Neutral Citation: [2014] IEHC 269
The High Court
Commercial Record number 2011 number 2925P
Between:
McCambridge Limited
plaintiff and
Joseph Brennan Bakeries Defendant
Judgment of Mr Justice Peter Charleton delivered on the 27th day of May 2014
This judgment concerns the correct approach to adjudicating an account of profit when a defendant has been found liable for passing off. In this case, sliced brown bread. The account of profit remedy in preference to damages was at the election of the successful plaintiff McCambridge on being required by the defendant Brennan Bakeries to choose one or the other.
It is argued by Brennan Bakeries as defendant that the correct approach to an adjudication of an account of profit in passing off should only to require the ascertainment and payment of such profits as were made due to the passing off; only such sales as are properly to be attributed to the tortious action, ruling out any gain made from those who were not confused but made a properly informed choice. It is argued by McCambridge as plaintiff that a court should require a defendant to pay profits in respect of all goods which tortiously were decked out and sold so as to resemble their product. This has the advantage of simplicity, since all profits made on this brown bread by the defendant from the commencement of the offending packaging would become those of the plaintiff. Peart J has held this passing off to have been unintentional; McCambridge Ltd v Joseph Brennan Bakeries [2011] IEHC 433. Since the product in question was sold by the defendant Brennan Bakeries for some years in a much different packaging prior to them marketing the brown bread in new packaging that closely resembled that of the plaintiff McCambridge, the appropriate approach to an account of profits is argued by the defendant Brennan Bakeries to be the measure in the jump in their trade attributable to that firm’s trespass on the plaintiff’s good will. This carries the requirement that a more precise measurement would have to be taken of what proportion of the general public were likely led astray by the passing off; and might require the Court to hear expert evidence beyond comparative retail sales figures. The distaste of this approach is flagged by the reference in the papers to an expert for the defendant who apparently proposes to argue that increased competition due to similar packaging between the parties led to a marked jump in brown bread consumption in Ireland and profited all bakers. But, the thought experiments of prospective witnesses must be left aside in attempting to apply what the law requires.
Here are the questions for the Court as set out in the order of Kelly J of 27th January 2014:
Is the defendant obliged to account to the plaintiff for:
History of the proceedings
The plaintiff McCambridge are a family firm founded 1945. Over many years they have produced a stone-ground yeast-free brown bread that has no added sugar and boasts of “a nutty wholesome texture and taste”. The recipe is a secret. Since 1980, it is sold in a see-through rectangular plastic packaging using a distinctive green dominant colour with the manufacturer’s name in white cursive writing. The defendant Brennan Bakeries are a dominant player in the Irish bread market and boast that they produce, as they say, “today’s bread today”. Up to 2010, the plaintiff McCambridge achieved about 30% of sales of brown bread on the Irish market. The defendant Brennan Bakeries, in contrast, had captured only 6%. For some years, however, the defendant Brennan Bakeries was producing a kind of nourishing wholemeal brown bread that was in a similar rectangular shape to that of McCambridge and was, like that, pre-sliced. The brown bread of Brennan Bakeries then was in a completely different packaging to that of McCambridge. In January 2011, the defendant Brennan Bakeries introduced new packaging that was very similar to that of the plaintiff McCambridge. Because of the dominance of Brennan Bakeries in the general bread market, these were introduced into a wider range of stores than had been penetrated by the plaintiff McCambridge. Initially, the confusingly decked out brown bread of Brennan Bakeries was offered only in some locations in Dublin and in Cork. Marketing rolled out the product over the entire country thereafter and was completed by April. By letter dated 18th of March 2011, the plaintiff McCambridge warned the defendant Brennan Bakeries that it was passing off its brown bread and infringing the goodwill of McCambridge. This action commenced about two weeks later on 30th of March. It was entered into the commercial list by Kelly J on 9th of May. The trial took place before Peart J on 21st of July and in consequence of the speed of disposal, there was no application for an interlocutory injunction. Judgement was given by Peart J holding for the plaintiff McCambridge on 25th of November 2011 and the consequential order of the court was made on 2nd December; McCambridge Ltd v Joseph Brennan Bakeries [2011] IEHC 433. That order restrained the defendant Brennan Bakeries from:
(a) passing off its bread as bread manufactured and/or placed on the market … by or with the authority of the plaintiff;
(b) advertising, marketing, promoting, offering, supplying or selling bread by means of packaging confusingly similar (whether as regards colouring, layout, positioning of text or otherwise) to that of the plaintiff…
(c) advertising, marketing, promoting, offering, supplying or selling bread by means of the packaging… appended as schedule 2 of the plenary summons.
The order was stayed for seven days. On 9th December 2011, the Supreme Court granted a stay on the injunction pending the appeal. Ultimately, the appeal was heard in July 2012 and on the 31st of that month judgment was issued by the Supreme Court, McMenamin J for the majority upholding the finding of the High Court. Fennelly J dissented; McCambridge Ltd v Joseph Brennan Bakeries [2013] IESC 46. What then happened was that for a period of a week or so in August 2012, the defendant Brennan Bakeries were required to sell their brown bread in plain see-through plastic packaging. Then a new getup very different to the offending packaging was devised under which the bread has been sold every since. When the issue of damages or compensation started to seem important, the defendant Brennan Bakeries applied to put in a late lodgement in respect of thereof. This was refused by Kelly J; McCambridge Ltd v Joseph Brennan Bakeries [2013] IEHC 569.
As every judge is aware, even basic factual circumstances can be diffracted through legal argument and expert opinion so that what is in plain truth a stone can become as amorphous as sand. There are some basic figures here which seem to be, without judging the matter, of primary importance. With the infringement through passing off, the sales of Brennan Bakeries’ bread went from 30,000 units per month to 40,000 units. When plain packaging was substituted, sales decreased to 37,000 units. The tort of passing off requires that a plaintiff prove that by the exercise of commerce, including advertising and marketing, a particular name or get up became associated with the choice of its product in the marketplace so that consumers associated the excellence of the goods or services with a brand or packaging. Here, it is proposed to argue that the brown bread of the defendant was sometimes sold in locations different to that of the plaintiff and that consequently, there would be no mistaken purchase in those instances. That submission perhaps mistakes the law. At issue is the marketplace. In respect of products advertised on a nationwide basis, the attributes of the goods or services will be in the mind of potential consumers throughout Ireland. Fine arguments as to whether consumers were aware of the branding due to a plaintiff’s product only being available in particular shops should perhaps yield to a broad analysis as to how there was an increase in the tortfeasor’s sales on it passing off its own product as that of another. If it be the case that the proper approach to an account of profit as a remedy for passing off is the extent of the infringement, then it appears is very much a preliminary view that whereas from the period January 2011 to August 2012 the defendant Brennan Bakeries made a profit of €608,481 arising from the sale of the whole wheat bread in the offending packaging, they would otherwise have had sales of only three quarters of what that infringement achieved; and wrongful profit accordingly was boosted by about a third.
Election between damages and account
It is inherent in the tort of passing off that an election may be made by a wronged plaintiff between a remedy in damages and an account of profit; House of Spring Gardens Ltd v Point Blank Ltd [1984] IR 611 per Griffin J at 706 citing Peter Pan Manufacturing v Corsets Silhouette Ltd [1964] 1 WLR 96 at 106 per Pennycuick J and see Edelsten v Edelsten (1863) 46 ER 72 and Weingarten Brothers v Bayer & Co [1904-07] All ER Rep 877 at 880 per Lord MacNaghten. To this election there appears to be one exception. Where an injunction is sought but is not granted on the discretionary basis that damages are an adequate remedy, the plaintiff will be left without the choice of an account in compensation for the tort. In Falcon Travel Ltd v Owners Abroad Group plc trading as Falcon Leisure Group [1991] 1 IR 175 the defendant was a major tour operator abroad. On penetrating the Irish market the defendant discovered that it had a similar name to plaintiff the retail travel agent in Dublin and Wicklow. Murphy J held that while there had been appropriation of goodwill and that while reputation was a property right which would ordinarily be properly safeguarded by the grant of an injunction, the circumstances of confusion could be overcome by the award of such damages at as would fund a public relations campaign which would explain to both the public and other professionals in the travel agency business the difference between the parties. Since the tort of passing off developed from the tort of deceit, it was tried before the courts of Chancery. An account of profit is an equitable remedy. It was only on the Chancery courts being enabled to award damages and ultimately with the full fusion of common law and equitable remedies, in Ireland with the Judicature Act 1877 and earlier in England, that the choice of remedies was available.
There may be circumstances in which a wronged plaintiff in a passing off action may more suitably choose to be compensated by an award of damages. Such circumstances might include the collapse of a new but under-capitalised business or a situation where intentional passing of might allow for the award of aggravated or exemplary damages. Before making such the election between damages and an account of profit, any plaintiff with a positive finding against a defendant of passing off is entitled, as in this case, to such financial accounts from the defendant, by way of discovery or otherwise, which will enable an appropriate choice to be made. It may be that no increase in profits by a tortious defendant can be demonstrated. In which case, damage in the context of passing off may be elected for and may still be awarded. As Murphy J commented in the Falcon Travel case, at page 181, the question of what damage must be proved is, like the tort itself “somewhat elusive.” Murphy J was of the view that actual damage is not a proof integral to the tort. He put it thus at page 182:
In my view the defendant is correct in saying that a plaintiff in an action for passing off must establish damage or the likelihood of damage but I am convinced that the defendant is mistaken as to what is involved in the word “damage” in that context. No doubt it will be possible to establish in many actions for passing off (particularly when the passing off relates to the goods of the plaintiff as opposed to his business) that the result of the defendant’s conduct is to induce members of the public to purchase from the defendant goods which the customer believed to be the plaintiff’s manufacture thus “diverting to himself orders intended and rightfully belonging to the plaintiff” (CV analysis of Kenny J in C&A Modes v C&A (Waterford) Ltd [1976] IR 198 at p 215). Not only might this occur but clearly this is what would be intended in the case where fraud or deceit (though not required for the tort) is in fact present. Again nobody would doubt that damage is established where the wrongdoer gains business by his improper conduct even though there is no corresponding loss to the plaintiff. Similarly if it were to happen that the plaintiff suffered a loss of business without any corresponding gain to the defendant, this too would be an observable and perhaps measurable loss to the plaintiff. However it seems to me that these three categories of loss are no more than the consequences of the wrongful (though perhaps unintentional) appropriation by the defendant of the goodwill of the plaintiff in its goods or business and it is this appropriation of goodwill which constitutes the damage necessary to sustain an action for passing off.
Thus, where there has been an egregious misuse by a rival in the marketplace of the attributes of a product enabling an award of aggravated or exemplary damages or where a potentially excellent firm has been caused to collapse through this form of tortious competition or where an examination of the accounts of a tortfeasor shows no profit, a wronged plaintiff might reasonably elect for damages instead of an account of profit. There is perhaps also the instance where an injunction quia timet is taken on notice that passing off is imminent. There, there is no room for an account of profit since none will have been made. Instead the appropriate remedy is in damages. There is also authority in a breach of confidence case for the proposition that where a plaintiff has opted for an account of profit but, on analysis, if the judge hearing the issue considers that the remedy is inequitable in all of the circumstances, damages may be ordered in lieu; Walsh v Shanahan [2013] EWCA Civ 411; Hollister Incorporated and Another v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419. Similarly, on the many cases cited from various Anglo-American jurisdictions, a choice is often given by legislation to the trial judge to adopt the appropriate remedy where a breach of intellectual property is established; for instance see Sheldon v Metro-Goldwyn Pictures Corporation (1940) 309 UK 390 and Zupanovich v B&N Beale Nominees Pty Ltd [1995] RCA 1424 which are both copyright cases.
The nature of passing off
The tort of passing off consists of the intentional or unintentional attribution by a defendant of the goodwill of a competing undertaking within a relevant market through the wrongful use of the indicia associated with the products of that undertaking. It is a species of intellectual property misuse; though unlike the protections afforded to copyright, industrial design, trademarks and patents, it has not been reduced to statutory form or been subject to European Union harmonising legislation. The intellectual property consists of the work done in the marketplace through name, branding, presentation and distinctive get up which associates consciously or unconsciously in the minds of potential consumers the attributes of desirability inherent in that product. To perpetrate the tort, actual or potential confusion must be shown to arise either by evidence from persons who have been confused, as was the testimony in this case, or by demonstrating that the nature of the similarity contrived by the defendant is, wittingly or unwittingly, “calculated to deceive those who might buy or otherwise deal in the goods”; per Barron J in O’Neills Irish International Sports Co Ltd v O’Neills Footwear Dryer Co Ltd (High Court, unreported, 30 April 1997 at page 4). In some cases, arguments have been made that the persons who might be deceived are likely to be lacking mental tone but this is to miss the point. Enterprises function at various levels of profitability and it is no part of the definition of the tort that all or most customers would be diverted to the wrong product. Instead the test requires that a substantial number of consumers are likely to be deceived. This may seem to imply a large number but that cannot be the case. In applying that test it is incumbent on courts to recognise the business reality of margins and how the loss of more than a trivial section of customers can precipitate an enterprise from profit to loss. A likelihood of confusion must be established. This is usually obvious through examining the products or the advertisements side by side. From that it should be possible to say whether everyone or almost everyone would likely be confused or to estimate a proportion. That is not an impossible exercise. This might be part of the account of profit exercise, if the argument by the defendant Brennan Bakeries here is correct. It is not necessary to produce evidence that any specific person has been caught out; rather, the presence of such evidence will add weight to a passing off case; Grange Marketing Ltd v M&Q Products Ltd [1976] ILRM 144.
Clearly, the point can be made that trivial similarities cannot amount to passing off because the nature of the tort must be such as to require proof that the goodwill belonging to a plaintiff is being wrongfully attributed to the defendant. Sometimes colours and designs are associated with a product generally, like green to grass and the animals that graze, or a yellowy colour to butter, or sheaves of grain to bread. But, the law must recognise that there are, as the song says, forty shades of green and also many ways of depicting ears of wheat or golden cows. As McMenamin J, [2013] IESC 46 paragraph 33, put it in the Supreme Court in this case:
For the threshold to be met, it is sufficient that the defendant represents its goods in such a way that it is a reasonably foreseeable consequence that the claimant’s business or goodwill will be damaged … [I]ntention to deceive is not required. A claimant may prove misrepresentation by calling evidence that the relevant public were, in fact, confused but may also succeed in a case where there is no such evidence. The overall impact of the getup is the litmus test, as well as the length of time the conduct complained of has been going on. It will not be an answer to a complaint of misrepresentation to contends that an observant person who made a careful examination, or who compared both products side-by-side, would not be misled. The test is, rather, the impression likely to be produced on the likely customer, taking into account customer perception and imperfect recollection.
In the context of the wrong of passing off, the likely customer is the one to which the product is directed. What is required in terms of expertise from medical practitioners or pharmacists in choosing a drug involves a higher level of perception than that of a man rushing into the supermarket to grab some nourishing brown bread to rustle up sandwiches for his children for a day trip. Goodwill is to be protected in respect of even those customers who may not exercise a very high degree of care in choosing what they want but not in respect of those customers who are almost indifferent as to what product they buy; Jacob Fruitfield Food Group Ltd v United Biscuits (UK) Ltd [2007]IEHC 638 at paragraph 2.11. The test accepted in the Supreme Court in this case incorporates the approach adopted by Lord Oliver in Reckitt and Colman Products Ltd v Borden Inc [1990] 1 All ER 873 at 880:
First, he must establish a goodwill or reputation attached to the goods are services which he supplies in the mind of the purchasing public by association with the identifying ‘getup’ (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which is particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff’s goods or services. Second, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or are likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff. Whether the public is aware of the plaintiff’s identity as the Manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff. For example, if the public is accustomed to relying on a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name. Third, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendants’ misrepresentation that the source of the defendants’ goods or services is the same as the source of those offered by the plaintiff.
It is clear that the nature of the tort is all about an existing product building up positive perception and the potential for wrongful attribution where there is an invasion onto that space. As such, being so dependent more upon impression than the precise elements of definition that are the normal circumscription of legal liability, prediction of the outcome of litigation for passing off is more than usually difficult. This action, however, was successful. Two other points need to be briefly made.
Firstly, a series of early cases describe liability for passing off in the context of middlemen. Mention is made of them later in this judgment. These middlemen may be regarded as either commercial travellers or as wholesalers. They will know where goods are coming from no matter whether they are decked up to look like products already in the marketplace or have their own distinctive appearance. They know because they pay the invoices. When in these early cases, defendants make the point against plaintiffs whose goods they have passed off as their own that the middlemen could not have been deceived and that therefore legal liability is not established, the case law has rightly answered that the defendant adapting products so as to appear as that of the plaintiff in order that they may be distributed through middlemen to unwitting consumers who may thereby be deceived nonetheless are putting into the market goods which are calculated to deceive and are thus liable for passing off. There is an entitlement to such profits as was made by the infringing tortfeasor in the sale of those goods to the middlemen; see Edelsten v Edelsten (1863) 46 ER 72 and Lever v Goodwin [1887] 36 Ch D 1, 4 RPC 492. This is so even were the goods not passed on for open market sale to consumers. Were the goods to remain with middlemen and an injunction application to be speedily taken without the ultimate consumers being deceived, nonetheless a remedy in both injunction and damages is available should the goods not yet have been paid for. Hence the validity of the law retaining the choice if the plaintiff was successful as between damages and an account of profit.
Secondly, in order to advance the argument of both sides in this case specific reference has been made to trademark, patent and copyright decisions. In terms of principle, the reasoning set out in these cases and the choice of remedy as well as the nature of the analysis of both what consists of damage and how an account of profit is properly to be taken, may be of assistance. But in terms of how that choice is arrived at, it must be remembered that specific statutory provisions may impact on judicial reasoning through legislative wording such as “an account of such profit that has thereby been made”.
Binding authority
An authority from the Supreme Court is said to be directly binding on the Court’s decision, an argument by the defendant Brennan Bakeries. An authority from England and Wales is said to be directly on point, highly persuasive and based on sound authority, an argument by the plaintiff McCambridge.
In Woolley and Timesource Limited v UP Global Sourcing UK Limited and The Lacmanda Group Limited [2014] EWHC 493 Judge Pelling QC sitting as a judge of the Chancery Division of England and Wales reasoned that the profits from all goods bearing a brand of the goodwill of the plaintiff were to be captured in equity. Here, it was the attribution on watches of a name which was “virtually identical” and was such as to “be perceived as such by all, or almost all, prospective customers” as that of the legitimate holder of the goodwill in the brand. Judge Pelling QC rejected the proposition that there should be an analysis as to how much profit was made through the attribution of the brand and how much of that profit would probably have been made anyway. He rejected such an approach as virtually impossible to take and this despite being invited to assess the relevant accounts on a broad brush approach. Such an exercise would be impractical, he said. Since, the learned judge reasoned, the tort required a substantial number of consumers to be misled for liability to be found for a plaintiff, cases on mixed products or on products bearing the brand and not bearing the brand did not apply.
The Supreme Court decision in House of Spring Gardens Ltd v Point Blank Ltd [1984] IR 611 concerned bullet proof vests. It was not a passing off case but one for breach of contract in failing to abide by obligations in a series of agreements for the manufacture of protective clothing using a new fibre, kelvar. In addition, liability in copyright was established, before Costello J in the High Court and on appeal in the Supreme Court, due to the strong similarity in the vests produce by the defendants to those designed by the plaintiff. Under the then operative legislation, the Copyright Act 1963 section 22(2), there was an entitlement conferred on the trial court to order damages, injunction, accounts or otherwise to a successful plaintiff “as is available in any corresponding proceedings in respect of other property rights.” As passing off is such a relevant tort, this is the strongest point in favour of the argument of the plaintiff McCambridge that this Court must follow that authority. Griffin J, with whom McCarthy J agreed, relied upon the first instance authority rejected by Judge Pelling QC in the Timesource case and ultimately overturned as to the finding of liability by the Court of Appeal, which was My Kinda Town v Soll [1983] RPC 15. In reversing findings of passing off in respect of deep fill pizza restaurants with the décor of one following that of the plaintiff, the Court of Appeal did not need to comment on the approach of the trial judge in that case, Slade J. That judge’s approach to an account of profit was to analyse the actual profit made by the wrong and not to attribute confusion in the customer to every sale by the restaurant simply because the test of passing off had been met in respect of a substantial number of them. After all, lots of people entering a restaurant just want a pizza just as lots of people entering a hotel just want a place to lay their heads. That much must somehow have been tacitly conceded in Hotel Cipriani SLR v Cipriani (Grosvenor Street) Ltd [2010] EWHC 628.
In truth, both authorities are highly persuasive. The House of Spring Gardens case more so since it concerns copyright, where the statutory remedy was construed as enabling a choice by a successful plaintiff between damages and an account of profit.
Purpose and nature of an account
Though cited for other purposes, the following passage in Wadlow - The Law of Passing Off (4th edition, London, 2011) at 10-052 now quoted without footnotes is disputed by counsel for the plaintiff McCambridge:
A successful claimant is prima facie entitled to elect for an account of profits as an alternative to an enquiry as to damages. An account of profits is an equitable remedy and there is a discretion to refuse it altogether or to limit it to take account of such factors as the defendant’s innocence, inequitable conduct by the claimant, or delay prejudicial to the defendant. As with all equitable discretions, it must be exercised judicially.
There are, in effect, two separate sets of rules for evaluating the profits for which the defendant must account to the claimant. One set applies where the defendant is a manufacturer, importer or dealer who puts into circulation “instruments of deception” which bear indicia deceptively similar to those of the claimant and are therefore calculated to be passed-off to ultimate customers as the claimant’s goods. The other set of rules applies in every other case and in particular where the defendant is a retailer, or deals directly with ultimate consumers or the passing-off does not involve the use of the claimant’s indicia on goods so as to make the goods inherently deceptive.
The common principle is that the defendant is only obliged to account for his profits if so much of his trade is wrongful. The difference arises from the fact that disposing of instruments of deception to a middleman is deemed to be wrongful whether or not any is or will ever be deceived. Apart from this it is a question of fact and degree as to whether and to what extent the defendant’s trade is attributable to improper means.
Here, the defendant Brennan Bakeries has been found by the trial judge Peart J to be innocent: hence the argument that equity allows only an account of profits limited to the profits from those likely to have actually been deceived. Secondly, it is disputed as well by the plaintiff McCambridge that a tortfeasor is to be required only to account for such profit as resulted from the deception. What matters more is the authority of the analysis buttressing either side of the argument.
The purpose of an account of profits is not to punish an infringer but to remove from the infringer any unjust enrichment through stripping out the profits attributable to the infringement. Through a development in Irish law, deliberate action allows such as a head of damages in Irish law, though only in exceptional circumstances; Hickey v Roches Stores Ltd [1993] RLR 196. An account of profit, however, considers the profit made by the tortfeasor and does not analyse the harm inflicted on the holder of the right, or as in the case of passing off the market goodwill. Where it is necessary to apportion a percentage of gross profits of a defendant to the wrong done to the plaintiff, this should be approached on the basis of a reasoned approximation.
Even in the early cases there are indications that in ordering an account of profits, the purpose of the court is to target the actual benefit attributable to the wrong. Thus in Sykes v Sykes (1824) 3 B&C 541 the attribution to the defendant’s firearm products the patent designation of the plaintiff damaged its trade both in terms of sale and through an attack on its reputation due to the inferior nature of the defendant’s product. Here, the issue for the jury was whether there was an inducement and the remedy appeared in damages. In Cartier v Carlile (1861) 31 Beav 292 a trade mark was applied in ignorance to cotton goods through an order from another firm. Sir John Romilly MR appears to have been targeting such goods in the account of profit as resulted from the infringement:
In all these cases there must be imputed to a person imitating a trade mark a desire to gain the advantages which are attached to the use of that particular trade mark, and which is the private property of another person. It follows that equity will restrain the further use of the trade mark by the person imitating it, and will make him account for such advantage, if any, as he may have derived from its user. … I am of opinion that the liability to account for the profits is incident to the injunction, and that the fact of the defendant not knowing to whom the trade mark he copies belongs, does not, in the slightest degree, affect the right of the owner to an injunction and to an account of the profits, as soon as he ascertains that it is imitated and used. I am therefore of opinion, in this case, that the injunction must be made perpetual and that there must be the usual account, but, as I have stated, I do not propose, in taking the account in Chambers, to make the defendants account for every species of profit during the last six years, but I shall consider how much of the profits are properly attributable to the user of the plaintiff’s trade mark.
In Edelsten v Edelsten (1863) 1 De G J & S 184 the wrong of trade mark infringement was effected through sales to a middleman but for the purpose of being again sold in the market where the knowledge of wrong attribution that the middlemen would have due to their direct purchase would be lost. At issue was good quality wire which the plaintiff marked as his. The defendant entered the market using the same mark. Lord Westbury LC ordered an account and dismissed any argument as to apportionment simply stating: “It is then objected by the defendants, that the account of profits directed by the decree is too severe; but, on examination of it, I am of opinion, that the account is in terms as lenient as can be directed consistently with the principles of the courts.” Lever v Goodwin [1887] 36 Ch D 1 was another case based on the middleman principle and added nothing to the profit apportionment issue. Perhaps the strongest statement in favour of the plaintiff McCambridge comes in that case but it must be read in the context of the determination of the courts not to let the middleman false defence stand in the way of justice. Central to that is the principle that decking out goods for distribution through middlemen is the same as direct sale. The middlemen are not deceived but the whole point of the tortuous exercise is that they pass on the goods to ultimate consumers who will be confused. Cotton LJ stated at page 7:
Then, ought there to be an alteration as regards the account of profits? [We were referred by counsel for the defendant to] cases on the question of damages. In my opinion these cases are not relevant to the question as to the form of the account of profits. It is well know that, both in trade-mark cases and patent cases, the plaintiff is entitled, if he succeeds in getting an injunction, to take either of two forms of relief … [Counsel for the defendant] contended that the only profit which the plaintiff could call for was that profit which arose form the sale of this soap where the ultimate purchaser bought it, not as the defendant’s but as the plaintiff’s soap. But, in my opinion, that is mistaking the whole gist of this action. The defendants, as I understand, do not sell anything to retail purchasers, what they sell they sell to middlemen, that is to say, to people who purchase from them as wholesale merchants, and who are going to sell it by retail; and the complaints against the defendants is this: “You have dressed up your soap in such a dress that those middlemen to whom you sell it are enabled, but its having that deceptive dress upon it, to sell it to the ultimate purchasers as the soap of the plaintiffs.” The profit for which the defendants must account is the profit which they have made by the sale of soap in that fraudulent dress to the middlemen. It is immaterial how the middlemen deal with it. If they find it for their benefit not to use it fraudulently, but to sell the soap to the purchasers from them as Goodwin’s, that cannot affect the question whether the sale by the defendants to those middlemen of this soap in a fraudulent dress was a wrongful act. It still remains a wrongful act, because it put into the hands of the middlemen the means of committing a fraud on the plaintiffs by selling the soap of the defendants as the soap of the plaintiffs. In my opinion, therefore, the account of profits is right as it stands.
Draper v Trist [1939] 3 All ER 513 was a case where the sale of deceptive articles to middlemen was restrained immediately by an injunction and the plaintiff sensibly opted for damages. Saxlehner v Apollinaris Company [1897] 1 Ch 893 followed the Lever case as to the form of the account. In that case an account of profit was taken notwithstanding that Kekewich J the trial judge found “not a single instance” of mistake. Even still, because the relief was based on a common law trade name protection, a plaintiff could choose an account of profit once an infringement had been shown. As the judge put the matter at page 904:
If, therefore, I direct an account such as above set out, I shall be giving the plaintiff, as it seems to me, the profits made by the defendants by means of the sale of their own water without the assistance and not by reason of the deception on which the injunction is founded. But I must bow, as of course I wish loyally to do to do, to authority. The precise point was raised and decided in Lever v Goodwin.
Any protection that now exists in respect of a trade mark is there by statute as a trade mark or a community trade mark; Bayerische Moteren Werke AG v Ronayne t/a BMW Care [2013] IEHC 312. Frankly, the entire decision is to be doubted. Another case in which there was not a single instance of confusion was Weingarten Brothers v Bayer & Co [1904-07] All ER Rep 877. In this instance liability and an account was founded on the addition of a squiggle on to a box containing ladies’ corsets. The House of Lords saw no reason to depart from precedent. It is, once again, hard to imagine even the plasticity of the tort of passing off yielding liability for a plaintiff who cannot show any operative confusion.
Turning now to attempt to group cases together on the basis of the available remedies for intellectual property infringement, the precedents seem more nuanced than the group of cases ending in the Weingarten case suggest.
In copyright cases it is clear that in approaching an account of profit, courts will have regard to the degree of contribution to the overall return of the defendant that is consequent on the abuse of the plaintiff’s rights. In Sheldon v Metro-Goldwyn Pictures Corp (1940) 309 US 390 it was decided that the statutory formula awarding to a copyright holder against an infringer “all profits which the infringer shall have made from such infringement” meant precisely that. There a celebrated Scottish murder case had resulted in a play and elements from that had been crafted into a film without authorisation. An entitlement to an account of profit certainly did not mean that where a motion picture was based on a sliver of another’s creative rights that all the profits from that cinematic endeavour were those of the plaintiff. The United States Supreme Court derived that principle from patent decisions and in particular the statement in Westinghouse Electric & Manufacturing Co v Wagner Electric Co (1912) 225 US 604 where the same court ruled that “if plaintiff’s patent only created a part of the profits, he is only entitled to recover that part of the net gains.” As to impracticality or even impossibility of assessment, at 405 Hughes CJ ruled:
We see no reason why these principles should not be applied in copyright cases. Petitioners cite our decision in the trademark case of Hamilton-Brown Shoe Co v Wolf Brothers (1916) 240 US 251, but the Court there, recognizing the rulings in the Westinghouse and Dowagiac cases, found on the facts that an apportionment of profits was “inherently impossible.” The burden case upon the defendant had not been sustained. … Where there is a commingling of gains, he must abide the consequences unless he can make a separation of the profits so as to assure to the injured party all that justly belongs to him. When such an apportionment has been fairly made, the copyright proprietor receives all the profits which have been gained through the use of the infringing material, and that is all that the statute authorizes and equity sanctions.
A similar approach was taken by the Federal Court of Australia in Zupanovich Pty Ltd v B&N Beale Nominees Pty Ltd [1995] FCA 1424. There it was copyright in builder’s plans. After an analysis of various authorities at paragraph 70 the Carr J stated:
If upon the taking of the account in this matter the respondents are unable to establish that the whole of the profit (if any) made by Beale Nominees was not attributable to the infringement of the copyright in the drawings and the applicant’s buildings then the result will be an order that they pay all of those profits to the applicant. To the extent that the respondents are able to establish that factors other than such infringement caused such profit then they will only have to account for a lesser amount. The relevant comparison would appear to be between the profits which Beale Nominees would have made if it had not used the drawings and the profits which they did in fact make. That is my provisional view but the matter will have to be decided in the course of taking the account of the profits. If that view is correct then as millet J observed in Potton Ltd “in practice this will come to the cost of commissioning similar drawings from another source.”
In terms of patent cases, it appears to be recognised apart from the American cases tangentially referenced through the Metro-Goldwyn case that wrongfully using a patented process as part of a system may result in only such portion of the profits as enables a just account to be made. This was also recognised in Celanese International Corporation v BP Chemicals Ltd [1990] RPC 203. There it was a method of production that was patented and the unauthorised use of it gave an entitlement to an equivalent share of profits, it not mattering that the same product might have been arrived at had a non-infringing approach been used. It can be the case, Laddie J recognised, that an entire article is made through infringement; in which case the entire of the profits are part of the account. He cited Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty [1968] HCA 50 cited in Dart Industries inc v Décor Corp Pty Ltd [1994] FSR 567 at 580:
If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man’s property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple. In such a case the infringer must account for all the profits which he thus made.
This, however, is not such a case. The bread made by the defendant Brennan Bakeries was already on the market and was achieving profits. The calculation of a new mantle for it in the marketplace merely boosted those profits, but by a significant degree of about one third. Nor was the approach of this defendant, according to Peart J, deliberate. While that cannot impact on the definitional elements of passing off, it does seem to make an undifferentiated account of all profits not what would be equitable. That approach would be to ignore the particularity of the facts and to allow form to triumph over substance; an approach deprecated by the Canadian Federal Court of Appeal in Imperial Oil v Lubrizol [1996] 71 CPR (3d) 26. See also Seager v Copydex [1967] 2 All ER 415. Similarly, in the field of patents, in this instance for circuit breakers, the High Court of New Zealand in ABB Ltd v New Zealand Insulators Ltd [2007] NZHC 2055 apportioned the appropriate section of profits due to the abuse of the particular process. There the following passage was cited from the Lubrizol case:
The remedy of an account of profits is an equitable one. Its purpose is not to punish the defendant but simply to have him surrender the actual profits he had made at the plaintiff’s expense. But if some part of imperial’s profit on the infringing sales can be shown to be been due not to the appropriation of the Lubrizol invention but to some other factor where is the equity? We were told that Lubrizol contends that Imperial’s motor oil infringes another of its patents and has sued in respect thereof. May the same profits be claimed a second time? And if not by Lubrizol what of some third party patentee who likewise claims infringement? And even if no other patents were involved, to allow Lubrizol to take profits which imperial succeeds in showing were solely attributable to some non-infringing feature of its motor oil would be to judicially sanction Lubrizol’s unjust enrichment at imperial’s expense.
When one turns to trademark cases, including those referenced above, the approach seems much different. There it is inherent in the reasoning, perhaps tacitly, that the distinguishing mark enables all of the sales. That may indeed be so as in our consumer age some marks seem to be the very object of buying the jeans or the bag or the whatever. Sometimes a plaintiff will not seek all of the profits and so the issue did not fall for decision, as in Hotel Cipriani SLR v Cipriani (Grosvenor Street) Ltd [2010] EWHC 628 where to do so would have offended commonsense. Even where a medical device is in question, attachment of the mark, in that instance through not following the appropriate procedure for importation within the European Union, yields the entire of, and not part of the profits; Hollister inc Dansac AS v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419.
The approach which this Court favours of a broad measurement of the appropriate portion of profits due to passing off was rejected, as previously noted, by Judge Pelling QC in Woolley and Timesource Limited v UP Global Sourcing UK Limited and The Lacmanda Group Limited [2014] EWHC 493. That passing off case, however, was akin to a trade mark case and one notes the observations of the trial judge about the effect of the wrongful assignment of a name indistinguishable for all practical purposes from that of the holder of the goodwill. The nod by the Supreme Court decision in House of Spring Gardens Ltd v Point Blank Ltd [1984] IR 611, that is as high as it may safely be put, towards the reasoning of Slade J in My Kinda Town v Soll [1983] RPC is more consistent with the elements of reasoning that now run through patent, copyright and confidence cases, though not yet through trade mark remedies. There, Slade J decided that since not every pizza meal sold by the restaurant passing itself off through product and through décor as that of the plaintiff not all of the profits from that were to be part of the account. At 55-56 he said:
The purpose of ordering an account of profits in favour of a successful plaintiff in a passing off case is not to inflict punishment on the defendant. It is to prevent an unjust enrichment of the defendant by compelling him to surrender those profits, or those parts of the profits, actually made by him which were improperly made and nothing beyond this. Before specifying the form of the account, the court therefore should, I think, initially ask itself this question; What categories of the relevant profits or parts of such profits ought to be treated as having been improperly made by the defendants? The facts of many particular cases may justify the conclusion that the whole of the relevant profits should be so treated. The facts of the present case, however, do not in my judgment justify such a conclusion. … I cannot accept [counsel for the plaintiff’s] submission that each and every sale of a meal by the defendants over the relevant period must be treated as tortuous merely because of the form of the injunction which I have thought it necessary to grant. The matter may be tested by this hypothetical example. Let it be assumed that: (a) on 7 December 1979, 100 persons had eaten meals at the defendants’ restaurant; (b) on 8 December 1979, the plaintiffs had issued proceedings claiming damages for passing off against the defendants, exclusively in relation to the defendants’ sales of the previous day; (c) the evidence showed clearly that all of the 100 persons concerned were well aware that the defendants’ restaurant was not connected with the plaintiffs’ restaurant nad thus were not in any way misled. On those facts the plaintiffs’ action would have wholly failed, because they would have failed to establish that any of the sales in question involved any tort against them. Quite different principles apply were goods are sold, under a misleading get-up, to a middleman. In such a case, as Lever v Goodwin and the other authorities show, the sale itself may constitute a tortuous act, even thought the middleman is not himself misled.
That reasoning is convincing and accords with modern authority derived from patent and copyright cases. If there is a case for trademark cases to be considered as giving a complete entitlement to all profits earned, and if some passing off cases are so blatant as to be equivalent thereto, the facts of this case do not fit such category.
Summary
In deference to the argument by counsel on both sides, this summing up of the authorities suggests itself:
1) If through legislation a wronged plaintiff in an intellectual property case is enabled to choose either damages or an account of profits, or if that choice is left to the court on making a finding of liability, it is a matter of statutory construction as to how the court proceeds as to the choice of remedy (Hollister Incorporated and Another v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419).
2) Since an account of profits is an equitable remedy, restorative rather than punitive, it may be refused by the court if the result is unfair (Walsh v Shanahan [2013] EWCA Civ 411) but at common law a wronged plaintiff in intellectual property actions, particularly passing off, retains the right to seek an account of profits as opposed to damages though, as a separate equitable principle, damages may be declared the proper remedy by a court in refusing an injunction application(Falcon Travel Ltd v Owners Abroad Group plc trading as Falcon Leisure Group [1991] 1 IR 175).
3) The form of account of profits in trade mark cases is ordinarily for the entirety of the profits made on articles or services wrongly bearing the mark (Hollister Incorporated and Another v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419, Cartier v Carlile (1861) 31 Beav 292), though instances exist where even a trade mark owner cannot fairly claim the entirety of profits (Hotel Cipriani SLR v Cipriani (Grosvenor Street) Ltd [2010] EWHC 628).
4) Some passing off cases are close to trade mark cases as to their colourable nature and the blatant approach of the tortfeasor, hence, in those circumstances there is little warrant for seeking a nuanced approach of division of profits (Woolley and Timesource Limited v UP Global Sourcing UK Limited and The Lacmanda Group Limited [2014] EWHC 493, My Kinda Town v Soll [1983] RPC).
5) Where in patent cases the profit results only partially from the use of the process as part of a wider manufacturing or production system, only the portion of profits properly attributable to that wrongful misuse are recoverable as an account of profits (Celanese International Corporation v BP Chemicals Ltd [1990] RPC 203, Imperial Oil v Lubrizol [1996] 71 CPR (3d) 26).
6) Copyright mandates a similar approach. The reasoning of basic fairness underpinning this equitable remedy of an account of profit generates that nuanced approach (House of Spring Gardens Ltd v Point Blank Ltd [1984] IR 611, Sheldon v Metro-Goldwyn Pictures Corporation (1940) 309 UK 390, Zupanovich v B&N Beale Nominees Pty Ltd).
7) Ordinarily, where a new product is put on the market and passed off by a defendant who has never produced that product before as that of the plaintiff, or where the expiry of a licence to use indicia of goodwill has been deliberately ignored, the measurement of an account tends to be all profits (Woolley and Timesource Limited v UP Global Sourcing UK Limited and The Lacmanda Group Limited [2014] EWHC 493).
8) There are neither reasons of policy or of legal analysis which enables the proper approach to an account of profit in passing off to be treated differently from patent, copyright or trade mark cases, though the statutory foundation on which each of these is based may require particular cases to be treated differently. It would offend common sense to claim, for instance, that because a hotel used a name associated with a protected mark that all the profits of everyone who stayed there are those of the owner of that goodwill and it is to be noted in relation to passing off that such a claim was not made in Hotel Cipriani SLR v Cipriani (Grosvenor Street) Ltd [2010] EWHC 628.
9) Depending of the facts, passing off may be approached differently as to a product already made by the defendant and then got up so that it may be seen as calculated to deceive or where it is clear that only a proportion of the customers switching to the product passed off in infringement of the plaintiff’s entitlement to its goodwill and there the approach may be a nuanced one of part of the profits only (My Kinda Town v Soll [1983] RPC 15).
10) Though intention has long since ceased to be part of the ingredients of the tort of passing off, provable malice may make it more worthwhile for a plaintiff to seek damages than the equitable remedy of an account of profit because damages in those circumstances can be, but need not be, aggravated or exemplary.
11) A broad approach to apportioning profits should be taken by a court, remembering that the plaintiff is the wronged party and that obscure argument by economists is not what drives consumption in the marketplace.
12) Apportioning profits is not an impossible task. Jobs as hard in damages are done every day by the courts. Primarily, profit levels before and after should be considered as should the make up of the offending goods and the probability of the confusion resulting as to what proportion of customers.
Result
In the result, the Court will order an account as to what profits of the defendant Brennan Bakeries are attributable to its decision to dress up the packaging of its sliced brown bread in a get up that unintentionally passed it off as the highly-regarded loaf of the plaintiff McCambridge. Up to three hours will be set aside in that regard at a proximate time in the commercial list.
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