The high price you could pay for infringing patents

The High Court has outlined the legal principles involved when determining how much companies should pay if they infringe a patent when selling their products.

The issue arose in a case involving a company that breached a patent covering the use of aluminium snap-in inserts to fix shelves and brackets to horizontally-slatted wall panels, enabling shops to construct displays of merchandise.

The court ordered that the patent holder was entitled to all the infringer’s profits involving the inserts and 10% of the profits from the panels.

If the infringement had not occurred, the infringer would have incurred the same overheads, and its sales of non-infringing products would have been at the same level as its sales of infringing plus non-infringing products. It was therefore entitled to deduct general overheads from its profits on the infringing business.

The judge outlined the legal principles in determining such cases. These are some of the main points covered:

• the patent holder was entitled to the infringer’s profit made from the exploitation of the right infringed
• where the patent protected only part of an article sold by the infringer, the holder was entitled to the profit made by the infringer from the sale of the entire article if either (i) the protected part was the essential feature of the entire article, or (ii) the entire article would never have been made by the infringer if there had been no infringement 
• where the sale of an infringing article had driven the sales of other, unprotected, goods or services, the claimant was in addition entitled to the profit made by the infringer on the sale of those other goods and services.

The court also examined the legal principles determining whether there should be any deduction for the offender’s overheads:

• costs that were associated solely with a defendant’s acts of infringement were to be distinguished from the general overheads of both its infringing business and its other, non-infringing, businesses
• a defendant was entitled to deduct the former category of overheads from gross relevant profits
• a proportion of the defendant’s general overheads might be deducted from gross relevant profits unless (i) they would have been incurred anyway even if the infringement had not occurred, and (ii) the sale of infringing products would not have been replaced by the sale of non-infringing products.

Please contact Sing Li if you would like more information about the issues raised in this article or any aspect of intellectual property and litigation.