In an action related to a Community Design (re-registered UK) for a baby’s bath, after disclosure and exchange of witness statements, the Defendants accepted liability for infringement. By consent, the matter proceeded to an enquiry as to damages. Following the usual provision of financial information, the proprietor elected for an account of the corporate First Defendant’s profits. The Second Defendant was the former managing director of the First Defendant, but was not pursued in the enquiry.
The primary issues for contention concerned whether any general overheads could be deducted at all (a burden falling on the infringing defendant) but if they were, what allowable expenses by way of general overheads, could be deducted?
Bei Yu Industrial Co. v Nuby (UK) LLP and another  EWHC 652 (IPEC)
Save for the odd sum being mentioned, the actual financial calculations and the sums they were based on were kept confidential. It is therefore difficult to estimate the impact a particular point being made in one party’s favour had on the overall case. Nevertheless, there are some aspects that emerge which should help practitioners prepare better for such cases in the future.
First, to be able to deduct general overheads at all, an infringing defendant has to show that the same overheads would have been incurred even if they had dealt with non-infringing goods. This is a matter of evidence that a defendant needs to get right.
Secondly, some overheads may be deductible such as gross wages and consultancy costs (including ‘improper payments’ which were put on expenses), but not bad debts relating to a period prior to the infringement: doing so merely makes it obvious the defendant and its advisors are desperately claiming anything and everything, which invariably counts against a party.
Thirdly, when it comes to deciding how any overheads are to be apportioned, if the claimant does not plead properly, the court is likely to accept the approach put forward by the defendant. Accordingly, even though no amendments to the pleadings were made in this case, it is worth considering doing so at the CMC stage to avoid having the defendant’s arguments hold sway.
In the enquiry, the defendant’s evidence focussed on the considerations which went on between the defendant and Amazon, who had asked the defendant to supply them a baby’s bath having features of Bei Yu’s bath. This evidence was key since it enabled the defendant to show that Amazon looked at a number of different designs of baby baths before ultimately selecting the one essentially identical to the claimant’s design (or to put it in registered design speak, in the mind of the informed user the defendant’s design made no different overall impression).
The defendant thereby established it could and most likely would have sold a non-infringing product. Indeed, that is what was supplied after the claimant complained. As a result, general overheads could be deducted.
Out of a confidential list of general overheads, three specific ones were contested: gross wages relating to design and development in 2017, certain consultancy costs, and a bad debt write off at the beginning of 2019.
However, it was the approach to apportioning such general overheads where the parties were divided. Early in his judgement, the deputy judge set out certain principles relating to general overheads; two principle ones being that a broad brush approach is to be taken, and different bases may need to be used for different categories of general overheads (the principles being derived principally from Jack Wills Ltd v House of Fraser (Stores) Ltd  WHC 626 (Ch)). The defendant argued the approach should be on a ‘sales revenue’ basis ie the apportionment should reflect the percentage of sales of the infringing products to the overall sales of the defendant’s products. The claimant argued that it should be on a number of products basis in that the infringing product was one of 280 products of the defendant equating to a 0.36% deduction. The claimant had not, however, pleaded this approach (or indeed any specific approach).
Having concluded that general overheads were to be deducted, the deputy judge considered the specific ones in issue. He decided that the gross wages relating to design were not acceptable, nor certain consultancy fees. He did allow the ‘improper’ expenses payments as he was of the view it was not the place of the court to go through an individual’s expenses questioning each one. The bad debt was also not allowable.
On the issue of apportionment, in the main, the judge was persuaded by the evidence of the defendant’s finance director that the sales revenue approach was the correct broad brush approach, and was in fact how the defendant dealt with overheads itself. This was for the majority of general overheads such as the costs in respect of penalties, relevant marketing, baby shows, gross wages, legal fees, premises and repairs. However, a different approach was justified for the following general overheads: (i) the website, (ii) telephone and IT and (iii) the stationery and office equipment (ie the paper clips). For these items, the 0.36% approach was appropriate, as these items were not specific to a single product.
Finally, the deputy judge concluded that the interest payable should be that of the base rate of the Bank of England, and not any higher amount. As the claimant had not pleaded or evidenced why a higher rate was appropriate, as a matter of discretion, the deputy judge sided with the defendant.
This article was first published by LexisPSL on 8 April 2022
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