Damages for Passing off - The National Guild of Removers & Storers Ltd. v Central Moves

Royal Courts of Justice
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Jane Lambert

Intellectual Property Enterprise Court (HH Judge Hacon) The National Guild of Removers & Storers Ltd v Central Moves Ltd and Another [2017] EWHC 3175 (IPEC) (7 Dec 2017)

This was an appeal by the National Guild of Removers & Storers ("NGRS") against an award of £1,275 damages in its favour by District Judge Vary for passing off. By dismissing that appeal, His Honour Judge Hacon seems to have settled a 7 year controversy as to what should be the correct measure of damages for what is often an inadvertent misrepresentation of continued membership of the NGRS by a removal or storage business that no longer wishes to remain a member of that guild.

The NGRS

At paragraph [4] of his judgment in The National Guild of Removers & Storers Ltd v Central Moves Ltd and Another [2017] EWHC 3175 (IPEC) (7 Dec 2017), His Honour Judge Hacon described the NGRS as "a trade body which promotes the interests of those trading in the removal and storage industry". On the Removers Membership Benefits page of its website, the NGRS lists some of the benefits of membership, one of which is

"Unlimited use of the Guild and RIOS name and/or logo on your stationery, vehicles, website and advertisements!"

The NGRS charges a fee for membership. Should it not be renewed, the NGRS requires its former member to remove all references to its membership from its website, directory entries, advertisements and other promotional materials forthwith.  In a number of instances, the NGRS has sued former members that have failed to do so promptly as well at least one removal and storage businesses that never belonged to the guild at all.

The Silveria Case

In National Guild of Removers & Storers Ltd v Silveria (t/a C S Movers) [2010] EWPCC 15 (12 Nov 2010), the NGRS sued a removals and storage contractor who had never been a member of the guild but who had nevertheless placed an ad with the NGRS logo in the 2008 Bradford, Halifax and Skipton Yellow Pages directory for trade mark infringement and passing off.  At about the same time the NGRS brought similar proceedings against 3 former members that had failed to remove all references to their membership from their websites or directories when they left the guild.  None of the defendants acknowledged service and judgment was entered against them by default.  In each case, an inquiry as to damages was ordered.  Those 4 inquiries came on before His Honour Judge Birss QC as he then was on the same day.

None of the defendants appeared at the inquiry or filed evidence or submissions.   The claimant, however, drew the judge's attention to its terms of membership which provided that any former member continuing to use the NGRS's name or logos after its membership had ended would be liable for a penalty of £200 per week for such continued use until after the infringement had ceased. 

His Honour instructed himself as follows at paragraph [17]:

"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 s 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. It is the same kind of damage as the damage to a patent monopoly caused by an infringing sale which is not a lost sale to the patentee and for which a reasonable royalty is payable. It is an invasion of a (lawful) monopoly. Thus there is no reason in principle why damages should not be available, calculated on a "user" basis for trade mark infringement and for passing off. Of course it will be a question of fact in any given case to decide the amount of such damages."

Even though the defendant had never been a member of the NGRS, the judge considered the provision imposing a penalty for continued use of the guild's logo after membership had ceased to be "a useful guide in assessing the loss to the guild caused by the unauthorised use of the guild's logo."  He therefore awarded the claimant damages of £200 per week plus interest for each week the defendant's ad had appeared in Yellow Pages which amounted to £11,594.23.  He assessed damages on the same basis against a former member of the NGRS who had allowed the guild's logo to remain on his website between March 2008 and Mary 2010,  another who had used the logo since 2003 and a third who had allowed the NGRS logo to remain in a Yellow Pages ad after his membership had ceased.  Those damages were not insignificant: £13,227.55 against the second defendant, £44,826.20 against the third and £7,369.94. I discussed those cases in Assessment of Damages: National Guild of Removers & Storers Ltd v Silveria 13 Nov 2010 NIPC Law.

Jones's Case

The Silveria case was followed by National Guild of Removers & Storers Ltd v Jones and Another (t/as ATR Removals) [2011] EWPCC 4 (9 Feb 2011) where the facts were similar to those of the cases that I mentioned above.  However, on that occasion he heard evidence and submissions from one of the defendants.  He decided that at least some of that defendant's points were good ones to an extent and that they should lead to a reduction in the damages claimed. Though he applied the same principles as in Silveria, he reduced the monthly rate for unauthorized use of the claimant's marks from £200 to £150. I blogged about that case in Why we needed to reform the Patents County Court: Deakin and National Guild 8 March 2011 NIPC Law.

The Stathams' Case

In The National Guild of Removers and Storers Ltd v Statham and Others [2014] EWHC 3572 (IPEC) (5 Nov 2014) another inquiry as to damages for passing off came on before Judge Hacon who had succeeded Judge Birss QC as the enterprise judge.  The claimant claimed £26,866.77 for a listing on a trade website that had been overlooked until receipt of the letter before action.  The defendants argued that the relevant pages of the website had only ever been viewed by 4 unique users, that they all viewed that listing on the 25 March 2013, that all those who had seen the website were the NGRS's employees or its lawyers and that they had arranged for the removal of the listing on the day that they had received the claimant's letter before action, namely the 15 April 2013. They contended that a payment of nearly £27,000 in those circumstances was wholly unjustified.  The NGRS did not accept that the only people who had ever seen the representations complained of were its lawyers or employees. They argued that even if that were the case it would make no difference and that the court should follow Silveria or Jones and order the defendants to pay the going rate.  I blogged about that case in Inquiries as to Damages in the Intellectual Property Enterprise Court: The National Guild of Removers and Storers Ltd v Statham and Others 8 Nov 2014 NIPC Law.

Following Judge Birss QC's decisions in Silveria and Jones there had been a number of decisions on the assessment of damages in intellectual property cases in the High Court and Court of Appeal from which Judge Hacon had discerned the following principles which he discussed at paragraph [18] of his judgment in Henderson v All Around the World Recordings Ltd [2014] EWHC 3087 (IPEC) (3 Oct 2014):

"[18] In Force India Arnold J considered Wrotham Park damages, i.e. of the type awarded in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. … Arnold J identified the following principles (at [386]):

'(i) The overriding principle is that the damages are compensatory: see Attorney-General v Blake at 298 (Lord Hobhouse of Woodborough, dissenting but not on this point), Hendrix v PPX at [26] (Mance L.J., as he then was) and WWF v World Wrestling at [56] (Chadwick L.J.).

(ii) The primary basis for the assessment is to consider what sum would have [been] arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place: see PPX v Hendrix at [45], WWF v World Wrestling at [55], Lunn v Liverpool at [25] and Pell v Bow at [48]–[49], [51] (Lord Walker of Gestingthorpe).

(iii) The fact that one or both parties would not in practice have agreed to make a deal is irrelevant: see Pell v Bow at [49].

(iv) As a general rule, the assessment is to be made as at the date of the breach: see Lunn Poly at [29] and Pell v Bow at [50].

(v) Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain: see Pell v Bow at [51].

(vi) The court can take into account other relevant factors, and in particular delay on the part of the claimant in asserting its rights: see Pell v Bow at [54]'

The Court of Appeal in Force India ([2013] EWCA Civ 780; [2013] RPC 36) did not dissent from Arnold J's summary of the law (at [97]).

[19] Wrotham Park damages, though they are for breach of contract, are in all relevant respects the same as those I have to consider under this head, so the foregoing principles set out by Arnold J apply. In the inquiry as to damages for infringement of trade marks in 32Red OKC v WHG (International) Limited [2013] EWHC 815 (Ch), Newey J's assessment was by consent also on the basis of willing licensor and willing licensee. Newey J endorsed the principles identified by Arnold J and expanded on them as follows:

(vii) There are limits to the extent to which the court will have regard to the parties' actual attributes when assessing user principle damages. In particular
(a) the parties' financial circumstances are not material;
(b) character traits, such as whether one or other party is easygoing or aggressive, are to be disregarded [29]-[31].

(viii) In contrast, the court must have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. The task of the court is to establish the value of the wrongful use to the defendant, not a hypothetical person. The hypothetical negotiation is between the actual parties, assumed to bargain with their respective strengths and weaknesses [32]-[33].

(ix) If the defendant, at the time of the hypothetical negotiation, would have had available a non-infringing course of action, this is a matter which the parties can be expected to have taken into account [34]-42].

(x) Such an alternative need not have had all the advantages or other attributes of the infringing course of action for it to be relevant to the hypothetical negotiation [42].

(xi) The hypothetical licence relates solely to the right infringed [47]-[50].

(xii) The hypothetical licence is for the period of the defendant's infringement [51]-[52].

(xiii) Matters such as whether the hypothetical licence is exclusive or whether it would contain quality control provisions will depend on the facts and must accord with the realities of the circumstances under which the parties were hypothetically negotiating [56]-[58]."

Instead of following Silveria and Jones, Judge Hacon took the second principle as his starting point. He considered the hypothesis that immediately before the termination of the defendants' membership of the NGRS they entered into negotiations with the guild for a licence to cover their use of the NGRS marks over the period of infringement. The hypothetical negotiations would have been for a licence solely covering the right infringed in accordance with principle (xi) and only for the period of the infringement as required by principle (xii). The judge concluded that  the best that NGRS would have offered would have been full membership for 3 years. He had no reason to doubt that, as a willing licensor, NGRS would have been content to have the defendants signed up for a further 3 years. He also assumed that the defendants, as willing licensees, would have accepted that offer.  As the annual subscription was £1,800, the judge assessed damages for their acts of passing off at £5,200. That was considerably less than the damages claimed or indeed the damages that Judge Birss QC had awarded to the guild in Silveria and Jones. 

Refusal of Permission to Appeal

In Central Moves Judge Hacon disclosed at paragraph [42] that the NGRS had applied to the Court of Appeal for permission to appeal against his decision in the Stathams' case and that permission had been refused by the Court of Appeal. In his order of 17 March 2015 Lord Justice Floyd explained:

"I do not think there is a real prospect that the Court of Appeal would interfere with the decision of a specialist judge on the assessment of damages (necessarily an imprecise operation), given the following:
1) The judge awarded the claimants damages of £5,400 which is based on the generous assumption that the defendants would have paid the highest figure which the evidence showed that they actually charged for full membership in a situation where the defendants had made extremely limited and inadvertent use of the logo. He could equally well have chosen a much lower figure for annual membership, increased it by reference to the run off rates and arrived at a figure of the same order.
2) It is not arguable that the hypothetical negotiation would yield a figure based on the run-off rates (£26,866.77) and the claimants rightly no longer contend for this figure. Instead the claimants now seek a figure of £10,500 (not contended for below and coincidentally £500 in excess of the open offer made by the defendants at the time the defence was filed). It is not clear to me on what basis they calculate this figure.
3) Overall, it is not clear to me that £10,500 is any more clearly justified than the figure at which the judge arrived."

Counsel for the NGRS had no answer to His Honour's obligation to be consistent with Lord Justice Floyd's reasoning.

Central Moves

A company called Central Moves UK Ltd. ("CMUK") had been a member of the NGRS between the end of 2001 or the beginning of 2002 and 15 Nov 2005 and its director had been one Scott Rust. After it had ceased to be a member of the guild, an entry stating that the company was still a member remained on a trade website called "the Loadup site" until 11 Dec 2012. CMUK had long ceased to exist by the time that entry was discovered but a phoenix company called Central Moves Ltd which was also controlled by Mr Rust acquired CMUK's domain name. Even though Mr Rust had removed CMUK's entry on the Loadup site as soon as he had learned of it, the NGRS sued Mr Rust and the new company for passing off.  The action was allocated to the small claims track and came on for trial before District Judge Vary. The District Judge held that Mr Rust had been personally liable for CMUK's passing off as a director pf CMUK and awarded damages of £1,275 against him and costs in accordance with CPR Part 27.14 but he could find no cause of action against Central Moves Ltd. The NGRS appealed against the judgment to HH Judge Hacon,

Following Statham, the District Judge had assessed damages "on the basis that a freely negotiated licence between NGRS and Mr Rust in relation to the use of 'Guild' on the Loadup website, not a consumer-facing website, would have fixed the royalty rate at £900 per year. He said that the relevant period started at 30 July 2007 and ended when CMUK ceased trading in December 2008".  The NGRS criticized his award on two grounds. First, it argued that the District Judge had approached the assessment of damages in the wrong way by applying the user principle. It contended that he should instead have based the assessment solely on the terms under which use of the NGRS name was licensed and in particular the post-termination fees due under those terms. Alternatively, it argued that if, contrary to its previous submissions, the District Judge was entitled to assess damages on the user principle, he should not have based his assessment on figures derived from NGRS v Statham. He wrongly arrived at a figure which constituted his view of what Central Moves should have paid for the relevant hypothetical licence, as opposed to the sum it would actually have paid.

In attacking District Judge Vary's decision, the NGRS had to persuade Judge Hacon that his earlier decision in Statham had been wrong. Its counsel did not flinch from that task.  As the judge noted at paragraph [40] of his judgment:

"[40] Mr Miller (counsel for NGRS) submitted that the District Judge had been led astray from the correct application of law by the judgment in Statham. In Statham, he said, quite aside from the error of adopting the user principle at all, I had been wrong in several ways. To begin with, I had not based the hypothetical royalty on the run-off fee. Thereafter, having decided to use the annual membership fee, I had gone on to make further mistakes. First, I had ignored the headline annual membership fee of £5,200 and used the rate that NGRS charged its members in practice which, on the evidence, was between £1,500 and £1,800. (I used the higher figure of £1,800, so £150 per month). Secondly, I had wrongly assessed royalty on the hypothesis that the parties had negotiated a fee for use of the NGRS name only on the website on which the infringement had taken place. Thirdly, I had wrongly assumed that the negotiations would have been for a licence only for the period during which the infringing sign had appeared on that website, as opposed to the considering the number of full years into which the infringement fell.
[41] Mr Miller made no bones about submitting that I had been wrong on all five counts. I had strayed from the correct guidance provided by the judgments in Silveria and Jones."

Mr Miller was stopped in his tracks by the revelation that the Court of Appeal had refused the NGRS permission to appeal against Judge Hacon's decision in Statham.  However, that did not dispose of the point altogether because Lord Wilberforce had set out three alternatives for the assessment of damages in an intellectual property infringement case in  General Tire Co v Firestone Tyre Co. Ltd. [1975] 1 W.L.R. 819 as Judge Hacon acknowledged at paragraph [37]:

"(1) loss of profit to the patentee resulting from loss of sales due to competition from sales of infringing products, (2) loss of licence royalties where the patentee exploits the patent by granting licences and there is an established royalty rate, and (3) according to the user principle, i.e. damages are equivalent to the royalties that would have been paid by the infringer had the patentee and infringer agreed a licence as willing licensor and willing licensee. Lord Wilberforce indicated that the third approach is to be adopted where either of the first two is not available (at 826)."

He felt obliged to consider whether the user principle was appropriate to the assessment of damages in the first place for, as he explained at paragraph [45], that  issue had not been raised in Statham.  Judge Hacon found the solution in Lord Wilberforce's speech in General Tire because his Lordship had also said:

"These are very useful guidelines, but the principle of them must not be misapplied. Before a 'going rate' of royalty can be taken as the basis on which an infringer should be held liable, it must be shown that the circumstances in which the going rate was paid are the same as or at least comparable with those in which the patentee and the infringer are assumed to strike their bargain."

Judge Hacon concluded from that dicta at paragraph [47] that

"a successful claimant in an inquiry as to damages cannot claim damages equivalent to the royalty charged under his standard licensing terms if the terms give the licensee the right to carry out acts significantly broader in scope than those which were unlawfully carried out by the infringer. The fact that the rightholder grants licences is not a trump card allowing him to fasten on to Lord Wilberforce's second approach and to require the infringer to pay the rightholder's usual royalty rate, whatever it may be and whatever may be the acts licensed for payment of the usual royalties."

He concluded at [50] that it was not in dispute that the rights granted under NGRS's membership scheme went much wider than the right to refer to 'Guild' on a single website – not even one used by the public. That being so and following the guidance provided by Lord Wilberforce, it was not appropriate to adopt the second approach to the assessment of damages unconditionally. Once turning to the user principle, the full annual membership fees, for instance, could have served as a starting point when assessing the hypothetical royalty. But necessarily the assessment would move on to a consideration of how much the annual membership fee should be marked down to take into account the limited nature of CMUK's use of the word 'Guild' in the listing. It was hard to see how that could have been better approached than by assessing what the parties would have agreed as willing licensor and willing licensee. In the learned judge's view, the District Judge had been correct to take the approach that he did.

Remaining Issues

The NGRS had also complained that the District Judge should have found that Central Moves Ltd. was liable for passing off, that he should have found that Mr Rust's liability as joint tortfeasor with CMUK continued until after CMUK was dissolved and that the guild should have been awarded the costs it had incurred before the  case was allocated to the small claims track in accordance with Section IV of CPR Part 45 and Section IV of the Part 45 Practice Direction.

As to the first point, there was no evidence before the District Judge that Central Moves had misrepresented a connection with the NGRS. The judge speculated at paragraph [26] that any member of the public who had clicked the link on the Loadup site and arrived at Central Moves's website might have supposed that Central Moves was a member of the NGRS but there was nothing before the District Judge to suggest that that had actually happened. There was therefore no basis upon which that company could be held liable.

As Central Moves was not liable for passing off, there was no reason for its director to be personally liable. As for Mr Rust's continued liability for CMUK's passing off after that company had ceased trading but before it was dissolved, the judge reasoned that as a company that had ceased trading could not make an actionable misrepresentation neither could its director.

As to the costs incurred  by the claimant before the allocation of the claim to the small claims track, CPR 47.11 (2) provided that the rules as to costs before allocation should be the same as those afterwards in all actions except those in IPEC. As CPR Part 47 did not apply to IPEC the basis of assessment of pre-allocation costs was in the discretion of the court. However, His Honour thought that such discretion should be exercised in conformity with CPR 47.11 wherever possible.

Comment

This appeal should be read with Judge Hacon's judgment in Pablo Star Media Ltd v Bowen [2017] EWHC 2541 (IPEC) (13 Oct 2017) which I blogged in Copyright in Photographs - Pablo Star v Bowen  15 Oct 2017 NIPC Law. That was another unsuccessful appeal from a judgment of District Judge where the claimant had complained that the damages and costs that had been awarded to it were far too low. There seem to be 4 important lessons to be drawn from the Central Moves and Pablo Star cases.  The first is that the principles on the assessment of damages distilled by Judge Hacon that are listed at paragraph [18] of his judgment in Henderson and reproduced above is a complete code.  Secondly, the overriding principle of that code is the first, namely that the damages should be compensatory.  Nobody should enter litigation in the hope of getting a windfall from his or her opponent's inadvertence.  Thirdly, the principles that Judge Hacon listed in Henderson can be reconciled with Lord Wilberforce's in General Tire.  Fourthly, the Court of Appeal prefers Judge Hacon's approach in Statham to Judge Birss QC's in Silveria and Jones.

Further Information

Anyone wishing to discuss this case or damages for infringements of IP rights generally should call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact page.

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