Out-Law News 3 min. read

Courts can use hypothetical licensing arrangements to calculate trade mark damages, says High Court

Courts can calculate trade mark infringement damages based on a hypothetical licensing arrangement, the High Court has said.

In a case involving online casino 32Red and gambling operator William Hill, the Court ordered William Hill to pay 32Red £150,000 in damages on the basis that the judge thought that such a deal would have been struck to enable William Hill to make use of 32Red's trade mark in the manner it did.

This 'user principle' damages assessment is "well-established in relation to patent infringement", Mr Justice Newey said, but William Hill had initially challenged whether it could be used to determine the damages it owed 32Red. However, the judge said that "such damages can potentially be appropriate for trade mark infringement".

The 'user principle' is generally used to determine the damages owed in patent infringement cases where as assessment cannot be made as to what profits rights holders have lost out on as a result of infringers' actions, or where no normal royalty arrangements exist upon which to measure the payments that infringers would have been liable to pay. In those circumstances "damages fall to be assessed by considering what price could reasonably have been charged for permission to carry out the infringing acts," Mr Justice Newey said. Damages assessments in contractual disputes are treated differently.

The judge said that the 'user principle' assessment for damages should be based on "objective factors" and not on the "specific characteristics and circumstances" of the parties in dispute. This means that the particular "financial circumstances" of defendants are "not material" when making that damages assessment, he said.

"The 'actual licensor' and 'actual licensee' are thus assumed to bargain 'as they are, with their strengths and weaknesses'," the judge said.

However, Mr Justice Newey said it was relevant to consider what "alternative courses of action" were open to infringers to avoid them entering into the hypothetical licensing arrangement with the rights holder when forming an assessment for damages under the 'user principle'. The judge said it was relevant to consider whether the infringing party could have taken advantage of an available "non-infringing alternative", such as "re-branding" their activities altogether.

Just how "convenient" it would be for infringers to have pursued a 'non-infringing alternative' course of action is a further factor that has to be considered when forming a 'user principle' damages assessment, the judge said.

Mr Justice Newey said that it is also relevant to consider whether disputing parties would have negotiated terms on the basis of licensing the use of an identical or confusingly similar mark, whilst he also said that the hypothetical arrangement should span the "period of infringement" but also account for the ability of infringers to benefit from their use of an infringing mark after it has ceased such use.

Further factors such as whether licensing arrangements would have conferred 'exclusivity' or placed "quality control" restrictions on licensees should also be accounted for when assessing how the parties would have determined the terms of the hypothetical licensing deal, the judge added.

"The assumptions should accord with the reality," Mr Justice Newey said in determining the terms on which the hypothetical licence between 32Red and William Hill would have been agreed. "The hypothetical licence should therefore be taken to have permitted William Hill Online to use the terms and conditions it in fact used. On the other hand, I do not think it would be appropriate to assume that the parties were negotiating for a licence that would leave William Hill Online free to misbehave to whatever extent it might theoretically have liked."

Mr Justice Newey assessed whether there were any "comparable" royalty arrangements against which the terms of the hypothetical licensing deal between 32Red and William Hill could be reviewed against. However, the judge said that the comparables cited in the case were "of very little help" to him in determining the level of damages William Hill should be made liable for.

The judge said that it was relevant, in the absence of suitable "comparables" to consider what "economic benefits" both parties would have derived under their hypothetical licensing deal. He stressed that it was right to factor in what the "impact" would be on the negotiation of that deal if licensees had the ability, and it was convenient, to engage in a re-branding exercise as an alternative to entering in such a licensing arrangement.

Although Mr Justice Newey said that William Hill's use of its infringing '32Vegas' mark attracted customers away from 32Red, he said it was unclear how many customers that would account for and said that it was equally possible that consumers would have been persuaded to engage with 32Red's service as opposed to William Hill's '32Vegas' casino.

The judge assessed a number of other factors affecting the economic benefits that could have been derived from the parties' hypothetical licensing agreement, including the limited presence of 32Red's business outside of the UK and the way that William Hill's infringing mark was promoted to consumers and how subsequent re-branding of services impacted on it.

"I consider that reference to economic benefits provides the best starting point when considering what the parties to the hypothetical negotiation would have agreed," Mr Justice Newey said.

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