This case provides useful guidance on financial compensation for trade mark infringement in the fashion industry.
As reported here, House of Fraser’s use of a pigeon logo on its own brand Linea line between 2011 and 2013 was an infringement of the Jack Wills pheasant. House of Fraser was forced to withdraw its stock. But this was not the end of the story as Jack Wills was also entitled to financial compensation.
The total sales for House of Fraser’s “Pigeon products” came to just under £1.3million (including VAT). But how much of this was Jack Wills entitled to in compensation?
A brand owner has two alternative bases for calculating financial compensation. The first is damages which usually takes the form of a reasonable royalty on the sales price. The second is an account of the profits made on the infringing articles. Both options aim to put the Claimant in the position that it would have been in if infringement had not occurred.
Following receipt of sales data, Jack Wills decided it would get more money if it opted for an account of profits. The key question was what costs could House of Fraser legitimately deduct to reach a net profit figure?
Some deductions were uncontroversial such as VAT, the cost of the goods themselves and the cost of written off stock. This left a gross margin of just under £600,000. However, there was disagreement about whether a percentage of general overheads could be deducted and if so, how much.
General overheads can be deducted if it is possible to show that these costs would have been incurred if non-infringing goods had been produced and sold instead. Because House of Fraser had sold similar lines of own brand clothing in the past which had not used the Pigeon logo, the Court decided that the Pigeon products were not made specially but were part of House of Fraser’s general business. This meant that House of Fraser could also deduct a percentage of House of Fraser’s costs for employees, property, asset depreciation, advertising (on the basis that adverts for other products still attract footfall to the stores). Deductions were not permitted for unspecified expenses such as consultancy fees and onerous leases.
It was then necessary to apportion these general overheads to the Pigeon products themselves (an accounting exercise) and to work out what percentage of the net profits was attributable to the infringement. It is unusual for the infringement to be the sole factor driving the sale. This means that it is necessary to identify a fair percentage of the net profits which is associated with the infringement. This is carried out on a “broad brush” basis. In this case, the judge reached a figure of 41%. There will be a further hearing in late April 2016 to agree on the final figure.
Although Jack Wills won the infringement action, the proportion of the profits it receives will be a lot less than 41% of the £600,000 gross profits (i.e. £246,000). This is less than they had hoped for and raises the question that they may have been better off opting for damages on the reasonable royalty basis.