  There now exists a general rule that overhead costs will be deducted from an account of profits.

Takeaways

Where a Plaintiff’s intellectual property has been infringed, the Defendant in that proceeding will be liable in either damages or an account of profits, but not both.  In the case the Plaintiff elects to be remedied via an account of profits, the Court will determine the gross profits had from the sale of the infringed product and deduct from that amount the costs associated with the sale, including overhead costs.  This balance becomes payable to the Plaintiff by the Defendant as an account of profits remedying the infringement of the trade mark.

Links and further references

Legislation

Trade Marks Act 1995 (Cth)

Cases

Black & Decker Inc v GMCA Pty Ltd (No 5) [2008] FCA 1738

Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25

Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101

Kettle Chip Co Pty Ltd v Apand Pty Ltd [1999] FCA 483

Liquideng Farm Supplies Pty Ltd v Liquid Engineering 2003 Pty Ltd [2009] FCAFC 7

Unilin Beeher BV v Huili Building Materials Pty Ltd (No 2) [2007] FCA 1615

Further information about potential remedies for trademark infringement

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 32.

[2] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 32.

[3] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 46.

[4] Liquideng Farm Supplies Pty Ltd v Liquid Engineering 2003 Pty Ltd [2009] FCAFC 7, [37].

[5] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 43.

[6] Ibid, 43.

[7] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 31.

[8] Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101, 111-119.

[9] Ibid, [11].

[10] See also Kettle Chip Co Pty Ltd v Apand Pty Ltd [1999] FCA 483, [70]; Black & Decker Inc v GMCA Pty Ltd (No 5) [2008] FCA 1738, [15].

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