High Court reviews principles for assessing infringement damages

United Kingdom
In Fearns (trading as Autopaint International) v Anglo-Dutch Paint & Chemical ([2010] EWHC 1708 (Ch), July 9 2010), the Chancery Division of the High Court of England and Wales has considered the issue of the computation of damages for trademark infringement.
 
In the early 1980s, Gary Fearns established a substantial unincorporated business called Autopaint International, this name being registered as a trademark. The business involved selling paint and related products for use in spray-painting cars. Most of these paints were 'tinters', which were mixed by the shop before sale to a customer. Fearns did not make the paint and ancillary products himself, but bought them from various suppliers, selling them under the AUTOPAINT mark.
 
Anglo-Dutch Paint & Chemicalwas Fearns' main supplier and the UK distributor of the second defendant, a Dutch company which manufactured the products. Fearns' business comprised two parts: a chain of shops and a network of franchised distributors. Sales to franchisees were significantly more profitable than sales through his own shops.
 
Since Fearns was constantly late in paying his main supplier, from June 2004 Anglo-Dutch made sales of significant quantities of AUTOPAINT-branded products directly to Fearns' franchisees. In June 2005 Anglo-Dutch and the paint manufacturer invited the franchisees to a meeting in order to persuade them to commit themselves to buying paint and commodity products from Anglo-Dutch. Fearns objected and wrote to tell the franchisees that neither Anglo-Dutch nor the paint-making company were authorised to supply Autopaint products.
 
By this time, Fearns' business had fallen into severe financial difficulties. Anglo-Dutch and the paint manufacturer stopped selling products under the AUTOPAINT mark, selling identical products to the franchisees under a new trademark, TEMPO. Fearns, losing further business, entered into an individual voluntary arrangement with his creditors, then sued Anglo-Dutch and the paint-maker for trademark infringement and passing off.  
 
Following an appeal to the Court of Appeal, it was found that the defendants were liable for trademark infringement, passing off and breach of contract. The Chancery Division then conducted an enquiry into damages.
 
The issue of causation was considered afresh. The central issue was whether trademark infringement and passing off, in addition to depriving Fearns of profits, had caused the collapse of his business. According to Fearns, the defendants induced the franchisees to stop buying from him; the transfer of franchisees' custom to Anglo-Dutch and the paint-making company had a catastrophic effect on the profitability and viability of the Autopaint business and led to his insolvency. The defendants contended that the defection of the franchisees resulted from Fearns' inability to supply the franchisees due to his cash flow difficulties.
 
According to the court, there are two essential principles in valuing a trademark infringement claim:
  • the claimant must prove its loss; and
  • damages should be liberally assessed on the basis that the object is to compensate the trademark owner, not to punish the infringer.
On the evidence, even though it was fair to infer that the unlawful use of the AUTOPAINT mark was a factor which induced franchisees to switch their business away from Fearns and buy their paint products from Anglo-Dutch, the collapse of Fearns' business resulted from the loss of those franchisees or, otherwise, of the infringers' unlawful acts. At most, those matters had accelerated the process, not caused it.
 
The court further found that, by the time the franchisees had been lost, Fearns' Autopaint business was no longer viable and would have failed in any event. However, this did not mean that the loss of the franchisees had no financial effect. Its consequence would have been to cause Fearns to lose further sales and, accordingly, the profits on those sales, even though such profits would not have saved Fearns from insolvency.
 
The court concluded that Fearns was entitled to recover damages of £162,679 for infringement of the AUTOPAINT mark and passing off up to the end of June 2005, plus further damages for the loss of his franchisee network. 
 
 
Jeremy Phillips, IP consultant to Olswang LLP, London

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