IPEC assesses damages in passing-off and interference with trade case

In Harman v Burge ([2014] EWHC 2836 (IPEC)), the Intellectual Property Enterprise Court has ruled on an inquiry as to damages which arose from the defendant, Mr Burge, disrupting the website of the holiday business of the claimant, Mr Harman.

Birss J gave judgment in favour of Mr Harman on June 12 2012, following admissions by Mr Burge in relation to passing off and interference with trade. As the defendant had admitted that the disruption had caused some damage to Mr Harman's business, it was for His Honour Judge Hacon sitting in the Intellectual Property Enterprise Court to consider whether Mr Harman's assessment of that damage was justified.

Mr Harman purchased a holiday business called Doone Valley Holidays from Mr Burge and a seven-year lease to a farm known as Cloud Farm near Lynton, Devon, from which the business operated. The assets of the business included the domain name 'www.doonevalleyholidays.co.uk'. The ownership of the website was never updated and remained with Mr Burge.

On May 30 2010, as the expiry date of the lease approached, Mr Harman updated the website to include a statement that the business would be leaving Cloud Farm, without specifying that the business was to relocate about seven miles away to a farm in Brendon called Hallslake Farm. Shortly after, on June 25 2010, Mr Harman was made aware that the website had been updated again, this time as it transpired by Mr Burge. Mr Harman's content could no longer be accessed. Visitors to the website received a message about Mr Harman's impending move to new premises on a page headed as follows, thus implying that Doone Valley Holidays would remain at Cloud Farm: "Doone Valley Holidays. Announcement. Doone Valley Holidays at Cloud Farm look forward to seeing you in 2010."

Ownership of the website was not transferred to Mr Harman until July 9 2010. On July 17 2010 the Doone Valley Holidays business left Cloud Farm and reopened at Hallslake Farm the next day. A year later on June 17 2011 the business moved again to Caffyns Farm, which is approximately three miles from Hallslake Farm.

Mr Harman issued proceedings against Mr Burge for passing off, interference with trade, copyright infringement and breach of an undertaking. The latter two claims, as well as some of the passing off allegations, were not admitted by Mr Burge and dropped by Mr Harman at the start of the inquiry. Mr Harman claimed three categories of damages: 

1. loss of profit;
2. wasted costs of cancelling listings and subscriptions; and
3. costs of mitigation.

Mr Burge admitted in his defence that the disruption to the website had caused Mr Harman some harm. The expert acting for Mr Harman had submitted in evidence a table summarising Mr Harman’s alleged loss. The amount submitted increased Mr Harman’s initial estimate of lost profits of £20,000 to £174,309, which was subsequently revised to £98,442 before interest.

The increase in alleged lost profits was based on a number of assumptions made by Mr Harman’s expert. These included revising the level of lost profit attributable to Mr Harman's moving the business, the staged recovery of the business, and the gross profit margin for the camping and trekking businesses that were affected by the Website disruption. Significantly, Mr Harman's expert submitted that the loss had occurred over a three-year period, due to the loss of the website's ranking amongst search engines and the time it would have taken for this ranking to be recovered. Mr Burge challenged this assessment, and disputed the level of reductions applied to turnover and the profit margin applied to the businesses. He submitted that Mr Harman had ignored other factors which would have affected turnover, such as the fact that the relocation of the business occurred during mid-season (the busiest and therefore most disruptive period), the summer weather was poor and the United Kingdom was experiencing a recession during the relevant period.

The judge restated a previous summary of the law on inquiries as to damages he had provided in SDL Hair Limited v Next Row Limited ([2014] EWHC 2084 (IPEC)). He noted that it is for the claimant to demonstrate the loss, and that it is not sufficient to show the loss would have occurred but for the tort; the tort must be "as a matter of common sense, a cause of the loss". Before addressing Mr Burge's individual criticisms, Hacon J considered that the central issue was that Mr Harman had not produced any evidence demonstrating that the disruption to the website had a long term effect. Although he noted that it can be difficult to provide such evidence, no information was provided to show how the ranking of the website was affected over time. Similarly, no expert evidence was adduced that could explain the effect on the ranking of the website. Further, he noted that a Google AdWords campaign started after the disruption had been cancelled in October 2010 due to its cost. The cost of the campaign was included in Mr Harman’s schedule of loss as £2,444.60, which in the context of the alleged losses was considered low. This led the judge to find that, although damage probably continued to occur after September 2010, there were no lost profits attributable to the disruption after the 2010/2011 financial year.

Mr Harman's expert had applied a 40% and 30% reduction to Doone Valley Holidays' hypothetical turnover to take into account the first and second relocation of Doone Valley Holidays respectively. Mr Burge pointed to other factors not taken into consideration, such as whether campers would consider these new locations less attractive than Cloud Farm. Hacon J could draw no inferences as to whether this were the case; he noted however that Mr Harman in cross-examination had estimated that he expected to retain only 50% of the business after the initial move to Hallslake Farm, and thus found that a 50% reduction should be applied. Hacon J also found the estimated gross profits of the camping and trekking businesses to be overstated. Instead of the 85% margin Mr Harman sought to apply, a 70% profit margin was applied to the camping business and 50% applied to the less profitable trekking business.

Adding several unchallenged invoices for the costs of mitigation, but rejecting losses from cancelled listing and advertising as no invoices were provided to support the loss, the total awarded in damages including interest was £39,701.

As Mr Harman had been unable to provide evidence of the website disruption causing harm beyond the 2010/11 financial year his assessment of damages was revised downwards significantly by Hacon J, although he still received more than his initial estimate of £20,000. This highlights the importance of providing the court with the necessary factual and expert evidence to assist it in assessing the losses claimed, even though this can often be an expensive and time consuming task.

As a more general point, this case as a whole is an example, albeit perhaps an extreme one, of the consequences that can arise from the failure to properly record the change in ownership of a domain name. The damage caused by Mr Burge could not have occurred if he had not been able to gain access to the domain name by virtue of his continued registration as its owner.

Leigh Smith, Clifford Chance LLP, London