Account of Profits on Convoyed Goods in a Claim for Patent Infringement
Article by Ronald Wong.
Photo by Boban Uzorocki via Scopio
Introduction
In a recent High Court matter which the author was lead counsel on, an interesting and novel legal issue arose on whether the plaintiff was entitled to claim for an account of profits from the sale of convoyed goods. The High Court considered our legal submissions and accepted the legal principles on this issue.
Brief Facts
The plaintiffs are the owner and exclusive licensee of a subsisting patent. They are also respectively the manufacturer and distributor of machines embodying the patent. The plaintiffs brought a claim against the defendant for patent infringement and got judgment on liability, obtaining an injunction, delivery up or destruction order and an order for account of profits. The matter proceeded to an inquiry on or taking of the account.
The operation of the machines requires the use of certain chemicals, which are sold separately. In the account of profits, the defendant did not disclose its profits from the sale of the chemicals. The plaintiff took the position that such chemicals were convoyed goods for which profits from their sale should be accounted for.
Legal Arguments & the Court’s Decision
On behalf of the plaintiff, it was argued as follows. In an account of profits, the claimant is entitled to the infringer’s profit made from the exploitation of the patent infringed.[1]
If the infringer’s sale of an article protected by the patent drives the sales of other (unprotected) goods or services, the claimant is in addition entitled to the profits made by the infringer on the sale of those other goods or services.[2]
The sale of an article “drives” the sale of other goods or service if there is a causative link between the purchase of the article protected by the patent and a consequential purchase of the other goods or services.[3] Such latter goods or services are known as convoyed goods or services. There will be a causative link where there is a perceived compatibility, functional interaction or other connection of that nature between the protected article and the other goods or service.[4]
The purchase of the putative convoyed goods or services must be consequential in the sense that the purchase of the protected article is the principal purchasing decision in the mind of the buyer and the purchase of the other goods or services follows as a consequence.[5]
The Court accepted the legal principles raised in the arguments advanced above.
Comment
The issue of convoyed goods has not been hitherto discussed in Singapore court decisions. Even internationally, this issue has not been widely considered in courts elsewhere, although the World Intellectual Property Organization (WIPO) Advisory Committee on Enforcement has proposed that similar legal principles be adopted.[6] The affirmation of the above legal principles in Singapore is thus a positive development.
However, the facts in convoyed goods cases can be technically or practically complex, giving rise to differing legal principles or differing approaches to the application of the principles to the facts. There are probably two general types of convoyed goods or services: multi-component goods or services and non-multi-component ones. In the former, the patented component is functionally part of a larger product or service. For example, a patented gearbox component within a car. In non-multi-component ones, the paradigm case is where one article is sold with another article, which is not patented, bearing a trademark or some other intellectual property right.
In multi-component cases, courts elsewhere have held that for a claimant to be entitled to profits from the other non-patented component in question, all the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit.[7] The supposed principle underlying this is what is known in the United States as the “entire market value rule”, i.e. the claimant must prove that the patent-related feature is the basis for customer demand for the unpatented parts to which it seeks to extend its damages or account of profits.[8] This rule permits recovery based on the value of a patentee’s entire apparatus containing several features, where the patent-related feature is the basis for consumer demand.[9]
Hence, in Rite-Hite Corp. v. Kelley Co, Inc.,[10] the majority of the United States Court of Appeals, Federal Circuit, held that while the unpatented dock leveler in question worked in conjunction with a patented vehicle restraint system, and can be used together for loading and unloading merchandise from a truck, the two components did not necessarily function together to achieve one result and each could effectively have been used independently.[11] The two components were found to have been sold together as a marketing strategy, and not due to functional necessity.
In King Instruments Corporation v. Luciano Perego,[12] a majority of the United States Court of Appeals, Federal Circuit, upheld the lower court’s decision to award profits to the claimant for the infringer’s sale of unpatented spare parts. The test applied was that the patent owner must show that it would have received the additional profits ‘but for’ the infringement. However, the forceful dissenting judge in that case opined that the majority had failed to properly apply the entire market value rule, noting that there was no evidence that the patented invention created demand for the spare parts.
Where customer demand for the unprotected goods or services, or part thereof, is attributable to the protected goods or services, or part, there may also be an issue of apportionment. In OOO Abbott v Design,[13] the English court had to determine how much of the sales of retail display panels were due to the sale of a patented snap insert in the case of panels sold with the infringing insert incorporated, panels sold with the infringing inserted unincorporated but included for the customer to incorporate. The court found this figure to be an estimated 10%. The court also held that for the remaining 90% of the sales, the claimant was entitled to 10% of the profits from sale of the panels and 100% of the profits from the sale of the inserts. It is not clear from the decision what evidence, if any, was relied on for these figures.
In sum, intellectual property owners may seek claims for damages or profits in respect of convoyed goods or services if it is shown that the sale of such goods or services was driven by the sale of the protected article. Consideration should be had to whether the convoyed goods or services are collateral to another article, or part of a multi-component article, and apportionment of sales attributable to the patented article.
[1] OOO Abbott v Design & Display [2017] EWHC 932 (IPEC) (“OOO Abbott v Design”) (UK HC) at [37(1)], summarising and applying principles from Design & Display Ltd v Ooo Abbott & Anor [2016] EWCA Civ 95 (UK CA).
[2] OOO Abbott v Design at [37(6)].
[3] OOO Abbott v Design at [37(7)].
[4] OOO Abbott v Design at [37(8)].
[5] OOO Abbott v Design at [37(9)].
[6] WIPO Advisory Committee on Enforcement, “THE QUANTIFICATION OF DAMAGES IN CASES OF IP INFRINGEMENTS”, WIPO/ACE/13/9, 7 August 2018 at [21]-[23].
[7] Rite-Hite Corp. v. Kelley Co, Inc. 56 F.3d 1538 at 1550, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995) (en banc) at 1073.
[8] Westinghouse, 225 U.S. at 615, 32 S.Ct. at 694-95.
[9] State Indus. v. Mor-Flo Indus., 883 F.2d 1573, 1580, 12 USPQ2d 1026, 1031 (Fed. Cir. 1989); TWM Mfg. CO. v. Dura Corp., 789 F.2d 895, 900-901, 229 USPQ 525, 528 (Fed. Cir.), cert. denied, 479 U.S. 852, 107 S.Ct. 183, 93 L.Ed.2d 117 (1986).
[10] Rite-Hite Corp. v. Kelley Co, Inc. 56 F.3d 1538, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995) (en banc).
[11] Rite-Hite Corp. v. Kelley Co, Inc. 56 F.3d 1538 at 1551, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995) (en banc) at 1073-1074.
[12] King Instruments Corporation v. Luciano Perego, 65 F.3d 941 (Fed. Cir. 1995), 36 U.S.P.Q.2d 1129.
[13] OOO Abbott v Design & Display [2017] EWHC 932 (IPEC) (UK HC).
