Winnebago Industries Inc v Knott Investments Pty Ltd (No 4)
[2015] FCA 1327
•2 December 2015
FEDERAL COURT OF AUSTRALIA
Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327
Citation: Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327 Parties: WINNEBAGO INDUSTRIES INC v KNOTT INVESTMENTS PTY LTD (ACN 073 625 868), AUSTRALIAN MOTOR HOMES PTY LTD (ACN 073 625 868), COUNTRY MOTOR COMPANY PTY LTD (ACN 002 189 228), SYDNEY CAMPERVAN & MOTORHOME RV CENTRE PTY LTD (ACN 112 316 560), WODONGA CAR WORLD PTY LTD (ACN 100 119 588), GEELONGWIN PTY LTD (ACN 121 112 392), HYDEN COVE PTY LTD (ACN 051 539 069), BRISBANE RV'S CARAVANS AND CAMPERS PTY LTD (ACN 102 806 520), BOLNIP PTY LTD (ACN 093 448 812), PARKLAND 1998 PTY LTD (ACN 081 503 184), WINNEBAGO ADELAIDE PTY LTD (ACN 081 503 184) and A & K CARAVANS AND MOTOR HOMES PTY LTD (ACN 100 888 748) File number(s): NSD 1355 of 2010 Judge(s): YATES J Date of judgment: 2 December 2015 Catchwords: TRADE MARKS – passing off – inquiry into damages – discussion of the ‘user principle’ in assessing damages for tortious interference with property – application of the user principle to damages for passing off – assessment of damages by reference to a reasonable royalty or licence fee
TRADE MARKS – passing off – whether cumulative remedies should be ordered – whether necessary for the applicant to establish fraud in order to obtain pecuniary relief
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2
Copyright Act 1968 (Cth) s 115
Federal Court of Australia Act 1976 (Cth) s 51A
Trade Practices Act 1974 (Cth)Cases cited: 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 79 ALR 299
32Red Plc v WHG (International) Ltd [2013] EWHC 815 (Ch)
A.G. Spalding & Bros v A.W. Gamage Ltd (1915) 32 RPC 273
Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564; [2007] FCAFC 40
Attorney General v Blake [2001] 1 AC 268
Bailey v Namol Pty Limited (1994) 53 FCR 102
Baume v Commonwealth (1906) 4 CLR 97
Baxter v Obacelo Pty Limited (2001) 205 CLR 635; [2001] HCA 66
Blayney (t/a Aardvark Jewellery) v Clogau St David’s Gold Mines Ltd [2003] FSR 19; [2002] EWCA Civ 1007
Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342
Butler v The Egg and Egg Pulp Marketing Board (1966) 114 CLR 185
Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180
Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64
ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302
Devenish Nutrition Ltd v Sanofi-Aventis SA [2009] Ch 390; [2008] EWCA Civ 1086
Dormeuil Frères S.A. v Feraglow Limited [1990] RPC 449
Enfield LBC v Outdoor Plus Ltd [2012] EWCA Civ 608
Force India Formula One Team Limited v 1 Malaysia Racing Team SDN BHD [2012] RPC 29; [2012] EWHC 616 (Ch)
Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175
Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1
General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819
Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Hogan v Koala Dundee Pty Limited (1988) 20 FCR 314
Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR 445
Inverugie Investments Ltd v Hackett [1995] 1 WLR 713
IPC Magazines Ltd v Black & White Music Corporation [1983] FSR 348
Irvine v Talksport Ltd [2003] FSR 35; [2003] EWCA Civ 423
Jaggard v Sawyer [1995] 1 WLR 269
Kohler Mira Ltd v Bristan Group Ltd (No 2) [2015] FSR 9; [2014] EWHC 1931 (IPEC)
Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 211 FCR 449; [2013] FCAFC 59
Knott Investments Pty Ltd v Winnebago Industries Inc (No 2) (2013) 305 ALR 387; [2013] FCAFC 117
Lego System Aktieselskab v Lego M. Lemelstrich Ltd [1983] FSR 155
Marengo v Daily Sketch and Sunday Graphic Ltd (1948) 65 RPC 242
Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157
Mitchell v Henry (1880) 15 Ch D 181
National Guild of Removers & Storers Ltd v Jones [2011] EWPCC 4
National Guild of Removers & Storers Ltd v Silveria [2011] FSR 9; [2010] EWPCC 15
P B Cow Limited v The Cannon Rubber Manufacturers Limited [1961] RPC 236
Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2011] 1 WLR 2370; [2009] UKPC 45
Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514
Phillips v Homfray (1871) LR 6 Ch App 770
Reed Executive plc v Reed Business Information Limited [2002] EWHC 2772 (Ch)
Reed Executive plc v Reed Business Information Ltd [2004] RPC 40; [2004] EWCA Civ 159
Roder Zelt-Und Hallenkonstruktionen Gmbh v Rosedown Park Pty Ltd (in liq) & Eustace (unreported, von Doussa J, 30 November 1995)
Sinclair v Gavaghan [2007] EWHC 2256 (Ch)
Stadium Capital Holdings (No 2) Ltd v St Marylebone Property Co plc [2011] EWHC 2856 (Ch)
State of South Australia v Johnson (1982) 42 ALR 161
Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406
Strand Electric and Engineering Company Limited v Brisford Entertainments Limited [1952] 2 QB 246
Swordheath Properties Ltd v Tabet [1979] 1 WLR 285
The Pneumatic Tyre Company Ltd v The Puncture Proof Pneumatic Tyre Company Ltd (1899) 16 RPC 209
Thompson v Australian Capital Television Pty Limited (1996) 186 CLR 574
Tito v Waddell (No 2) [1977] Ch 106
Turner v General Motors (Australia) Proprietary Limited (1929) 42 CLR 352
Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104
Wellington Capital Ltd v Australian Securities and Investments Commission (2014) 254 CLR 288; [2014] HCA 43
Whitwham v Westminster Brymbo Coal and Coke Company [1896] 2 Ch 538
Winnebago Industries Inc v Knott Investments Pty Ltd (No 2) (2012) 293 ALR 108; [2012] FCA 785
Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798
Yale Electric Corp v Robertson 26 F2d 972 (2d Cir 1928)Edelman J, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002)
Garnett K et al, Copinger and Skone James on Copyright (16th ed, Sweet and Maxwell, 2011)
Howe M, Russell-Clarke and Howe on Industrial Designs (8th ed, Sweet and Maxwell, 2010)
Mellor J et al, Kerly’s Law of Trade Marks and Trade Names (15th ed, Sweet and Maxwell, 2011)
Vitoria M et al, The Modern Law of Copyright and Designs (4th ed, LexisNexis, 2011)
Wadlow C, The Law of Passing-Off: Unfair Competition by Misrepresentation (4th ed, Sweet & Maxwell, 2011)
Wells THW, “Monetary Remedies for Infringement of Copyright” (1989) 12 Adelaide Law Review 164Date of hearing: 17-20 November 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 217 Counsel for the Applicant: Mr IM Jackman SC with Mr MJ Darke SC and Mr A Shearer Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondents: Mr A Bannon SC with Mr PW Flynn and Mr D Larish Solicitor for the Respondents: King & Wood Mallesons
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1355 of 2010
BETWEEN: WINNEBAGO INDUSTRIES INC
ApplicantAND: KNOTT INVESTMENTS PTY LTD (ACN 073 625 868)
First RespondentAUSTRALIAN MOTOR HOMES PTY LTD (ACN 073 625 868)
Second RespondentCOUNTRY MOTOR COMPANY PTY LTD (ACN 002 189 228)
Third RespondentSYDNEY CAMPERVAN & MOTORHOME RV CENTRE PTY LTD (ACN 112 316 560)
Fourth RespondentWODONGA CAR WORLD PTY LTD (ACN 100 119 588)
Fifth RespondentGEELONGWIN PTY LTD (ACN 121 112 392)
Sixth RespondentHYDEN COVE PTY LTD (ACN 051 539 069)
Seventh RespondentBRISBANE RV'S CARAVANS AND CAMPERS PTY LTD (ACN 102 806 520)
Eighth RespondentBOLNIP PTY LTD (ACN 093 448 812)
Ninth RespondentPARKLAND 1998 PTY LTD (ACN 081 503 184)
Tenth RespondentWINNEBAGO ADELAIDE PTY LTD (ACN 081 503 184)
Eleventh RespondentA & K CARAVANS AND MOTOR HOMES PTY LTD (ACN 100 888 748)
Twelfth Respondent
JUDGE:
YATES J
DATE OF ORDER:
2 DECEMBER 2015
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.By 16 December 2015, the parties are to bring in agreed orders giving effect to these reasons for decision.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1355 of 2010
BETWEEN: WINNEBAGO INDUSTRIES INC
ApplicantAND: KNOTT INVESTMENTS PTY LTD (ACN 073 625 868)
First RespondentAUSTRALIAN MOTOR HOMES PTY LTD (ACN 073 625 868)
Second RespondentCOUNTRY MOTOR COMPANY PTY LTD (ACN 002 189 228)
Third RespondentSYDNEY CAMPERVAN & MOTORHOME RV CENTRE PTY LTD (ACN 112 316 560)
Fourth RespondentWODONGA CAR WORLD PTY LTD (ACN 100 119 588)
Fifth RespondentGEELONGWIN PTY LTD (ACN 121 112 392)
Sixth RespondentHYDEN COVE PTY LTD (ACN 051 539 069)
Seventh RespondentBRISBANE RV'S CARAVANS AND CAMPERS PTY LTD (ACN 102 806 520)
Eighth RespondentBOLNIP PTY LTD (ACN 093 448 812)
Ninth RespondentPARKLAND 1998 PTY LTD (ACN 081 503 184)
Tenth RespondentWINNEBAGO ADELAIDE PTY LTD (ACN 081 503 184)
Eleventh RespondentA & K CARAVANS AND MOTOR HOMES PTY LTD (ACN 100 888 748)
Twelfth Respondent
JUDGE:
YATES J
DATE:
2 DECEMBER 2015
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
[1]
THE CLAIM FOR DAMAGES: THE USER PRINCIPLE
[12]
The cases
[12]
The respondents’ submissions on the user principle
[64]
Conclusion
[100]
THE EVIDENCE
[102]
The evidence of the lay witnesses
[102]
Randy J Potts
[102]
Karen Christine Jefson
[103]
William Cunynghame Daymond
[104]
Bruce Arthur Binns
[105]
Benjamin Binns
[106]
The evidence of the expert witnesses
[107]
Mr Heberden
[108]
Mr Harvey
[131]
THE SUBMISSIONS
[143]
The applicant’s submissions
[143]
The respondents’ submissions
[166]
THE APPROPRIATE ROYALTY OR LICENCE FEE
[177]
THE POSITION OF THE SECOND TO TWELFTH RESPONDENTS
[198]
CONCLUSION AND DISPOSITION
[215]
INTRODUCTION
This matter is before me to determine the applicant’s claim for damages for passing off.
At an earlier hearing, the then trial judge (Foster J) found that the respondents had engaged in passing off by using “the Winnebago marks” in the business of manufacturing and selling recreational vehicles (RVs) in Australia: Winnebago Industries Inc v Knott Investments Pty Ltd (No 2) (2012) 293 ALR 108; [2012] FCA 785. His Honour used the expression “the Winnebago marks” to refer to the name “Winnebago”, a logo which was a stylised rendering of that name, and a logo comprising a stylised rendering of the letter “W”. His Honour found that, notwithstanding that the applicant did not itself carry on business or have a place of business in Australia as at 1 June 1982—the date which his Honour concluded was the date when the impugned conduct commenced—or indeed at any time relevant to this proceeding, the applicant nevertheless had, at 1 June 1982 and thereafter, a reputation in Australia in the Winnebago marks amongst a substantial number of potential customers looking to buy or rent RVs in Australia.
Foster J considered that the most telling evidence of the applicant’s reputation in Australia was given by Mr Bruce Binns, the founder of the first respondent’s business. Mr Binns gave evidence as to why the Winnebago name was chosen. Mr Binns was cross-examined on this evidence. Foster J found (at [92]-[93]):
92I think that Bruce Binns well understood and indeed intended that, by adopting the Winnebago name and the Winnebago logos in connection with his business in Australia, he would get the benefit of any reputation which Winnebago and Winnebago RVs had in Australia. I also think that, even as early as 1978, he was of the opinion that there was sufficient awareness among the relevant consumers and the trade in Australia of Winnebago, its products and its reputation to make his decision to use the Winnebago marks worthwhile. His decision to do so was clearly not “commercially irrelevant”. He had just experienced the collapse of the Freeway business and no doubt was keen to ensure that the new business did not suffer the same fate. One way to assist in that endeavour was to attempt to present the new business as an associate of the well-established and highly respected Winnebago. It is apparent from … the evidence of Bruce Binns … that he had an expectation that there would be, among those interested in either purchasing or renting RVs in Australia, a good smattering of persons who were aware of Winnebago and its RVs. He accepted that, in particular, persons who had travelled overseas were likely to have the relevant awareness.
93I do not find Bruce Binns’s earnest denials to the effect that he was not endeavouring to trade off the goodwill and reputation of Winnebago credible. I find that, by choosing to exploit the Winnebago name and the Winnebago logos, he was intending to gain for himself as much benefit as possible in Australia from the goodwill and reputation of Winnebago and its RVs. His decision was motivated by a keen appreciation that he and his associates would gain financial benefit from using the Winnebago marks in Australia.
Having regard to the existence of the applicant’s reputation, Foster J found that, by reason of the impugned conduct, persons were likely to be deceived into thinking that the business conducted by the first respondent and its dealers (the second to twelfth respondents) was the applicant’s business and, further, that the RVs manufactured in Australia by the first respondent were RVs manufactured by the applicant. His Honour concluded that, in the circumstances of this case, this finding was sufficient to entitle the applicant to relief based on passing off and for certain contraventions of the Trade Practices Act 1974 (Cth) and of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law). For present purposes, the statutory contraventions can be put to one side.
The respondents appealed against these and other findings. The Full Court considered that 1978, not 1982, was the correct date for determining whether the applicant had a reputation in Australia that was sufficient to establish passing off: Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 211 FCR 449; [2013] FCAFC 59 (Appeal Reasons 1) at [9], [82] and [141]. The Full Court was satisfied that the applicant had such a reputation as at 1978: Appeal Reasons 1 at [39], [82] and [145]. The Full Court was otherwise satisfied that passing off had been established, although it concluded that the injunctive relief granted by Foster J was too wide and should be limited: Appeal Reasons 1 at [59]-[69]; [106]-[107]; [120]-[138].
In separate reasons (Knott Investments Pty Ltd v Winnebago Industries Inc (No 2) (2013) 305 ALR 387; [2013] FCAFC 117 (Appeal Reasons 2)), the Full Court subsequently considered the scope of the injunctive relief that should be granted and made orders accordingly. In broad terms, injunctions were granted against each respondent restraining it from using the Winnebago marks without a disclaimer. In determining the appropriate form of the injunctions, the Full Court took into account the fact that at least some of the first respondent’s reputation in the use the Winnebago marks was the product of the development of its own goodwill and reputation and that not all the development of its business involved the taking advantage of the applicant’s reputation in Australia. Further, the Full Court reasoned that, in the present case, the guiding principle of injunctive relief should be, as far as possible, the protection of the public from being misled.
Allsop CJ (with whom Cowdroy and Jagot JJ agreed) said (at [4]-[5]):
4There appears an underlying tension inherent in any relief. On the one hand, Knott has built up over 25 years or more its reputation in the name and marks; on the other hand, to a degree, there has been a taking advantage of the respondent’s reputation and goodwill that spilled over from overseas to Australia. The main judgment recognised a need to avoid injustice to Knott by relief that denied the legitimacy of the building of its own reputation. That said, the protection of the public and of the respondent’s trade reputation requires orders to be made that will prevent any continuation of the capacity of Knott to mislead those people in Australia who have a familiarity with the respondent’s reputation and who are likely to be misled by the use of the name and logo. Thus, the apparent underlying tension is resolved by keeping firmly in mind, at all times, these guiding considerations.
5To the extent that there may be either some clumsiness or impracticability in framing orders so guided, that can be seen as the product of both Knott’s seeking to take advantage of the respondent’s reputation and the respondent effectively doing nothing to protect its own reputation for 25 years.
The Full Court also considered whether the applicant’s claims for pecuniary relief should be remitted. Their Honours considered that there should be no remitter in respect of the applicant’s claim for an account of profits. Allsop CJ said (at [24]):
24The respondent Winnebago sought remitter of the entitlement to pecuniary relief. As to an account of profits, there should be no remitter. An account is an equitable remedy. The extraordinary delay is an overwhelming consideration in this regard. Further, it would be extraordinarily difficult to ascertain, years after the event, what profits have been made by reference to sales that could be seen to be produced by trading on the respondent’s reputation and sales produced by Knott trading on its own reputation. As a matter of discretion, that almost impossible task should not be allowed to vex the appellants.
With respect to the applicant’s claim for damages, the Full Court considered that there should be no remitter for damage suffered prior to six years from the commencement of the action. However, as to damages after that date, Allsop CJ said (at [26]-[27]):
26As to damages after that date, the respondent Winnebago sought a remitter for a hearing based on a reasonable royalty. This was opposed by the appellants on the basis that the evidence was clear that Winnebago would not have licensed its name to Knott. The respondent recognised that there was Full Court authority in its path: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564; 239 ALR 702; 71 IPR 437; [2007] FCAFC 40 at [27]–[28]. It sought, however, remitter in this regard to attempt to deal with this authority by reference to cases which recognise that the use of property (here the reputation of the respondent) may be compensated for by reference to notions (perhaps restitutionary in essence) that unauthorised use of property has to be paid for: see generally the discussion of issues in the context of conversion in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [166]–[186].
27The opportunity to argue these matters should not be denied to the respondent by a consideration of relief at this stage: cf Spencer v The Commonwealth (2010) 241 CLR 118; 269 ALR 233; [2010] HCA 28 at [24]–[25]. It may be that it will be necessary to argue that there is error in a judgment of the Court. The respondent should not be shut out from that enterprise.
I have set these matters out to record the basis on which the applicant’s claims for relief have proceeded both before Foster J and the Full Court. In light of the issues raised on appeal, and in light of both Foster J’s and the Full Court’s reasons, I do not understand either Foster J or the Full Court to have granted injunctive relief on a quia timet basis for merely threatened or apprehended injury. The Full Court’s treatment of the question of remitter in relation to pecuniary relief shows that it was satisfied that the applicant had established all elements of the tort sufficient to warrant remitter for that relief, at least on the question of damages—the applicant’s claim to an account of profits having been rejected solely on discretionary grounds relating to the difficulty of working out that relief in the circumstances, not because an account would not otherwise lie.
Further, as the passages quoted at [9] above show, when the Full Court remitted the determination of damages, their Honours understood that the applicant was advancing its claim for damages on the basis of the user principle discussed in the next section of these reasons, notwithstanding certain observations made by Black CJ and Jacobson J in Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564; [2007] FCAFC 40 (Aristocrat) at [27]-[28], to which I make further reference below.
THE CLAIM FOR DAMAGES: THE USER PRINCIPLE
The cases
The applicant seeks damages on the basis of a reasonable royalty or licence fee in respect of the respondents’ use of the Winnebago marks. The damages sought are for the period 14 October 2004 (the commencement of the period of six years prior to commencement of the proceeding) to 17 October 2013 (the date when the Full Court’s orders were made granting final injunctive relief).
The underlying principle for damages awarded on this basis has been called the “user principle”—an expression said to have been coined by Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 at 1416. Under this principle, a plaintiff is entitled to recover, by way of damages, a reasonable sum from a defendant who has wrongfully used the plaintiff’s property. The plaintiff may not have suffered actual loss from the use, and the wrongdoer may not have derived actual benefit. Nevertheless, under the principle, the defendant is obliged to pay a reasonable sum for the wrongful use. The reasonable sum is sometimes described as a reasonable rent, hiring fee, endorsement fee, licence fee or royalty (amongst other expressions), depending on the property involved and the nature of the wrongful use.
Damages in tort are compensatory. But damages awarded under the user principle have a restitutionary aspect in the sense that the award can be seen to reverse the “use value” of the property in question: see, for example, the explanation in Edelman J, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002) pp 66-71. It has been said, nevertheless, that an award of damages under this principle remains compensatory in character (Tito v Waddell (No 2) [1977] Ch 106 at 335; Jaggard v Sawyer [1995] 1 WLR 269 (Jaggard) at 281-282) or combines elements of compensation and restitution (Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 (Inverugie Investments) at 718). In Attorney General v Blake [2001] 1 AC 268 (Blake), Lord Nicholls suggested (at 279) that an award of damages under the user principle is probably best regarded as an exception to the general rule that damages are compensatory. Even so, Lord Nicholls regarded damages awarded under the principle as “established and not controversial”.
The origin of damages of this kind can be seen in the wayleave cases (see, for example, Phillips v Homfray (1871) LR 6 Ch App 770 (Homfray) at 780-781) where the defendant had trespassed by making use of the plaintiff’s land without necessarily diminishing the value of the land itself. Damages for the trespass were assessed by reference to a reasonable wayleave rent.
The principle was extended and applied to trespass to real property more generally. For example, in Whitwham v Westminster Brymbo Coal and Coke Company [1896] 2 Ch 538, the defendants tipped refuse from their colliery onto the plaintiffs’ land. An injunction was granted to restrain the defendants from further tipping. In this case, the defendants’ activities rendered the plaintiffs’ land valueless except for tipping purposes. Damages were awarded for the diminution in value of the land. But damages were also awarded on the basis that the defendants had made use of the plaintiffs’ land for their own purposes and that, for that wrongful use, the defendants should pay. After referring to Homfray, Lindley LJ said (at 542):
Applying that reasoning to this case, on what principle of justice can it be said that these defendants are to use the plaintiffs’ land for years for their own purposes, and to pay nothing for it, in addition to the injury that they have done to the land?
Rigby LJ said (at 543):
The principle is that a trespasser shall not be allowed to make use of another person’s land without in some way compensating that other person for that user. Where the trespass consists in using a way over the plaintiff’s land, a convenient way of assessing damages may be by an inquiry as to way-leave, which, when there is a customary rate of charge for way-leave in the locality, may furnish a convenient measure of damages; but the principle is that in some way or other, if you can do nothing better than by rule of thumb, the trespasser must be charged for the use of the land.
I will refer to two more cases in this line of authority. The first is Swordheath Properties Ltd v Tabet [1979] 1 WLR 285. This was a case of trespass to residential property where the relevant defendants (formerly licensees) had remained in occupation of the property after a lease (under which they acquired their licences) had come to an end. Damages were sought for the trespass. Megaw LJ (with whom Browne and Waller LJJ agreed) said (at 288):
It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages.
The second case is Inverugie Investments. In that case, the plaintiff purchased the leasehold of a number of apartments in a hotel. The apartments were managed on behalf of the plaintiff as part of the hotel. The owner of the hotel, Inverugie Investments, ejected the plaintiff, who then successfully brought proceedings for possession. However, Inverugie Investments did not give possession. Its trespass continued for in excess of 15 years. Lord Lloyd of Berwick, in giving the judgment of the Board, stated that the cases establish beyond any doubt that a person who lets out goods on hire, or the landlord of residential property, can recover damages from the trespasser who has wrongfully used the property, whether or not the plaintiff can show that he would have let the property to somebody else, and whether or not the plaintiff would have used the property himself. In applying the user principle, the Board determined that Inverugie Investments, as trespasser, was liable to pay, by way of damages, a reasonable rental for the use of each apartment for 365 days in the year, notwithstanding that the occupancy rate of the hotel was no more than 35% of the time. Lord Lloyd said (at 718):
If a man hires a concrete mixer, he must pay the daily hire, even though he may not in the event have been able to use the mixer because of rain. So also must a trespasser who takes the mixer without the owner’s consent. He must pay the going rate, even though in the event he has derived no benefit from the use of the mixer. It makes no difference whether the trespasser is a professional builder or a do-it-yourself enthusiast.
The same applies to residential property. In the present case the defendants have had the use of all 30 apartments for 15½ years. Applying the user principle, they must pay the going rate, even though they have been unable to derive actual benefit from all the apartments for all the time. The fact that the defendants are hotel operators does not take the case out of the ordinary rule. The plaintiff is not asking for an account of profits. The chance of making a profit from the use of the apartments is not the correct test for arriving at a reasonable rent.
As will be apparent from the above passage, and my earlier summary, the user principle has been applied in awarding damages for the tortious interference with chattels. The leading case is Strand Electric and Engineering Company Limited v Brisford Entertainments Limited [1952] 2 QB 246 (Strand Electric). In that case, the plaintiffs hired portable switchboards for stage lighting to the purchaser of a theatre. The purchaser was allowed into occupation of the theatre prior to completion of the sale. The hiring of the switchboards was a normal, though minor, part of the plaintiffs’ business. The purchase did not complete and, despite demands having been made by the plaintiffs, the vendors (defendants) refused to return the switchboards. The plaintiffs sued the defendants in detinue. The user principle was applied in awarding damages.
Somervell LJ said (at 252):
It is curious, as I have said, that there is no authority on this point. The nearest analogy is a claim for mesne profits. The measure there is a reasonable sum in the nature of rent for the user during the period of the defendant’s trespass. In other words, the defendant must pay what the plaintiff would have obtained if the defendant had lawfully been in possession. In principle the same measure should, I think, apply where a defendant has detained and used a chattel of the plaintiff which the plaintiff, as part of his business, hires out to users. I have added these latter words because I do not wish in this so far uncharted field to go beyond the facts of the case.
Denning LJ said (at 253-254):
The question in this case is: What is the proper measure of damages for the wrongful detention of goods? Does it fall within the general rule that the plaintiff only recovers for the loss he has suffered, or within some other, and if so what, rule? It is strange that there is no authority upon this point in English law; but there is plenty on the analogous case of detention of land. The rule there is that a wrongdoer, who keeps the owner out of his land, must pay a fair rental value for it, even though the owner would not have been able to use it himself or to let it to anyone else. So also a wrongdoer who uses land for his own purposes without the owner’s consent, as, for instance, for a fair ground or as a wayleave, must pay a reasonable hire for it, even though he has done no damage to the land at all: Whitwham v Westminster Brymbo Coal Company. I see no reason why the same principle should not apply to detention of goods.
If a wrongdoer has made use of goods for his own purposes, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission. He cannot be better off by doing wrong than he would be by doing right. He must therefore pay a reasonable hire. This will cover, of course, the wear and tear which is ordinarily included in a hiring charge; but for any further damage the wrongdoer must pay extra.
(Citations omitted.)
Denning LJ continued (at 254):
I am here concerned with the cases where the owner has in fact suffered no loss, or less loss than is represented by a hiring charge. In such cases if the wrongdoer has in fact used the goods he must pay a reasonable hire for them.
Later, his Lordship said (at 254-255):
The claim for a hiring charge is therefore not based on the loss to the plaintiff, but on the fact that the defendant has used the goods for his own purposes. It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution rather than an action of tort. But it is unnecessary to place it into any formal category. The plaintiffs are entitled to a hiring charge for the period of detention, and that is all that matters.
Romer LJ based his reasons on three salient facts, namely: that the equipment detained was profit-earning property; that the plaintiffs normally hired out the equipment in the course of its business; and, that the defendant applied the property to the furtherance of its own ends during the period of wrongful detention. His Lordship said (at 256-257):
The fundamental aim in awarding damages is in general to compensate the party aggrieved. The inquiry is: What loss has the plaintiff suffered by reason of the defendants’ wrongful act? In determining the answer to this inquiry the question of quantifying the profit or benefit which the defendant has derived from his wrongful act does not arise; for there is no necessary relation between the plaintiffs’ loss and the defendants’ gain. It follows that in assessing the plaintiffs’ loss in the present case one is not troubled by any need to evaluate the actual benefit which resulted to the defendants by having the plaintiffs’ equipment at their disposal.
That element then being out of the way, the only substantial reason put forward by the defendants why the plaintiffs should not receive the full hiring value of the equipment during the period of detention is that the plaintiffs might not have been able to find a hirer. In my judgment, however, a defendant who has wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all. Apart from the minor matters which I mention later, it accordingly seems to me that the defendants are bound to pay the recognized hiring value for the property in question and that no sufficient answer has been made out to Mr. Caplan’s proposition which, in my judgment, has common sense to support it and no authority against it.
I say this because some reliance was placed by counsel for the defendants on the principles which have become established in assessing damages for negligence. (See, for example, Admiralty Commissioners v. S.S. Susquehanna.) These principles seem to me to have no relation to cases where a wrongdoer detains property of another and uses it for his own purposes; one can postulate, as I have already indicated, that such a wrongdoer would have preferred to pay for the use of the property rather than have gone without it, but no such assumption can be made where negligence and not improper user is involved.
(Citations omitted.)
Strand Electric was followed in Australia by Giles J in Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 (Gaba Formwork) and, later, by the Court of Appeal in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 (Bunnings). In the latter case, Allsop P (at [173]) agreed with Giles J’s analysis (in the former case) of Strand Electric and its reception in England and Australia up to 1991. Allsop P said (at [175]):
175The fundamental principle of damages for tort is compensation for loss caused: Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185; and Haines v Bendall (1991) 172 CLR 60 at 63. The damage or loss caused to the plaintiff with rights of ownership and possession who is in the business of hiring goods of the kind converted or detained is not limited to the consequences of stock depletion or to cost of replacement, but incudes the denial and infringement of its rights. Those rights have been denied to the plaintiff by the commission of a tort involving the use of the goods by the tortfeasor. It is entirely logical and in accordance with justice and commonsense that a wrongdoer should pay a price for using the goods of another as a matter of compensation for the denial of the right concerned. I do not see this as contrary to, or undermining of, the principle of compensation. To require compensation to be the operative principle is not to deny the fundamental principles discussed in cases such as Mediana, Owners of the Steamship v Owners, Master & Crew of the Lightship Comet (“The Mediana”) [1900] AC 113 at 117 by the Earl of Halsbury LC, or Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 at 119 by Lord Shaw as discussed by Lord Nicholls of Birkenhead in Attorney-General v Blake at 278–279. Lord Shaw in Watson, speaking of damages for patent infringement, said:
“… wherever an abstraction of property has occurred, then, unless the abstraction or invasion were to be sanctioned by law, the law ought yield a recompense under the category or principle … either of price or hire.”
Allsop P made specific mention of patent cases exemplifying the application of the user principle to award damages where there has been an interference with property rights. His Honour said (at [176]-[177]):
176The law of patents has always viewed the determination of damages arising from patent infringement as compensatory in character and as wide enough to encompass the amount which the infringer would have had to pay had he taken a licence upon terms normally granted by the patentee: see generally W Aldous et al, Terrell on the Law of Patents 13th ed (1982) London, Sweet & Maxwell at 427 [14–160] and the cases cited at fn 83; and W Cornish et al, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights 7th ed (2010) London, Sweet & Maxwell at 81–83 [2–38]–[2–40], or on a reasonable royalty basis if the patentee does not grant licences or makes its profit as a manufacturer: Aldous at 427 [14–160] and the cases at fn 84; and Cornish at 83 [2–40].
177Care needs to be exercised in any comparison between the principles attending the torts of conversion and detinue, on the one hand, and infringement of patents, on the other, and the lengths to which any such comparison is taken (cf Leman v Krentler-Arnold Hinge Last Co 284 US 448 (1932) at 456–457). Nevertheless, the analogy is of assistance in understanding the concepts involved in compensation and the law’s proper response to the interference with property rights. Compensatory damages for conversion of goods and compensatory damages for patent infringement have some basal features in common. The former involves the denial of the property rights of the plaintiff, including the right to possession, through an act repugnant to those rights; the latter involves the denial of the plaintiff’s statutory monopoly rights by infringement being the acts that the statute identifies as the denial of, or interference with, those rights. In each, if a property right has been invaded by a wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in the broad sense, focusing on the interference with the right in question. Recompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring a price or hiring charge to be paid for the wrongful use. What is being compensated for is the wrongful denial of property rights, not merely the injured party’s financial position analysed subjectively: see Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323; [2003] 1 All ER (Comm) 830 at [26] per Mance LJ. Essential to the notion of compensation here is the use by the wrongdoer that gives reality and content to the denial of, or interference with, the plaintiff’s rights. So to say is not to transform damages into restitution; rather it is to set a practical limit to the principle based on the feature of the wrong (the wrongful use) which calls for the law’s response to award damages for the denial or interference with the right.
Allsop P continued (at [178]):
178 Though only Denning LJ in Strand Electric expressly based his judgment on restitutionary principles, Somervell and Romer LJJ expressing the matter in terms of compensation, each of their Lordships included as an element in his reasoning use by the converter/detainer. This element of suit for the use of the chattel was a suggestion of Lord Mansfield in Hambly v Trott (1776) 1 Cowp 371 at 375; 98 ER 1136 at 1138. Thus the use of a sum for the hire of the chattel to inform the monetary remedy can be seen as referable to the capacity of the chattel to be hired by the owner (and the refusal to permit the wrongdoer to assert that he would or could not): Romer LJ at 256–257, or to the actual use by the wrongdoer: Denning LJ at 254–255 or to the user of the wrongdoer based on what he would have paid if he had been lawfully in possession: Somervell LJ at 252. The element of use by the wrongdoer was central to at least two of their Lordships and it was part of the action referred to by Lord Mansfield in Hambly v Trott. The element of use can be seen in the analogue of mesne profits and like cases: Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538 at 541–542; Hall & Co Ltd v Pearlberg [1956] 1 WLR 244; Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798; Bracewell v Appleby [1975] Ch 408; Jaggard v Sawyer [1995] 1 WLR 269; Swordheath Properties Ltd v Tabet [1979] 1 WLR 285; Inverugie; and in respect of a dock: Penarth Dock Engineering Co v Pounds [1963] 1 LlL Rep 359.
Allsop P then turned to consider the nature of the use in that case and what the hiring fee should be. His Honour concluded (at [185]) that the market or standard rate should be chosen as the hiring fee because it best reflected what the converter or detainer would have to pay and what the owner should obtain for the use of the property wrongfully detained.
I turn now to consider the patent cases. In Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157 (Meters), Fletcher Moulton LJ reasoned that, in assessing damages for patent infringement, each infringing article manufactured or sold is an infringement of the patentee’s rights. His Lordship said that the patentee is entitled to recover for each one of those wrongs:
You may estimate the damage by taking the whole of the infringing articles, and making an allowance in respect of each one, or you may consider how many he would have sold, and make a full allowance in regard to those. They are both, in proper cases, reasonable methods of ascertaining what he has lost. The latter is certainly only a rough practical method which in some cases may be efficient. It rests on no theoretical basis, because in the eye of the law each article is a wrong.
His Lordship continued (at 164-165):
There is one case in which I think the manner of assessing damages in the case of sales of infringing articles has almost become a rule of law, and that is where the patentee grants permission to make the infringing article at a fixed price—in other words, where he grants licences at a certain figure. Every one of the infringing articles might then have been rendered a non-infringing article by applying for and getting that permission. The Court then takes the number of infringing articles, and multiplies that by the sum that would have had to be paid in order to make the manufacture of that article lawful, and that is the measure of the damage that has been done by the infringement. The existence of such a rule shows that the Courts consider that every single one of the infringements was a wrong, and that it is fair—where the facts of the case allow the Court to get at the damages in that way—to allow pecuniary damages in respect of every one of them. I am inclined to think that the Court might in some cases, where there did not exist a quoted figure for a licence, estimate the damages in a way closely analogous to this. It is the duty of the defendant to respect the monopoly rights of the plaintiff. The reward to a patentee for his invention is that he shall have the exclusive right to use the invention, and if you want to use it your duty is to obtain his permission. I am inclined to think that it would be right for the Court to consider what would have been the price which—although no price was actually quoted—could have reasonably been charged for that permission, and estimate the damage in that way. Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. But I am not going to say a word which will tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reason of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully.
(Emphasis added.)
This approach was accepted in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 (Watson, Laidlaw & Co). In that case, the appellants manufactured and sold machines which infringed the respondents’ patent. A large number of the machines were sold in Java. It was argued that this trade would never have gone to the respondents, for various reasons. Lord Shaw put the argument in the following way (at 118-119):
And then comes in an astute argument, that in all cases where the infringer can establish that the trade in the machines which happened to contain the patented article or part would, under no circumstances, have ever reached the patentee himself, no claim can be admitted. To take an instance such as the present case affords, the Patentee was not in a position to carry on business in a certain part of the world exclusively possessed for commercial purposes by the energies of the infringer and his agents. It is said in such a case: —“Where is the damage which the patentee has incurred? On the other heads of the case he has obtained his damages; but on this part, which covers a section of trade which in no circumstances he could have touched, he can have sustained no damage, because he would never have sold his patented articles within that section. The duty of an infringer is covered by the principle of restoration, and the patentee has surely been restored to as good a position as he was in before the infringement, or would have been in but for it, if he has been put into the same financial position as he would have occupied in that region of trade where alone he would have been operating.”
Lord Shaw dealt with that argument in the following way (at 119):
It is at this stage of the case, however, my Lords, that a second principle comes into play. It is not exactly the principle of restoration, either directly or expressed through compensation, but it is the principle underlying price or hire. It plainly extends—and I am inclined to think not infrequently extends—to Patent cases. But, indeed, it is not confined to them. For wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle, as I say, either of price or of hire. If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: “Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.”
In applying this “second principle”, Lord Shaw said (at 119-120):
[I]t is clear to my mind that, suppose the Respondents had chosen to ask for an account of the profits made by the infringers upon the infringing machines, they would have been entitled to obtain it and a decree for the amount, and it would have been no answer to say: “The account shall be given, but there shall be excluded from it places which we shall establish your trade would never have reached.” In the second place, my Lords, it appears to me that, although it be true that a patentee cannot have both remedies at the same time, namely, the damages to his own business and the profits of the infringers’ business, still this is true simply because it is in that way that overlapping is prevented. But in the instances of which the present is an excellent type there is no overlapping whatsoever. If with regard to the general trade which was done, or would have been done by the Respondents within their ordinary range of trade, damages be assessed, these ought, of course, to enter the account and to stand. But in addition there remains that class of business which the Respondents would not have done; and in such cases it appears to me that the correct and full measure is only reached by adding that a patentee is also entitled, on the principle of price or hire, to a royalty for the unauthorised sale or use of every one of the infringing machines in a market which the infringer, if left to himself, might not have reached. Otherwise, that property which consists in the monopoly of the patented articles granted to the patentee has been invaded, and indeed abstracted, and the law, when appealed to, would be standing by and allowing the invader or abstractor to go free. In such cases a royalty is an excellent key to unlock the difficulty, and I am in entire accord with the principle laid down by Lord Moulton in Meters Ld. v. Metropolitan Gas Meters Ld. (28 R.P.C. 163). Each of the infringements was an actionable wrong, and although it may have been committed in a range of business or of territory which the patentee might not have reached, he is entitled to hire or royalty in respect of each unauthorised use of his property. Otherwise, the remedy might fall unjustly short of the wrong.
In General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 (General Tire), Lord Wilberforce (with whom Viscount Dilhorne, Lord Diplock and Lord Kilbrandon agreed) identified three main groups of reported cases which exemplify the approach of courts when assessing damages for patent infringement.
The first group relates to manufacturers who exploit an invention by making articles or products which they sell for profit. Lord Wilberforce said that, in these cases, if the patent is infringed, the effect of the infringement will be to divert sales from the patentee to the infringer. Therefore, normally, the measure of damages will be the profit which would have been realised by the patentee if the sales had been made by it.
The second group relates to inventions that are exploited through the granting of licences in return for royalty payments. Lord Wilberforce said that, in these cases, if the infringer uses the invention without a licence, the measure of damages will be the sums which the infringer would have paid by way of royalty if it had acted legally.
Lord Wilberforce identified a third group where it was not possible to prove a normal rate of profit (as in the first group) or a normal or established licence royalty (as in the second group). In relation to this third group, Lord Wilberforce said (at 826):
Yet clearly damages must be assessed. In such cases it is for the plaintiff to adduce evidence which will guide the court. This evidence may consist of the practice, as regards royalty, in the relevant trade or in analogous trades; perhaps of expert opinion expressed in publications or in the witness box; possibly of the profitability of the invention; and of any other factor on which the judge can decide the measure of loss. Since evidence of this kind is in its nature general and also probably hypothetical, it is unlikely to be of relevance, or if relevant of weight, in the face of the more concrete and direct type of evidence referred to under [the second group]. But there is no rule of law which prevents the court, even when it has evidence of licensing practice, from taking these more general considerations into account. The ultimate process is one of judicial estimation of the available indications. The true principle, which covers both cases when there have been licences and those where there have not, remains that stated by Fletcher Moulton L.J. in Meters Ltd. v. Metropolitan Gas Meters Ltd. (1911) 28 R.P.C. 157, 164–165 …
There is a passage in Lord Wilberforce’s speech (at 832-833) which might be read as a rejection of the user principle in awarding damages for patent infringement. After some reflection, it seems to me that the passage should not be read in that way but, rather, as no more than a rejection of the particular royalty rate that had been determined by the courts below in calculating damages. I have come to this view not least because of Lord Wilberforce’s acceptance of the passage in the judgment of Fletcher Moulton LJ in Meters which I have quoted at [31] above. With respect to that passage, Lord Wilberforce said (at 827):
A proper application of this passage, taken in its entirety, requires the judge assessing damages to take into account any licences actually granted and rates of royalty fixed by them, to estimate their relevance and comparability, to apply them so far as he can to the bargain hypothetically to be made between the patentee and the infringer and to the extent to which they do not provide a figure on which the damage can be measured to consider any other evidence, according to its relevance and weight, upon which he can fix a rate of royalty which would have been agreed. If I may anticipate, I have to find that the process carried out by the courts below does not satisfy this requirement.
It should be appreciated that each approach to awarding damages referred to by Lord Wilberforce is not exhaustive of the total damages that can be awarded in a given case. As Lord Shaw made clear in Watson, Laidlaw & Co, there is no reason why a successful plaintiff cannot recover lost profits on sales made by the defendant which the plaintiff can show it would have made but for the infringement and also damages assessed on the basis of a notional royalty or licence fee (ie, on the user principle) in respect of all other sales made by the defendant. Other losses can also be recovered by way of damages: see, for example, Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383.
In the United Kingdom, the approach to awarding damages in patent cases has been extended to damages awarded for the infringement of other intellectual property rights: see, for example, the discussion in Garnett K et al, Copinger and Skone James on Copyright (16th ed, Sweet and Maxwell, 2011) at [21-193]-[21-197]; Vitoria M et al, The Modern Law of Copyright and Designs (4th ed, LexisNexis, 2011) at [63.25]-[63.27]; and Howe M, Russell-Clarke and Howe on Industrial Designs (8th ed, Sweet and Maxwell, 2010) at
[6-049]-[6-051].
In Blayney (t/a Aardvark Jewellery) v Clogau St David’s Gold Mines Ltd [2003] FSR 19; [2002] EWCA Civ 1007 (Blayney), the user principle was applied to award damages for infringement of copyright in a design. In that case, the infringer argued that the patent cases do not support an award of damages for the sale of infringing articles which would not have been made by the patentee. Alternatively, the infringer argued that if there were any doubt about that, any principle which enabled such recovery in patent cases should not be extended to other forms of intellectual property. These arguments were rejected by Sir Andrew Morritt V-C (with whom Rix and Jonathan Parker LJJ agreed) at [19]-[20]:
19 I do not accept either of these propositions. In my view it is clear that since at least the speech of Lord Shaw in Watson, Laidlaw & Co Ltd v Pott, Casselsand Williamson (1914) 31 R.P.C. 104 at 120 damages have been recoverable in respect of all infringements whether proved to have resulted in lost sales or not. The relevance of lost sales is to enable the court to assess the damages by reference to lost profits; it is not a limitation on the recoverable loss. Whatever the position in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 W.L.R. 1406 that was certainly the view of Lord Nicholls of Birkenhead in Attorney-General v Blake [2001] 1 A.C. 268. With reference to Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 R.P.C. 104 he said (p.279):
“That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article.”
20Given that that is the rule in the case of infringements of patents I can see no reason not to apply it in cases of infringements of copyright. In each case the infringement is an interference with the property rights of the owner, Copyright, Designs and Patents Act 1988, s. 1(1) and Patents Act 1977, s. 30(1). Though the nature of the monopoly conferred by a patent is not the same as that conferred by copyright I see no reason why that should affect the recoverability of damages in cases where the monopoly right has been infringed. The fact that the claimant may not be able to prove the application of one measure of damages, namely lost sales, does not mean that he has suffered no damage at all, rather some other measure by which to assess the compensation for that interference must be sought. Whilst, no doubt, there are differences between the rights granted to a patentee and those enjoyed by the owner of the copyright they draw no distinction between the effect of an infringement of a patent rather than a copyright.
Further examples of the user principle being applied when awarding damages for design infringement are P B Cow Limited v The Cannon Rubber Manufacturers Limited [1961] RPC 236 and Kohler Mira Ltd v Bristan Group Ltd (No 2) [2015] FSR 9; [2014] EWHC 1931 (IPEC) (Kohler).
The user principle appears to have been accepted as a basis for awarding damages for copyright infringement by the Full Court in Bailey v Namol Pty Limited (1994) 53 FCR 102 at 111-112, where the following passage from Wells THW, “Monetary Remedies for Infringement of Copyright” (1989) 12 Adelaide Law Review 164 at 168, was quoted with approval:
“For a single act of user, for example of an architect’s plans, damages are the equivalent of a licence fee; for multiple reproductions, damages are assessed on a royalty basis. Awarding such damages seems at odds with the usual tortious principle of compensation, since it suggests a ratification of the tortious acts. But copyright is not only the right to restrict interference with the copyright subject-matter as a piece of property. Copyright embodies rights to control and exploit that subject matter, and user by the defendant without licence represents an invasion of those rights.”
(Citations omitted.)
Reference should also be made to the following observations of Bowen CJ in Eq in Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR 445 at 446-447, which have been taken as recognising the application of the user principle when awarding damages for copyright infringement (see Vitoria et al (2011) at [63.27] fn 1):
The purpose of damages is to compensate the plaintiff for the loss which he has suffered as a result of the defendant’s breach. It would, in my opinion, be wrong to regard it as the exclusive measure of damages for breach of copyright appropriate to all circumstances. Somewhat different considerations may apply to unpublished works from those which apply to published works. Furthermore, the circumstances in which breach of copyright arises vary widely. Various measures of damage appropriate to the particular circumstances have to be applied. This was recognised when the Copyright Act 1968 was passed (see ss 115, 116 and 122). Examples of cases where a different measure of damages from that suggested by the defendant has been applied to infringement of copyright are: Performing Right Society Ltd v Bradford Corporation (1921) MacG Cop Cas (1917-23) 309 (fee which would have fairly been charged for the performance of a song); Pike v Nicholas (1869) 5 Ch App 260n (damages on conversion basis); and Stovin-Bradford v Volpoint Ltd [1971] 3 WLR 256; [1971] 3 All ER 570 (fee which would have been fair for using architect’s plans).
However, in Aristocrat, Black CJ and Jacobson J, after accepting that damages for infringement of copyright can be awarded on a royalty basis, considered that such a basis does not provide an appropriate measure of damages where the copyright owner would not have granted a licence to the infringer: see at [26]-[28]. In the same case, Rares J referred to Lord Shaw’s speech in Watson, Laidlaw & Co. His Honour did not reject that approach but said (at [96]) that the basis upon which one could assess a royalty was not laid before the Court.
The reasoning of Black CJ and Jacobson J is at odds with the user principle, which does not depend for its application on the willingness, in fact, of the property owner and the wrongful user to offer and accept a licence or, what is more, on the willingness of the wrongful user to pay a royalty or licence fee. The user principle can be understood as proceeding on the basis of an hypothetical negotiation in which both parties are presumed to act reasonably. As Lord Walker of Gestingthorpe remarked when delivering the judgment of the Board in Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2011] 1 WLR 2370; [2009] UKPC 45 at [49], the fact that one or both parties would in practice have refused to make a deal is to be ignored: see also Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 at 815; Jaggard at 282-283; 32Red Plc v WHG (International) Ltd [2013] EWHC 815 (Ch) (32Red plc) at [38]; Kohler at [41].
The respondents place considerable reliance on Aristocrat. They submitted that it was binding on me and precluded me from finding that damages for passing off could be awarded on the basis of a reasonable royalty given the applicant’s acceptance that it would not have been willing to allow the respondents to use the Winnebago marks for a reasonable royalty or licence fee. On the other hand, the applicant criticised the reasons of Black CJ and Jacobson J in this regard, and argued that those reasons do not preclude me finding, in the present case, that damages for passing off can be awarded on the basis of a reasonable royalty or licence fee. I accept the applicant’s submission. To the extent that the reasoning of Black CJ and Jacobson J at [26]-[28] is binding on me, it could only be so in the context of determining damages for copyright infringement awarded under s 115(2) of the Copyright Act 1968 (Cth).
In Force India Formula One Team Limited v 1 Malaysia Racing Team SDN BHD [2012] RPC 29; [2012] EWHC 616 (Ch), Arnold J concluded that it would be appropriate to award damages by reference to the user principle where the misuse of confidential information has been established. Arnold J said (at [424]):
424 I conclude there is nothing in the authorities which prevents me from adopting the [the user principle] which, as a matter of principle, I consider to be correct. The same approach is to be adopted to the assessment of damages or equitable compensation whether the obligation of confidentiality which has been breached is contractual or equitable. Where the claimant exploits the confidential information by manufacturing and selling products for profit, and his profits have been diminished as a result of the breach, then he can recover his loss of profit. Where the claimant exploits the confidential information by granting licences to others, and his licence revenue has been diminished as a result of the breach, he can recover the lost revenue. Where the claimant would have “sold” the confidential information but for the breach, he can recover the market value of the information as between a willing seller and a willing buyer. Where the claimant cannot prove he has suffered financial loss in any of these ways, he can recover such sum as would be negotiated between a willing licensor and a willing licensee acting reasonably as at the date of the breach for permission to use the confidential information which has been misused in the manner in which the defendant has used it …
The trade mark cases are particularly relevant because of the close relationship between trade marks as indicia of a trade connection and those forms of passing off which involve an injury to reputation shown to exist in such indicia.
In Dormeuil Frères S.A. v Feraglow Limited [1990] RPC 449 (Dormeuil Frères), Knox J observed (at 464) that, as at 1990, there was no reported authority for damages being granted on a royalty basis (ie, on the user principle) for trade mark infringement or passing off. That observation was made in the course of considering whether an interim payment on account of damages should be made under the applicable rules of Court: The Rules of the Supreme Court (UK) O 29 rr 9-11. The case was one where the infringer wrongfully applied the plaintiffs’ mark, as well as a seal device and labels, to cloth and sold the cloth with certificates of origin purporting to be certificates issued by the plaintiffs. The claim for damages was advanced on the basis of lost profits and a reasonable royalty in respect of the cloth sold. Having noted that there were no reported cases where damages had been awarded on a royalty basis for trade mark infringement or passing off, Knox J went on to say that, of course, that fact was not conclusive of a plaintiff’s entitlement to damages on that basis. It is also important to observe that two cases had been brought to Knox J’s attention (Lego System Aktieselskab v Lego M. Lemelstrich Ltd [1983] FSR 155; IPC Magazines Ltd v Black & White Music Corporation [1983] FSR 348) in which, in the context of considering whether interlocutory injunctive relief should be granted, observations were said to reveal assumptions that an award of damages on the basis of a reasonable royalty would be available if the plaintiff ultimately succeeded at trial. In the end, Knox J considered that the framework of an interim payment was “not a happy one” for deciding whether there would be a royalty basis available to the plaintiffs should they succeed at the inquiry into damages. After recording some other difficulties involved in ordering the interim payment that was sought, Knox J said (at 464):
For all of those three reasons I do not feel that this is an appropriate case for me to approach the matter on a royalty basis. I am, of course, neither saying that the loss of profit basis may not be a proper subject of an application before the inquiry is heard, nor am I saying that the royalty basis will fail at the inquiry. All I am saying is that at this stage the royalty basis is not one which I am satisfied is, as a matter of principle, likely to succeed at the inquiry. Further than that it is neither necessary nor desirable for me to go.
In Blayney, Morritt V-C did not see Dormeuil Frères as standing in the way of damages being awarded on the user principle. His Lordship simply observed that, given the nature of the application in Dormeuil Frères, the reluctance of Knox J was “readily understandable”.
Other reported decisions show that, in the context of trade mark infringement and passing off, damages are awarded on the user principle. This is made clear, for example, in Reed Executive plc v Reed Business Information Ltd [2004] RPC 40; [2004] EWCA Civ 159 (Reed Executive) at [159]-[165], although, in that case, Jacob LJ expressed the reservation that the user principle does not automatically apply in trade mark or passing off cases, especially where the mark concerned is “not the sort of mark available for hire”. His Lordship did not, however, explain the concerns he had in mind when making this observation. Certainly, at first instance, Pumfrey J considered that damages should be awarded on the user principle: Reed Executive plc v Reed Business Information Limited [2002] EWHC 2772 (Ch) at [23]-[25].
In 32Red plc, an inquiry as to damages for trade mark infringement proceeded on the basis of the user principle. The plaintiff accepted that it was not in a position to prove that it had suffered a loss of profits as a result of the defendants’ infringing use. It nevertheless claimed to be entitled to a sum equal to a reasonable royalty on account of that use. The defendants’ pleaded case was that user principle damages were not available in the circumstances of that particular case. However, by the time of the hearing, the defendants had accepted that such damages can potentially be appropriate for trade mark infringement. Notwithstanding that concession, the reasons for judgment of Newey J contain a useful discussion of the user principle at [22]-[42]. In that case, two specific issues arose for determination. The first issue concerned the extent to which the specific characteristics and circumstances of the parties are important in the assessment of user principle damages. The second issue was the extent to which it is appropriate to have regard to alternative courses of action that would have been available to the parties at the date of the hypothetical negotiation. I mention this matter in particular because it is relevant to an argument raised by the respondents that, at the relevant time, they had the option—“the alternative course of action”—of using the Winnebago marks with a disclaimer: see [192]-[195] below.
As to the first issue, Newey J said (at [29]):
29There are plainly limits to the extent to which the Courts will have regard to the parties’ actual attributes when assessing user principle damages. The parties are taken to have been willing to make a deal even if one or both of them would not in reality have been prepared to do so. It is also assumed that the parties would have acted reasonably regardless of whether that would in fact have been the case.
Nevertheless, Newey J concluded that, leaving aside certain matters, such as the defendants’ particular financial circumstances (see Irvine v Talksport Ltd [2003] FSR 35; [2003] EWCA Civ 423 (Irvine) (see [58] below)) and what might be thought to be the parties’ idiosyncrasies (see Stadium Capital Holdings (No 2) Ltd v St Marylebone Property Co plc [2011] EWHC 2856 (Ch)), regard must be had to the objective circumstances in which the parties actually find themselves. In this connection, Newey J referred to the following passage from Lord Wilberforce’s speech in General Tire (at 833):
The “willing licensor” and “willing licensee” to which reference is often made (and I do not object to it so long as we do not import analogies from other fields) is always the actual licensor and the actual licensee who, one assumes, are each willing to negotiate with the other—they bargain as they are, with their strengths and weaknesses, in the market as it exists. It is one thing (and legitimate) to say of a particular bargain that it was not comparable or made in comparable circumstances with the bargain which the court is endeavouring to assume, so as, for example, to reject as comparable a bargain made in settlement of litigation. It is quite another thing to reject matters (other than any doubt as to the validity of the patent itself) of which either side, or both sides, would necessarily and relevantly take account when seeking agreement.
As to the second issue, Newey J rejected the submission that the availability of a
non-infringing alternative is not a relevant factor in the calculation of a reasonably royalty: see also, in this connection, Sinclair v Gavaghan [2007] EWHC 2256 (Ch) at [16]-[17] and [42]-[43]; Enfield LBC v Outdoor Plus Ltd [2012] EWCA Civ 608 at [47] and [51]. Newey J said (at [42]):
[42]… If the parties can be expected to have taken such an alternative into account in their hypothetical negotiation, it appears to me that I must do so as well. Further, I do not think an alternative need have had all the attributes of [the mark in suit] to be relevant. In Sinclair v Gavaghan, an alternative access route was considered important even though it would have been less convenient. Similarly, it seems to me that in the present case what matters is what impact the possibility of re-branding would have had on the hypothetical negotiation, not whether a substitute mark would have shared the attributes of [the mark in suit].
In Irvine, damages for passing off were awarded on the basis of the user principle. The damages were calculated as a reasonable endorsement fee which, on the balance of probabilities, the defendant would have had to pay in order to lawfully obtain the plaintiff’s endorsement. The principles discussed in General Tire were applied. In applying those principles, Jonathan Parker LJ (with whom Brooke and Schiemann LJJ agreed) said (at [106]):
[106]It is clear from Lord Wilberforce’s speech in General Tire that a reasonable endorsement fee in the context of the instant case must represent the fee which, on a balance of probabilities, TSL would have had to pay in order obtain lawfully that which it in fact obtained unlawfully (see in particular the passage from the judgment of Fletcher Moulton J. in the Aluminium case, quoted by Lord Wilberforce). It is not the fee which TSL could have afforded to pay: hence the judge was correct to conclude … that TSL’s financial situation is irrelevant.
(Emphasis in original.)
Further, damages for trade mark infringement and passing off were awarded on the user principle in National Guild of Removers & Storers Ltd v Silveria [2011] FSR 9; [2010] EWPCC 15 (Silveria). In that case, the plaintiff was a company incorporated to represent members of what was called the removals and storers industry. The plaintiff was the owner of a number of trade marks which members of the guild were entitled to use to show that they belonged to the guild. There were four separate actions. Judgment was obtained in each action. The conduct consisted, in each case, of the unauthorised use by the defendant (who was not a member of the guild) of the plaintiff’s name or one or more of its marks or logos. The plaintiff was unable to show a loss of sales resulting from the various infringements. Nevertheless, it claimed damages on the basis of a reasonable royalty. In accepting that approach, Judge Birss QC (now Birss J) referred to the principles in General Tire and Meters and said (at [17]):
[17]In my judgment, as a matter of principle, where a defendant uses a mark without permission and thereby infringes a registered trade mark or commits an act of passing off, that act is capable of damaging the claimant’s property in the mark … or property in the goodwill attaching to his business. That is so whether or not a lost sale has taken place. It is the same kind of damage as the damage to a patent monopoly caused by an infringing sale which is not a lost sale to the patentee and for which a reasonable royalty is payable. It is an invasion of a (lawful) monopoly. Thus there is no reason in principle why damages should not be available, calculated on a “user” basis for trade mark infringement and for passing off. Of course it will be a question of fact in any given case to decide the amount of such damages.
In a later decision (National Guild of Removers & Storers Ltd v Jones [2011] EWPCC 4), Judge Birss QC qualified (at [15]) these observations, having regard to the reservation expressed by Jacob LJ in Reed Executive. His Honour said that, for the purposes of deciding the earlier case, it was not necessary for him to have expressed his reasons so broadly because the mark in suit was, in fact, one that was “available for hire”.
It is not necessary for me to dwell on the significance of whether, in awarding damages under the user principle, a mark is of the sort that is “available for hire”. This is because, as I will come to address, the Winnebago marks are and were of the sort “available for hire”. The evidence shows that, in appropriate circumstance, the applicant is and was prepared to license the Winnebago brand.
Finally, I note that the leading United Kingdom text on trade marks and passing off (Mellor J et al, Kerly’s Law of Trade Marks and Trade Names (15th ed, Sweet and Maxwell, 2011) at [20-139]-[20-141]) treats the “basic principles” for assessing damages in patent cases (including on the user principle) as generally applicable to damages for trade mark infringement.
These cases and the literature to which I have referred reveal a principled and established basis for awarding damages on the user principle for the tortious interference with property, including intellectual property. Indeed, the patent cases are regarded as paradigmatic of damages awarded on that basis. As I have discussed, the approach to awarding damages in patent cases on this basis has been extended to damages for the wrongful interference with other forms of intellectual property, including, in passing off, for the wrongful interference with a plaintiff’s reputation. Nevertheless, the respondents resisted the application of the user principle in awarding damages in the present case.
The respondents’ submissions on the user principle
The respondents submitted that, as a matter of principle, damages for passing off cannot be awarded on the basis of the user principle. They also submitted that, in any event, in the circumstances of the present case, damages should not be awarded on that basis. The respondents advanced six principal reasons for those submissions.
First, the respondents focused on the restitutionary aspect of damages awarded under the user principle. Relatedly, they pointed to the Full Court’s refusal to remit the applicant’s claim for an account of profits. The respondents then argued that, by seeking damages based on the user principle, the applicant was seeking to “outflank” the Full Court’s refusal to remit the claim for an account of profits by a “doctrinal sleight of hand” which involved the applicant seeking, in substance, nothing more than an account of profits calculated by an expense notionally saved by the respondents—a reasonable royalty. Thus, the respondents argued, the applicant was effectively seeking a remedy already denied to it by the Full Court.
I do not accept this submission. Although damages awarded under the user principle have an avowedly restitutionary aspect, it is a conceptual error to confuse damages in tort with the separate remedy in equity that compels a wrongdoer to give up profits which, having been derived by wrongdoing, should not be retained. Plainly, in the present case, the Full Court’s refusal on discretionary grounds to remit the applicant’s claim for an account of profits was informed by the equitable nature of that relief. But neither matter relied upon by the Full Court in refusing to remit the applicant’s claim for an account of profits stands as a reason for refusing the applicant’s claim for damages. Delay is no bar to a claim for damages, other than by preclusion and extinguishment of the underlying action by statute. And a defendant seeking to resist a claim for damages calculated under the user principle (here, by reference to a reasonable royalty or licence fee) is not confronted or vexed with the difficulties that might confront and vex a defendant seeking to resist an order to account for and give up profits wrongfully made. Indeed, had that not been so, the Full Court would not have remitted the applicant’s claim for damages. It is inconceivable that, having refused to remit the applicant’s claim for an account of profits for stated discretionary reasons, the Full Court would have immediately put out of mind those reasons when remitting the applicant’s claim for damages.
Secondly, the respondents submitted that the joint reasons of Black CJ and Jacobson J in Aristocrat (see [46] above) represent the present state of Australian law in respect of damages for the infringement of intellectual property rights. They submitted that damages, assessed on the basis of a reasonable royalty, are not available where, as a matter of established fact, the owner of the property in question would never have licensed it to the infringer.
There is, however, a remaining submission that I must address. I have referred to the Australian licence as providing a reliable starting point for determining an appropriate royalty or licence fee. As I have noted, the respondents submitted that the royalty or licence fee should be significantly less than the 1% royalty under the Australian licence. This was because the first respondent, and hence its dealers, unlike others, could use the Winnebago marks with a disclaimer. In other words, an alternative course of action was available to them. This argument finds expression in Mr Heberden’s Disclaimer Assumption.
I have come to the conclusion that no deduction should be made on account of this factor. I have accepted that, as at 14 October 2004, the applicant and the first respondent had concurrent reputations in the Winnebago marks in Australia for RVs. I have also accepted that it is appropriate to proceed on the basis that, at that time, the first respondent would have been entitled to use the Winnebago marks in Australia for RVs with an appropriate disclaimer. The fact that the first respondent could, at that time, use the Winnebago marks in Australia for RVs with an appropriate disclaimer means that, although the applicant and the first respondent had concurrent reputations in these indicia at that time, their respective reputations could be differentiated. In other words, by using the Winnebago marks with an appropriate disclaimer, the trade and the public in Australia, who associated the Winnebago marks with the applicant and its RVs, would know that the applicant’s reputation was not being deployed. Conversely, by using the Winnebago marks without an appropriate disclaimer, the same section of the trade and the public would understand that the applicant’s reputation was being deployed. This is the rationale for the Full Court’s final orders on injunctive relief. The making of such orders recognises that the applicant had a real reputation in Australia in the Winnebago marks for RVs prior to the first respondent’s use of them and that its (the applicant’s) reputation was current. It also recognises the fact that, at the relevant time, the first respondent could only lawfully use the Winnebago marks if, when doing so, it explicitly disclaimed any association with the applicant. Thus, even though the first respondent had its own reputation in the Winnebago marks, the undeniable fact is that, at the relevant time, the use of the Winnebago marks in Australia for RVs, without a disclaimer, carried with it a use of the applicant’s reputation for which its permission was necessary. The Australian licence shows the applicant’s “price” for its permission, negotiated on an arm’s length basis.
Mr Heberden approached the issue by asking what the appropriate royalty or licence fee would be for not displaying the disclaimer. He answered that question by stating that, with the information available to him, he did not believe that it was possible to accurately quantify an appropriate royalty on that basis. In my view, Mr Heberden’s question does not provide the correct framework. The correct framework must recognise the value of a licence of the Winnebago marks without a disclaimer (ie, a licence containing the applicant’s permission), but taken in the context of the existence of a concurrent right in another person (the first respondent) to use the same indicia with a disclaimer. In my view, the Australian licence values the use of the Winnebago marks in that framework. In other words, the first respondent is to be put in the same position in 2004 as Winnebago RV Pty Ltd found itself in 2014. If the first respondent wanted to use the Winnebago marks without a disclaimer—which, in fact, is the mode of use it adopted at that time—it required the applicant’s permission.
I am also of the view that such an approach is consistent with an application of the user principle. As I have discussed above (at [91]), the applicant claims compensation for the wrongful use of the Winnebago marks to which its reputation attaches. When a disclaimer is not used, the applicant’s reputation is necessarily being used for the purpose of making sales. It is not to the point that, as a matter of fact, only some sales eventually result from the use of that reputation. The applicant’s claim to damages is not based on lost sales but the use of its reputation in an attempt to make sales.
Bearing these various matters in mind, I have concluded that the appropriate royalty rate to be applied is 1%. As the royalty in the Australian licence is, essentially, one calculated on the selling price to dealers rather than on profits earned, damages against the first respondent should be calculated by applying the royalty rate to its sales, not its profits. There is evidence before me of the first respondent’s sales income for Winnebago branded vehicles. These amounts should be used to calculate damages. The first respondent’s sales income for Winnebago branded vehicles in the period 14 October 2004 to 30 June 2005 and for the succeeding two financial years has not been given, but can be estimated in accordance with the applicant’s closing written submissions: see para 141 fn 21 thereof. I appreciate that using the sales income figures might not have the precision of the formula for net sales used in the Australian licence. But the task of assessing damages is one of judicial estimation based on the available indications: General Tire at 826. I should proceed on the best evidence that the parties have chosen to put forward for consideration on this question.
In assessing damages against the first respondent, I do not think that it is appropriate to adopt the royalty structure of the Australian licence, which provides that, subject to the guaranteed minimum royalty payable to the applicant, no royalty is payable on the first 100 units sold. As I have noted at [182], the royalty rate and royalty structure of the Australian licence more likely than not reflect the circumstances of new market entry. Those circumstances do not apply to the first respondent and some appropriate upward adjustment should be made to account for that difference. The appropriate adjustment is to apply the 1% rate to all sales, not just some of them. In coming to this view, I bear in mind that damages should be assessed liberally, but with a view to compensating the plaintiff, not punishing the defendant: The Pneumatic Tyre Company Ltd v The Puncture Proof Pneumatic Tyre Company Ltd (1899) 16 RPC 209 at 215; General Tire at 824. I am satisfied that this objective will be attained by assessing damages on this basis and will result, in my estimation, in just compensation to the applicant.
THE POSITION OF THE SECOND TO TWELFTH RESPONDENTS
At the trial on liability, Foster J found (at [178]) that the first respondent’s dealers—the second to twelfth respondents—also committed the tort of passing off. His Honour held that their position was indistinguishable from the first respondent’s position and that relief should be granted against them in the same terms as the relief granted against the first respondent. No different view was expressed by the Full Court. Accordingly, the applicant seeks a judgment in damages against each respondent. The applicant submitted that each respondent is a tortfeasor who is individually liable to pay damages for its wrongful conduct, subject to the rule against double recovery.
The respondents submitted that damages assessed on the basis of an hypothetical licence between the applicant and the first respondent would comprehend that the first respondent had a licence to manufacture with an accompanying right to sell to dealers “free and clear of trade mark claims”. They submitted that a judgment against the first respondent was, therefore, “inconsistent with any further levy upon the dealers” and that “the premise of misuse of property by the dealers necessarily falls away”. The respondents submitted that, in any event, knowledge on the part of the second to twelfth respondents sufficient to amount to equitable fraud must be established before damages would lie against them for passing off. They submitted that such knowledge had not been established. Further, the respondents submitted that the only evidence of an appropriate royalty or licence fee was with respect to a manufacturer, not a dealer.
I am persuaded that it is appropriate that damages be awarded against the dealers as well as the first respondent. I accept the respondents’ submission that a manufacturing licence would carry with it the right to sell to dealers with a right of on-sale to consumers. But I also accept the applicant’s submission that the present case is one where cumulative remedies can and should be ordered. I do not accept, as the respondents’ submission implies, that a defendant can avoid the consequences of its wrongdoing by pointing to another wrongdoer against whom the plaintiff can seek redress.
In Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514, Lord Nicholls, when delivering the judgment of the Board, said (at 522):
The procedural principles applicable to cumulative remedies are necessarily different. Faced with alternative and inconsistent remedies a plaintiff must choose between them. Faced with cumulative remedies a plaintiff is not required to choose. He may have both remedies. He may pursue one remedy or the other remedy or both remedies, just as he wishes. It is a matter for him. He may obtain judgment for both remedies and enforce both judgments. When the remedies are against two different people, he may sue both persons. He may do so concurrently, and obtain judgment against both. Damages to the full value of goods which have been converted may be awarded against two persons for successive conversions of the same goods. Or the plaintiff may sue the two persons successively. He may obtain judgment against one, and take steps to enforce the judgment. This does not preclude him from then suing the other. There are limitations to this freedom. One limitation is the so called rule in Henderson v. Henderson (1843) 3 Hare 100. In the interests of fairness and finality a plaintiff is required to bring forward his whole case against a defendant in one action. Another limitation is that the court has power to ensure that, when fairness so requires, claims against more than one person shall all be tried and decided together. A third limitation is that a plaintiff cannot recover in the aggregate from one or more defendants an amount in excess of his loss. Part satisfaction of a judgment against one person does not operate as a bar to the plaintiff thereafter bringing an action against another who is also liable, but it does operate to reduce the amount recoverable in the second action. However, once a plaintiff has fully recouped his loss, of necessity he cannot thereafter pursue any other remedy he might have and which he might have pursued earlier. Having recouped the whole of his loss, any further proceedings would lack a subject matter. This principle of full satisfaction prevents double recovery.
These remarks were accepted by Gleeson CJ and Callinan J in Baxter v Obacelo Pty Limited (2001) 205 CLR 635; [2001] HCA 66 at [39]-[40]; see also Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [641].
In Thompson v Australian Capital Television Pty Limited (1996) 186 CLR 574 at 608, Gummow J distinguished the rule against double recovery from the liability of joint tortfeasors, in the following terms:
The principle given expression by these rules [in relation to joint tortfeasance] is to be distinguished from that against double satisfaction. Where the wrongdoers were concurrent rather than joint tortfeasors, the entry of judgment in an action against one was no bar to other actions against those tortfeasors because the plaintiff had a distinct cause of action against each of them. However, even here, once the plaintiff had fully recouped the loss, of necessity the plaintiff could not thereafter pursue any other remedy the plaintiff might have or which the plaintiff might earlier have pursued. Having recouped the whole of the loss, any further proceedings would, as it recently was put by the Judicial Committee, “lack a subject matter”. The satisfaction might have been provided even by a stranger to the wrongdoing. It appears that satisfaction of the former judgment could be asserted by a plea in bar or a plea in estoppel to any later action at law. Moreover, equity would interfere by injunction to restrain the plaintiff receiving double satisfaction upon execution of a plurality of judgments which had been recovered by the plaintiff.
(Citations omitted.)
What is the appropriate measure of damages against each dealer respondent? The applicant has not adduced evidence of a royalty or licence fee that would apply to a dealer as opposed to a manufacturer/supplier. Nevertheless, it seeks damages against each dealer assessed at the rate of 4% to 5% of the dealer’s sales income for Winnebago branded vehicles. I do not accept that that should be the measure of the applicant’s damages against the dealers. Rather, it seems to me that, subject to the question of knowledge discussed below, each dealer should be liable in damages for the same amount that the first respondent is liable in damages to the applicant in respect of sales to that dealer. The damages awarded against the dealers should recognise a consistent value for the use of the property involved. To award damages on this basis will not over-compensate the applicant, who will be subject to the rule against double recovery.
The question of the second to twelfth respondent’s knowledge is a matter of significance. It was not addressed in any great detail in closing written submissions or in closing oral submissions. In closing oral submissions, the applicant sought to distinguish between the significance of fraud in relation to granting an account of profits for passing off and the significance of fraud in relation to awarding damages for the same tort, essentially on the basis that, in relation to damages, the respondents’ submission raised a novel point which has not been decided.
I do not accept that the point raised by the respondents is a novel one. In Hogan v Koala Dundee Pty Limited (1988) 20 FCR 314, Pincus J remarked (at 328) that the weight of authority was in favour of the view that fraud is necessary in order to support a claim for damages in passing off. His Honour considered that the meaning of “fraud” was unsettled, but reasoned that it was “akin to deceit in the ordinary sense”.
In Turner v General Motors (Australia) Proprietary Limited (1929) 42 CLR 352, Isaacs J expressed (at 362) the view that, for passing off, fraud of the kind that would support an action in deceit was not necessary; fraud could be constituted by “persistence after notice”. In expressing this view, Isaacs J was adopting the following statement by Lord Morris in Cochrane v MacNish [1896] AC 225 at 230-231:
The respondents erred, unwittingly at first. But as they persisted in their error after their attention was called to the fact that they were infringing the appellant’s rights, their conduct in the eye of the law amounts to fraud, and they must be held responsible for the consequences.
Similar expressions of principle can be found in, for example, Mitchell v Henry (1880) 15 Ch D 181 at 191 (James LJ) and in Marengo v Daily Sketch and Sunday Graphic Ltd (1948) 65 RPC 242 at 253-254 (Lord du Parcq).
In 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 79 ALR 299, Gummow J analysed (at 319-323) the significance of fraud in awarding damages for passing off, and said (at 323):
My conclusion is that a successful plaintiff in a passing off suit has an election for his pecuniary remedy between an account of profits and an inquiry as to damages, each remedy being limited to the period of the defendant’s persistence after notice in the manner I have described. If the conduct of the defendant from an earlier period is the subject of a finding of fraud then these remedies run from the commencement of that period. In this way the distinct origins of these two remedies nevertheless lead to an harmonious result.
His Honour returned to a consideration of the significance of fraud in passing off in ConAgra at 357-365. His Honour said (at 364):
The result of these developments in the law is that in a passing-off suit a successful plaintiff may elect for his pecuniary remedy between an account of profits and an inquiry as to damages; if the defendant embarked upon his activities fraudulently, these remedies run from that time. But in any event, even if the defendant was at that stage innocent, pecuniary remedies will be available for the period of the defendant’s persistence after notice of the plaintiff’s rights, in the manner described in the authorities.
This has the consequence that in circumstances where damages would be available for contravention of s 52 of the Trade Practices Act1974 (Cth), nevertheless in passing off no pecuniary remedy may be available. Section 82 of the statute operates to give a remedy in damages for what in substance may be an innocent and non-negligent misrepresentation. As Gibbs CJ pointed out in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197, the statutory liability is unrelated to fault. An appreciation of this may underlie some essays into restrictive interpretations of s 52. In any event, the more limited liability in passing off should not be a cause of concern.
There is also a discussion of the issue of innocence in passing off by Professor Wadlow in Wadlow C, The Law of Passing-Off: Unfair Competition by Misrepresentation (4th ed, Sweet & Maxwell, 2011) at [9–089]-[9–093], with respect to the United Kingdom authorities.
I will follow the Australian authorities. I accept that, in order for it to succeed in its claims for damages, it is necessary for the applicant to establish fraud in the relevant sense. Fraud in the relevant sense has already been established against the first respondent. What is the position in relation to the dealers?
In the course of oral closing submissions, the applicant argued that, even if it were necessary for it to establish fraud in the relevant sense, there was no reason to think that, by the time “the dealers came on the scene”, they “wouldn’t have been well aware that the vehicles that they were selling had the identical name and [logo] of a world famous brand of recreational vehicles that enjoyed spillover reputation in Australia.” The difficulty for the applicant is that the evidence does not address the question of what the dealers knew or thought. Even if they might have been aware of the applicant’s activities in the United States or in other overseas markets, it does not follow that they also understood that the applicant had a reputation of any significance in Australia, let alone one that was capable of legal protection, or, more importantly, that, prior to the commencement of this proceeding, the applicant was claiming that it had rights in Australia in respect of the Winnebago marks and that the commercial activities of the first respondent and its dealers constituted an infringement of those rights. However, from the time of commencement of this proceeding, when the applicant’s claims were exposed, the position of the second to twelfth respondents was different. From that time, they were on notice of the applicant’s claimed rights. Their persistence in using the Winnebago marks after this notice constitutes fraud in the relevant sense.
It follows in my view that, although damages against the first respondent should be assessed on sales from 14 October 2004, damages against the second to twelfth respondents should be assessed on sales from 14 October 2010, the date of commencement of this proceeding.
CONCLUSION AND DISPOSITION
In its written closing submissions, the applicant provided the results of its own calculations of the damages sought against each respondent. These calculations were based on both a 4% royalty and a 5% royalty. For the most part, each royalty rate was applied to each respondent’s total sales income for periods that differed among respondents, but with each period commencing from 14 October 2004. No calculation was performed for the sixth respondent because it has now been deregistered. No calculation was performed for the ninth respondent because it had not sold Winnebago branded vehicles in the period relevant to it.
In light of my conclusion as to how damages should be assessed against each respondent, other than the sixth and ninth respondents in respect of whom no claim is now made, it will be necessary for different calculations to be performed. This should be done by the parties. The applicant claims, and should also be awarded, pre-judgment interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth). Once again, the necessary calculations should be performed by the parties.
At the present time, I will simply order that the parties bring in agreed orders that give effect to these reasons. This should be done by 16 December 2015. If the parties require further time, then any reasonable extension that might be sought will be favourably considered. In the event that there is disagreement in relation to the calculations or on the form of the final orders that are to be made, then, in the first instance, the proceeding should be relisted for mention.
I certify that the preceding two hundred and seventeen (217) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.
Associate:
Dated: 2 December 2015
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