In a recent judgement between Design & Display Limited and OOO Abbott, the Court of Appeal has provided clarification on how an account of profits should be calculated. The judgement also sheds light on the situations when company overheads can be deducted
from these profits.
Summary of facts
The judgement stems from an appeal of an earlier decision from the High Court relating to a patent owned by OOO Abbott (the proprietor) covering a new type of clip-in insert for use in a slot of a display panel. Although the main claim from the patent was directed to a display panel including the clip-in insert, the characterising features from the claim related predominately to the structure of the clip-in insert, not the display panel.
In the High Court decision, it was found that the defendant, Design & Display Limited, was selling display panels with clip-in inserts falling within the scope of the patent. As a result of these sales, the defendant was ordered by the High Court to provide an account of profits which covered sales of both the clip-in inserts and the accompanying display panels. As part of this order, the defendant was not allowed to deduct part of their working overheads from the calculated profits.
The defendant appealed two aspects of the High Court decision, namely:
i) the order that they pay to the proprietor not just the profits obtained from the clip-in inserts, but also the profits from the accompanying display panels; and
ii) the refusal by the High Court to deduct a portion of the working overheads from the calculated profits.
With regard to aspect i), the defendant argued that they should not have to pay any profits deriving from the sale of the display panels, since they considered these panels to be well-known and entirely subsidiary to the main focus of the patent, which they deemed to be the clip-in inserts.
Calculation of profits
On deciding whether the profits from the panels should be included in the account of profits, the Court of Appeal concluded that this depends on whether these panels can be considered an “essential ingredient” of the invention.
Although the Court of Appeal did not apply this test to the facts of the case (a matter which it has remitted back to the lower courts to decide on), the Court of Appeal stated that in applying the “essential ingredient” test, it is important to consider how much of the sale of the display panel is down to it including the patented clip-in insert.
In applying the “essential ingredient” test, the Court of Appeal also stated that the test is not to be considered as binary. In other words, the test allows for a proportion of the profits from the panels to be included in the account of profits, depending on how essential the panels are considered to be.
On the extent to which a defendant is entitled to deduct a portion of their overheads from the calculated profits, the Court of Appeal ruled that if the defendant would have produced/sold another product in place of the patent infringing product then, to the extent that the overheads incurred in sustaining the patent-infringing product would have been used in sustaining the other product, these overheads may be deducted from any gross profits payable by the defendant. This applies irrespective of whether or not the defendant is running at full capacity.
From a claim drafting perspective, the decision would suggest that for a patented product, the mere presence of a claim to that product in an overriding article may not guarantee an entitlement to profits from any such article sold by an infringer, particularly if the overriding article is inessential to the working of the patented product.
Seeking an account of profits in a patent infringement action is likely to be considered a less attractive option than before, particularly given a defendant can now more easily offset their quoted profits with some of their overheads.
For further information on the implications of this case, or for more general information on requesting an account of profits as a remedy in patent infringement proceedings, please contact Sarah Merrifield or your usual Boult Wade Tennant adviser.