United Kingdom: 'User principle' damages in trademark cases

In National Guild of Removers & Storers Ltd v Christopher Silveria,(1) a trademark case, the Patents County Court (which, despite its name, can hear a broad range of IP cases) assessed damages on the 'user principle', in the same way as in patent cases. This means that the claimant need not establish that it has lost sales. Damages can be assessed by reference to the amount that the defendant would have had to pay in licence fees to the claimant if the right to use the trademark had been lawfully acquired.
Facts The claimant was a regulatory trade association operating in the removal and storage industry. Its rules of membership provided that its trademarks could be used by members in their advertising, literature and websites. The rules included a licence of the trademarks; they also set out the licence fees payable for continued use of the marks after expiry or termination of membership (eg, when use was in an annual publication, such as Yellow Pages, and membership expired during the relevant year).
The judgment covered four separate actions brought by the claimant against unrelated defendants. In three cases the defendant's licences had expired; in the fourth case the defendant had used the marks without ever having been a member of the guild.
The court had given judgment in default of acknowledgment of service or defence, and this judgment was in the unopposed inquiry as to damages. The court had to consider whether damages were recoverable under the user principle in cases of passing off and trademark infringement. If so, it had to calculate the amount of damages payable by each defendant.
User principle
Judge Birss QC explained that in many trademark infringement cases, the infringer's use of the infringing mark will lead to sales of the relevant goods which are lost to the claimant. In such cases, damages can be calculated by assessing the profit lost as a result of losing the sales. However, in the present case the claimant's business did not work in this way and the defendants had not caused this kind of loss to the claimant. Rather, damage suffered by the claimant could be regarded as the loss of a royalty which it should have been paid in return for use of the trademarks. Damages which are calculated in this way are referred to as 'user damages'. In this case the judge was required to decide whether user damages are recoverable in a trademark and passing-off case.
Decision The judge followed the House of Lords (now Supreme Court) patent case General Tire v Firestone(2) on the general principles of damages in intellectual property cases. The case makes clear that user damages could be claimed following a patent infringement.
The key question was whether user damages can also be awarded in a case of trademark infringement or passing off. On the basis of the copyright case of Blayney v Clogau St Davids Gold Mines,(3) in which the Court of Appeal extended user-basis damages from patents to other forms of IP rights, and Irvine v Talksport(4) a passing-off case about celebrity endorsement in which the Court of Appeal assessed damages as the amount that the claimant would have charged for use of his image, the judge decided that it was right to award the guild damages calculated on the user principle. He stated as follows:

"In my judgment, as a matter of principle, where a defendant uses a mark without permission and thereby infringes a registered trade mark or commits an act of passing-off, that act is capable of damaging the claimant's property in the mark (see Section 14(2) of the Trade Marks Act 1994) or property in the goodwill attaching to his business. That is so whether or not a lost sale has taken place."

The judge went through each of the four actions individually, awarding the claimant over £77,000 in total. The damages were calculated using:

• the weekly payments that would have been payable by guild members under a proper licence; and
• the "run-off advertising fees" payable by members after expiry of their guild membership.

Comment
This decision is unsurprising in light of the facts of the case and previous case law. The failure of the defendants to defend will have made the claimant's task easier.
By extending the user principle to passing off in Irvine v Talksport, the Court of Appeal left a natural course for the decision to be followed in a registered trademarks case. The decision in this case is not binding on the High Court, but it seems unlikely that the High Court would reach a different decision.
Damages calculated in accordance with the user principle can still be substantial, as is shown by the award of over £77,000. The damages awarded by the courts in future cases may be higher, particularly in respect of well-known trademarks which would command a high licence fee if used lawfully.

For further information on this topic please contact Jeremy Drew or Matthew Starmer at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (jeremy.drew@rpc.co.uk or matthew.starmer@rpc.co.uk).

Contributed by Reynolds Porter Chamberlain LLP

Endnotes

(1) [2010] EWPCC 15.

(2) [1976] RPC 197.

(3) [2002] EWCA Civ 1007.

(4) [2003] EWCA Civ 423.