How much profit is an account of profit for passing off? Not all profit, says High Court
In McCambridge Limited v Joseph Brennan Bakeries ( IEHC 269), the Irish High Court has reviewed the approaches to awarding an account of profit when a defendant is found liable for passing off.
The judgment of Mr Justice Charleton, delivered on May 27 2014, follows on from the decision of the High Court (which was upheld on appeal to the Supreme Court) that Brennan Bakeries had passed off its whole-wheat bread as being McCambridge’s whole-wheat bread. McCambridge elected an account of profits as its remedy and argued that it was entitled to all of Brennan’s profits from the sale of its infringing whole-wheat bread. Brennan’s argued that only a portion of its profits from the sale of the infringing whole-wheat bread was attributable to the passing off, such that the court should engage in an exercise of apportionment.
In this light, the court accepted that Brennan’s whole-wheat bread had already been in circulation (selling around 30,000 units per month) before it changed its packaging to the infringing packaging (which resulted in sales of around 40,000 units per month). Based on these “basic figures of primary importance”, Mr Justice Charleton had to decide whether to order Brennan Bakeries to pay over to McCambridge all its profits from the sale of its whole-wheat bread, or instead to apportion and award only those profits which were actually attributable to its infringing (although unintentional as held by the trial court) conduct.
Mr Justice Charleton accepted that, if a product is produced and placed on the market entirely as a result of an infringing act, then the entirety of the profits earned from that infringing product should be surrendered to the plaintiff. However, in this case, Brennan’s whole-wheat bread was already on the market and was profitable prior to the act of infringement, although it had boosted the original profits by about one-third. He found that to award McCambridge an undifferentiated account of all profits from Brennan’s whole-wheat bread in such circumstances would be inequitable and would ignore the particularity of the facts.
The court was influenced by patent and copyright cases in which courts have typically had regard to the degree of contribution to the overall return of the defendant that results from the infringement or wrongful misuse of the plaintiff’s rights. He did not see why trademark or passing off cases should be treated any differently, although he noted a tendency in trademark cases to award the entire profits made on articles or services bearing the infringing mark. While many cases of trademark infringement and some particularly blatant passing-off cases might in the circumstances (for example where the defendant’s product is new) justify an entitlement to all profits, he found that this case was not one of them. Instead, basic fairness - which is central to the remedy of an account of profits - required a more nuanced approach. He noted that determining an apportionment in this way is not an impossible task for the courts.
Accordingly, Mr Justice Charleton ordered an account of profit, to be determined at a separate hearing, on the basis that Brennan Bakeries should pay to McCambridge those profits earned on its whole-wheat bread that were attributable to its decision to dress up the packaging in a get-up that unintentionally passed its bread off as McCambridge’s bread. All other things being equal, this will presumably translate to an award somewhere around one-third of the profits attributable to Brennan Bakeries’ product during the term of the infringement, a considerable difference from the entire profit earned from the product during the relevant period.
The moral for intending plaintiffs and their advisors in trademark and passing-off cases is to consider the factors surrounding the infringement very carefully before advising on, or electing, an account of profits. Although the key outcome for clients is usually permanent injunctive relief, they tend not be very happy when an expected financial windfall turns out to be a drop in the bucket.
Alistair Payne and Colm Maguire, Matheson, Dublin
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