Account of profits made CRISTAL clear

Last month, the UK High Court handed down judgment in relation to an account of profits calculation in the long-running saga between Champagne Louis Roderer and J Garcia Carrion following a 2015 finding of infringement of Roderer’s CRISTAL trade marks.

Champagne Louis Roderer (CLR) is an internationally-known French producer of champagnes, in particular its prestige CRISTAL champagne. J Garcia Carrion (JGC) is a substantial Spanish producer of wines, reportedly the fourth largest producer of wine in the world.

The background of the dispute dates back to 2010, when CLR first issued claims against JGC, ASDA and Morrisons for infringement of their UK trade mark and/or EU trade mark for CRISTAL in respect of sales of JGC’s product “Cristalino”. Asda and Morrisons settled out of court reasonably early in the dispute, leaving JGC the sole defendant. The substantive trial was heard in 2015 and the results can be quickly summarised: JGC were held to infringe the trade marks on the basis that Cristalino was likely to be confused with CLR’s product and that JGC’s use of Cristalino, in infringement of the trade marks, has had the effect of diluting and taking unfair advantage of the trade marks.

In late 2015, the Court declared that CLR, as having been successful at trial, was entitled to choose an inquiry into damages or an account of the profits made by JGC. To assist, the Court ordered JGC to provide disclosure of their number and sales within the UK of Cristalino since 2004.  JGC chose not to comply or engage at all, forcing CLR to choose a remedy (choosing account of profits) in absence of any information.

This hearing, therefore, was to determine the level of profits attributable to the infringement. As is usual in account of profits calculations, the first job of the Court is to determine the gross profit from sales of the infringing product. JGC failed to attend the hearing or provide any evidence and so, in the absence of evidence, the Court accepted evidence submitted by a forensic accountant who utilised evidence submitted by JGC in other previous hearings heard in the Brussels Commercial Court, the UKIPO and the US District Court of Minnesota.

Determining the level of sales was difficult in some circumstances, as the evidence of sales at two of the UK’s largest retailers of Cristalino, ASDA and Morrisons was not completely determinative. Despite this, the Court gave what it felt was a fair and reasonable determination that JGC sold 2.8 million bottles in the UK during the period. To determine the gross profit, the Court accepted evidence that the gross profit was attainable by consideration of, what JGC called (in a previous hearing) a ‘contribution margin’ per bottle, being €0.4647 per bottle, equating to a calculation of €1.3m. Again, the Court determined this without any challenge of the evidence by JGC.

The next job of the Court was to determine whether any of the gross profit is entitled to a reduction in relation to general costs and/or an apportionment to reflect any non-infringing element of the product. It is here that many account of profits calculations can take serious blow, for example if the Defendant can show that the overheads were directly attributable to the infringing product and/or show that the profits were not derived from the infringement, but from other elements – such as existing goodwill in the product, or simply because it was ‘cut price’ goods.

The Court was left to determine this in absence of any evidence from JGC. In short, the Court thought it wholly appropriate to make no deductions in regards to general costs, as to do so would be speculative at best. The Court then considered whether it was appropriate to make a decision on whether the infringement ‘drove’ the sales in absence of submissions from JGC. It held that it could decide, relying primarily on the finding of confusion at the substantive trial that Cristalino was a product of Roderer. The Court further pointed out that JCG could have argued that consumers were not motivated by this confusion, and instead motivated by price, but chose not to any submissions at all. The Court therefore made no deductions and awarded CLR the full amount of gross profits, totalling €1.3million.

Comment

This judgment does not offer any new points of law to consider, but does provide some useful reminders on account of profits calculations. Perhaps the biggest lesson, however, is in regard to conduct of the parties. IP cases are slightly unusual in that there are, in effect, two trials: the first being the trial on liability and the second being the quantum of damages/account of profits and costs.  The defendant had an opportunity to mitigate its losses following the substantive trial, but chose not to participate at all. This is an example of a clear ‘win’ all around for the Claimant in respect of an infringer, but it does show that failure to engage in proceedings can have substantial consequences.