Damages inquiries, in which the court calculates the amount of damages payable, are relatively rare in intellectual property cases because the parties usually settle the quantum of damages between themselves once the judgment on infringement has been given.
In many cases also, the claimant’s main concern is to obtain an injunction keeping the infringements off the market. However, as was illustrated in the recent case of Original Beauty v G4K Fashion involving fast fashion “bandage” and “bodycon” dresses1, damages can be substantial especially if copying is flagrant. The case provides a good illustration of the robustness with which the court calculates damages and of the principles applied. In this case these principles led to a substantial award of damages, but it is important to note that this will not always be the case2. So having a reality check on this issue at an early stage is often a good idea.
Damages in the case of Original Beauty v G4K Fashion – how the calculation works
On 24 February 20213 the high court ruled that the defendants had infringed the claimants’ unregistered design rights in respect of the claimants’ “bodycon” style of dresses.
The court also found that the defendants’ had copied the garments in question in a manner flagrant enough to justify the award of additional damages (including by sending images of the claimants’ products to their factories to be copied).
Following a damages inquiry, the court awarded the claimants damages totalling over £450,000. To reach this figure the court addressed three heads of damages, namely:
- standard damages in respect of the claimants’ lost profits on garments which, but for the defendants’ sales, would have been made by the claimants;
- a reasonable royalty on the defendants’ remaining sales; and
- additional damages pursuant to the court’s earlier finding of flagrant copying.
Standard damages:
In reaching its conclusions regarding standard damages, the court provided a helpful reminder of the following underpinning principles of standard damages:
- damages are compensatory and should be assessed liberally. The aim should be to put the claimant in the position they would have been in had the defendants’ infringing acts not occurred rather than to punish the defendants;
- it will be for the court to form a view and determine what proportion of the defendants’ sales would have been made by the claimants;
- any reasonable royalty figure should be assessed as the figure that a willing licensor and licensee would have agreed by referencing truly comparable licences (if any), or by apportioning profit generated from infringing sales.
Given that the above all required the court to make assumptions as to the specifics of a hypothetical world, namely one where the defendants’ infringing acts had not occurred, the court acknowledged that there was not much to be expected in the way of accuracy and that the court would have to “do the best job it can with the material the parties have put forward before it” whilst also applying common sense and fairness.
Loss of profit:
The court applied a probability factor to determine what proportion of the defendants’ infringing sales the claimants would have made if the defendants had not been infringing their rights.
The court concluded that 20% of the defendants’ sales were sales that the claimants were seen to have lost and awarded the claimants damages of £74,847.92 for loss of profit.
Reasonable royalty:
Damages to be based upon a reasonable royalty were then applied to the remaining 80% of the infringing sales.
The court heard expert evidence by way of forensic accounting but ultimately concluded that it was unhelpful and that it was for the court to assess the “hypothetical negotiation” in order to determine a reasonable royalty.
The court considered multiple factors specific to the commercial context of the case, including pricing practices and relevant business models, and concluded that a reasonable royalty in this context would be 10% of the defendants’ sales subject to a minimum royalty of £4,000 per design.
The total reasonable royalty sum awarded was £75,267.64.
Additional damages:
Finally, the court turned to additional damages, commenting that they may be punitive in order to act as a deterrent to other would-be infringers while noting that although they must be effective, proportionate and dissuasive they must not be an abuse of power.
The court ruled that an uplift of 200% on the standard damages was appropriate and as such awarded a sum of £300,000 in additional damages. In reaching this figure, the court considered the scale and flagrant nature of the defendants’ infringements as well as their conduct throughout the proceedings.
Deterrent effect
Although damages inquiries are rare in the context of IP proceedings, this decision should act as a strong deterrent to potential infringers who are contemplating copying a competitor's design.
An award of additional damages of this size clearly demonstrates that potential infringers could be left out of pocket by way of punitive damages should they be found to be guilty of flagrantly infringing another’s rights.
- Original Beauty and others v G4K Fashion and others [2021] EWHC 294 (24 February 2021)
- For a case in which only nominal damages were awarded, see Marathon Asset Management LLP and another v Seddon and another [2017] EWHC, a breach of confidence case involving ex-employees
- Original Beauty and others v G4K Fashion and others [2021] EWHC 3439 (21 December 2021)
Tom Lingard