FEDERAL COURT OF AUSTRALIA

Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327

THE COURT ORDERS THAT:

1.    By 16 December 2015, the parties are to bring in agreed orders giving effect to these reasons for decision.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INTRODUCTION

1    This matter is before me to determine the applicant’s claim for damages for passing off.

2    At an earlier hearing, the then trial judge (Foster J) found that the respondents had engaged in passing off by using “the Winnebago marks” in the business of manufacturing and selling recreational vehicles (RVs) in Australia: Winnebago Industries Inc v Knott Investments Pty Ltd (No 2) (2012) 293 ALR 108; [2012] FCA 785. His Honour used the expression “the Winnebago marks” to refer to the name “Winnebago”, a logo which was a stylised rendering of that name, and a logo comprising a stylised rendering of the letter “W”. His Honour found that, notwithstanding that the applicant did not itself carry on business or have a place of business in Australia as at 1 June 1982—the date which his Honour concluded was the date when the impugned conduct commenced—or indeed at any time relevant to this proceeding, the applicant nevertheless had, at 1 June 1982 and thereafter, a reputation in Australia in the Winnebago marks amongst a substantial number of potential customers looking to buy or rent RVs in Australia.

3    Foster J considered that the most telling evidence of the applicant’s reputation in Australia was given by Mr Bruce Binns, the founder of the first respondent’s business. Mr Binns gave evidence as to why the Winnebago name was chosen. Mr Binns was cross-examined on this evidence. Foster J found (at [92]-[93]):

92    I think that Bruce Binns well understood and indeed intended that, by adopting the Winnebago name and the Winnebago logos in connection with his business in Australia, he would get the benefit of any reputation which Winnebago and Winnebago RVs had in Australia. I also think that, even as early as 1978, he was of the opinion that there was sufficient awareness among the relevant consumers and the trade in Australia of Winnebago, its products and its reputation to make his decision to use the Winnebago marks worthwhile. His decision to do so was clearly not “commercially irrelevant”. He had just experienced the collapse of the Freeway business and no doubt was keen to ensure that the new business did not suffer the same fate. One way to assist in that endeavour was to attempt to present the new business as an associate of the well-established and highly respected Winnebago. It is apparent from … the evidence of Bruce Binns … that he had an expectation that there would be, among those interested in either purchasing or renting RVs in Australia, a good smattering of persons who were aware of Winnebago and its RVs. He accepted that, in particular, persons who had travelled overseas were likely to have the relevant awareness.

93    I do not find Bruce Binns’s earnest denials to the effect that he was not endeavouring to trade off the goodwill and reputation of Winnebago credible. I find that, by choosing to exploit the Winnebago name and the Winnebago logos, he was intending to gain for himself as much benefit as possible in Australia from the goodwill and reputation of Winnebago and its RVs. His decision was motivated by a keen appreciation that he and his associates would gain financial benefit from using the Winnebago marks in Australia.

4    Having regard to the existence of the applicant’s reputation, Foster J found that, by reason of the impugned conduct, persons were likely to be deceived into thinking that the business conducted by the first respondent and its dealers (the second to twelfth respondents) was the applicant’s business and, further, that the RVs manufactured in Australia by the first respondent were RVs manufactured by the applicant. His Honour concluded that, in the circumstances of this case, this finding was sufficient to entitle the applicant to relief based on passing off and for certain contraventions of the Trade Practices Act 1974 (Cth) and of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law). For present purposes, the statutory contraventions can be put to one side.

5    The respondents appealed against these and other findings. The Full Court considered that 1978, not 1982, was the correct date for determining whether the applicant had a reputation in Australia that was sufficient to establish passing off: Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 211 FCR 449; [2013] FCAFC 59 (Appeal Reasons 1) at [9], [82] and [141]. The Full Court was satisfied that the applicant had such a reputation as at 1978: Appeal Reasons 1 at [39], [82] and [145]. The Full Court was otherwise satisfied that passing off had been established, although it concluded that the injunctive relief granted by Foster J was too wide and should be limited: Appeal Reasons 1 at [59]-[69]; [106]-[107]; [120]-[138].

6    In separate reasons (Knott Investments Pty Ltd v Winnebago Industries Inc (No 2) (2013) 305 ALR 387; [2013] FCAFC 117 (Appeal Reasons 2)), the Full Court subsequently considered the scope of the injunctive relief that should be granted and made orders accordingly. In broad terms, injunctions were granted against each respondent restraining it from using the Winnebago marks without a disclaimer. In determining the appropriate form of the injunctions, the Full Court took into account the fact that at least some of the first respondent’s reputation in the use the Winnebago marks was the product of the development of its own goodwill and reputation and that not all the development of its business involved the taking advantage of the applicant’s reputation in Australia. Further, the Full Court reasoned that, in the present case, the guiding principle of injunctive relief should be, as far as possible, the protection of the public from being misled.

7    Allsop CJ (with whom Cowdroy and Jagot JJ agreed) said (at [4]-[5]):

4    There appears an underlying tension inherent in any relief. On the one hand, Knott has built up over 25 years or more its reputation in the name and marks; on the other hand, to a degree, there has been a taking advantage of the respondent’s reputation and goodwill that spilled over from overseas to Australia. The main judgment recognised a need to avoid injustice to Knott by relief that denied the legitimacy of the building of its own reputation. That said, the protection of the public and of the respondent’s trade reputation requires orders to be made that will prevent any continuation of the capacity of Knott to mislead those people in Australia who have a familiarity with the respondent’s reputation and who are likely to be misled by the use of the name and logo. Thus, the apparent underlying tension is resolved by keeping firmly in mind, at all times, these guiding considerations.

5    To the extent that there may be either some clumsiness or impracticability in framing orders so guided, that can be seen as the product of both Knott’s seeking to take advantage of the respondent’s reputation and the respondent effectively doing nothing to protect its own reputation for 25 years.

8    The Full Court also considered whether the applicant’s claims for pecuniary relief should be remitted. Their Honours considered that there should be no remitter in respect of the applicant’s claim for an account of profits. Allsop CJ said (at [24]):

24    The respondent Winnebago sought remitter of the entitlement to pecuniary relief. As to an account of profits, there should be no remitter. An account is an equitable remedy. The extraordinary delay is an overwhelming consideration in this regard. Further, it would be extraordinarily difficult to ascertain, years after the event, what profits have been made by reference to sales that could be seen to be produced by trading on the respondent’s reputation and sales produced by Knott trading on its own reputation. As a matter of discretion, that almost impossible task should not be allowed to vex the appellants.

9    With respect to the applicant’s claim for damages, the Full Court considered that there should be no remitter for damage suffered prior to six years from the commencement of the action. However, as to damages after that date, Allsop CJ said (at [26]-[27]):

26    As to damages after that date, the respondent Winnebago sought a remitter for a hearing based on a reasonable royalty. This was opposed by the appellants on the basis that the evidence was clear that Winnebago would not have licensed its name to Knott. The respondent recognised that there was Full Court authority in its path: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564; 239 ALR 702; 71 IPR 437; [2007] FCAFC 40 at [27]–[28]. It sought, however, remitter in this regard to attempt to deal with this authority by reference to cases which recognise that the use of property (here the reputation of the respondent) may be compensated for by reference to notions (perhaps restitutionary in essence) that unauthorised use of property has to be paid for: see generally the discussion of issues in the context of conversion in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [166]–[186].

27    The opportunity to argue these matters should not be denied to the respondent by a consideration of relief at this stage: cf Spencer v The Commonwealth (2010) 241 CLR 118; 269 ALR 233; [2010] HCA 28 at [24]–[25]. It may be that it will be necessary to argue that there is error in a judgment of the Court. The respondent should not be shut out from that enterprise.

10    I have set these matters out to record the basis on which the applicant’s claims for relief have proceeded both before Foster J and the Full Court. In light of the issues raised on appeal, and in light of both Foster J’s and the Full Court’s reasons, I do not understand either Foster J or the Full Court to have granted injunctive relief on a quia timet basis for merely threatened or apprehended injury. The Full Court’s treatment of the question of remitter in relation to pecuniary relief shows that it was satisfied that the applicant had established all elements of the tort sufficient to warrant remitter for that relief, at least on the question of damages—the applicant’s claim to an account of profits having been rejected solely on discretionary grounds relating to the difficulty of working out that relief in the circumstances, not because an account would not otherwise lie.

11    Further, as the passages quoted at [9] above show, when the Full Court remitted the determination of damages, their Honours understood that the applicant was advancing its claim for damages on the basis of the user principle discussed in the next section of these reasons, notwithstanding certain observations made by Black CJ and Jacobson J in Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564; [2007] FCAFC 40 (Aristocrat) at [27]-[28], to which I make further reference below.

The claim for damages: the user principle

The cases

12    The applicant seeks damages on the basis of a reasonable royalty or licence fee in respect of the respondents’ use of the Winnebago marks. The damages sought are for the period 14 October 2004 (the commencement of the period of six years prior to commencement of the proceeding) to 17 October 2013 (the date when the Full Court’s orders were made granting final injunctive relief).

13    The underlying principle for damages awarded on this basis has been called the “user principle”—an expression said to have been coined by Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 at 1416. Under this principle, a plaintiff is entitled to recover, by way of damages, a reasonable sum from a defendant who has wrongfully used the plaintiff’s property. The plaintiff may not have suffered actual loss from the use, and the wrongdoer may not have derived actual benefit. Nevertheless, under the principle, the defendant is obliged to pay a reasonable sum for the wrongful use. The reasonable sum is sometimes described as a reasonable rent, hiring fee, endorsement fee, licence fee or royalty (amongst other expressions), depending on the property involved and the nature of the wrongful use.

14    Damages in tort are compensatory. But damages awarded under the user principle have a restitutionary aspect in the sense that the award can be seen to reverse the “use value” of the property in question: see, for example, the explanation in Edelman J, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002) pp 66-71. It has been said, nevertheless, that an award of damages under this principle remains compensatory in character (Tito v Waddell (No 2) [1977] Ch 106 at 335; Jaggard v Sawyer [1995] 1 WLR 269 (Jaggard) at 281-282) or combines elements of compensation and restitution (Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 (Inverugie Investments) at 718). In Attorney General v Blake [2001] 1 AC 268 (Blake), Lord Nicholls suggested (at 279) that an award of damages under the user principle is probably best regarded as an exception to the general rule that damages are compensatory. Even so, Lord Nicholls regarded damages awarded under the principle as “established and not controversial”.

15    The origin of damages of this kind can be seen in the wayleave cases (see, for example, Phillips v Homfray (1871) LR 6 Ch App 770 (Homfray) at 780-781) where the defendant had trespassed by making use of the plaintiff’s land without necessarily diminishing the value of the land itself. Damages for the trespass were assessed by reference to a reasonable wayleave rent.

16    The principle was extended and applied to trespass to real property more generally. For example, in Whitwham v Westminster Brymbo Coal and Coke Company [1896] 2 Ch 538, the defendants tipped refuse from their colliery onto the plaintiffs’ land. An injunction was granted to restrain the defendants from further tipping. In this case, the defendants’ activities rendered the plaintiffs’ land valueless except for tipping purposes. Damages were awarded for the diminution in value of the land. But damages were also awarded on the basis that the defendants had made use of the plaintiffs’ land for their own purposes and that, for that wrongful use, the defendants should pay. After referring to Homfray, Lindley LJ said (at 542):

Applying that reasoning to this case, on what principle of justice can it be said that these defendants are to use the plaintiffs’ land for years for their own purposes, and to pay nothing for it, in addition to the injury that they have done to the land?

17    Rigby LJ said (at 543):

The principle is that a trespasser shall not be allowed to make use of another person’s land without in some way compensating that other person for that user. Where the trespass consists in using a way over the plaintiff’s land, a convenient way of assessing damages may be by an inquiry as to way-leave, which, when there is a customary rate of charge for way-leave in the locality, may furnish a convenient measure of damages; but the principle is that in some way or other, if you can do nothing better than by rule of thumb, the trespasser must be charged for the use of the land.

18    I will refer to two more cases in this line of authority. The first is Swordheath Properties Ltd v Tabet [1979] 1 WLR 285. This was a case of trespass to residential property where the relevant defendants (formerly licensees) had remained in occupation of the property after a lease (under which they acquired their licences) had come to an end. Damages were sought for the trespass. Megaw LJ (with whom Browne and Waller LJJ agreed) said (at 288):

It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages.

19    The second case is Inverugie Investments. In that case, the plaintiff purchased the leasehold of a number of apartments in a hotel. The apartments were managed on behalf of the plaintiff as part of the hotel. The owner of the hotel, Inverugie Investments, ejected the plaintiff, who then successfully brought proceedings for possession. However, Inverugie Investments did not give possession. Its trespass continued for in excess of 15 years. Lord Lloyd of Berwick, in giving the judgment of the Board, stated that the cases establish beyond any doubt that a person who lets out goods on hire, or the landlord of residential property, can recover damages from the trespasser who has wrongfully used the property, whether or not the plaintiff can show that he would have let the property to somebody else, and whether or not the plaintiff would have used the property himself. In applying the user principle, the Board determined that Inverugie Investments, as trespasser, was liable to pay, by way of damages, a reasonable rental for the use of each apartment for 365 days in the year, notwithstanding that the occupancy rate of the hotel was no more than 35% of the time. Lord Lloyd said (at 718):

If a man hires a concrete mixer, he must pay the daily hire, even though he may not in the event have been able to use the mixer because of rain. So also must a trespasser who takes the mixer without the owner’s consent. He must pay the going rate, even though in the event he has derived no benefit from the use of the mixer. It makes no difference whether the trespasser is a professional builder or a do-it-yourself enthusiast.

The same applies to residential property. In the present case the defendants have had the use of all 30 apartments for 15½ years. Applying the user principle, they must pay the going rate, even though they have been unable to derive actual benefit from all the apartments for all the time. The fact that the defendants are hotel operators does not take the case out of the ordinary rule. The plaintiff is not asking for an account of profits. The chance of making a profit from the use of the apartments is not the correct test for arriving at a reasonable rent.

20    As will be apparent from the above passage, and my earlier summary, the user principle has been applied in awarding damages for the tortious interference with chattels. The leading case is Strand Electric and Engineering Company Limited v Brisford Entertainments Limited [1952] 2 QB 246 (Strand Electric). In that case, the plaintiffs hired portable switchboards for stage lighting to the purchaser of a theatre. The purchaser was allowed into occupation of the theatre prior to completion of the sale. The hiring of the switchboards was a normal, though minor, part of the plaintiffs’ business. The purchase did not complete and, despite demands having been made by the plaintiffs, the vendors (defendants) refused to return the switchboards. The plaintiffs sued the defendants in detinue. The user principle was applied in awarding damages.

21    Somervell LJ said (at 252):

It is curious, as I have said, that there is no authority on this point. The nearest analogy is a claim for mesne profits. The measure there is a reasonable sum in the nature of rent for the user during the period of the defendant’s trespass. In other words, the defendant must pay what the plaintiff would have obtained if the defendant had lawfully been in possession. In principle the same measure should, I think, apply where a defendant has detained and used a chattel of the plaintiff which the plaintiff, as part of his business, hires out to users. I have added these latter words because I do not wish in this so far uncharted field to go beyond the facts of the case.

22    Denning LJ said (at 253-254):

The question in this case is: What is the proper measure of damages for the wrongful detention of goods? Does it fall within the general rule that the plaintiff only recovers for the loss he has suffered, or within some other, and if so what, rule? It is strange that there is no authority upon this point in English law; but there is plenty on the analogous case of detention of land. The rule there is that a wrongdoer, who keeps the owner out of his land, must pay a fair rental value for it, even though the owner would not have been able to use it himself or to let it to anyone else. So also a wrongdoer who uses land for his own purposes without the owner’s consent, as, for instance, for a fair ground or as a wayleave, must pay a reasonable hire for it, even though he has done no damage to the land at all: Whitwham v Westminster Brymbo Coal Company. I see no reason why the same principle should not apply to detention of goods.

If a wrongdoer has made use of goods for his own purposes, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission. He cannot be better off by doing wrong than he would be by doing right. He must therefore pay a reasonable hire. This will cover, of course, the wear and tear which is ordinarily included in a hiring charge; but for any further damage the wrongdoer must pay extra.

(Citations omitted.)

23    Denning LJ continued (at 254):

I am here concerned with the cases where the owner has in fact suffered no loss, or less loss than is represented by a hiring charge. In such cases if the wrongdoer has in fact used the goods he must pay a reasonable hire for them.

24    Later, his Lordship said (at 254-255):

The claim for a hiring charge is therefore not based on the loss to the plaintiff, but on the fact that the defendant has used the goods for his own purposes. It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution rather than an action of tort. But it is unnecessary to place it into any formal category. The plaintiffs are entitled to a hiring charge for the period of detention, and that is all that matters.

25    Romer LJ based his reasons on three salient facts, namely: that the equipment detained was profit-earning property; that the plaintiffs normally hired out the equipment in the course of its business; and, that the defendant applied the property to the furtherance of its own ends during the period of wrongful detention. His Lordship said (at 256-257):

The fundamental aim in awarding damages is in general to compensate the party aggrieved. The inquiry is: What loss has the plaintiff suffered by reason of the defendants’ wrongful act? In determining the answer to this inquiry the question of quantifying the profit or benefit which the defendant has derived from his wrongful act does not arise; for there is no necessary relation between the plaintiffs’ loss and the defendants’ gain. It follows that in assessing the plaintiffs’ loss in the present case one is not troubled by any need to evaluate the actual benefit which resulted to the defendants by having the plaintiffs’ equipment at their disposal.

That element then being out of the way, the only substantial reason put forward by the defendants why the plaintiffs should not receive the full hiring value of the equipment during the period of detention is that the plaintiffs might not have been able to find a hirer. In my judgment, however, a defendant who has wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all. Apart from the minor matters which I mention later, it accordingly seems to me that the defendants are bound to pay the recognized hiring value for the property in question and that no sufficient answer has been made out to Mr. Caplan’s proposition which, in my judgment, has common sense to support it and no authority against it.

I say this because some reliance was placed by counsel for the defendants on the principles which have become established in assessing damages for negligence. (See, for example, Admiralty Commissioners v. S.S. Susquehanna.) These principles seem to me to have no relation to cases where a wrongdoer detains property of another and uses it for his own purposes; one can postulate, as I have already indicated, that such a wrongdoer would have preferred to pay for the use of the property rather than have gone without it, but no such assumption can be made where negligence and not improper user is involved.

(Citations omitted.)

26    Strand Electric was followed in Australia by Giles J in Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 (Gaba Formwork) and, later, by the Court of Appeal in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 (Bunnings). In the latter case, Allsop P (at [173]) agreed with Giles J’s analysis (in the former case) of Strand Electric and its reception in England and Australia up to 1991. Allsop P said (at [175]):

175    The fundamental principle of damages for tort is compensation for loss caused: Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185; and Haines v Bendall (1991) 172 CLR 60 at 63. The damage or loss caused to the plaintiff with rights of ownership and possession who is in the business of hiring goods of the kind converted or detained is not limited to the consequences of stock depletion or to cost of replacement, but incudes the denial and infringement of its rights. Those rights have been denied to the plaintiff by the commission of a tort involving the use of the goods by the tortfeasor. It is entirely logical and in accordance with justice and commonsense that a wrongdoer should pay a price for using the goods of another as a matter of compensation for the denial of the right concerned. I do not see this as contrary to, or undermining of, the principle of compensation. To require compensation to be the operative principle is not to deny the fundamental principles discussed in cases such as Mediana, Owners of the Steamship v Owners, Master & Crew of the Lightship Comet (“The Mediana”) [1900] AC 113 at 117 by the Earl of Halsbury LC, or Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 at 119 by Lord Shaw as discussed by Lord Nicholls of Birkenhead in Attorney-General v Blake at 278–279. Lord Shaw in Watson, speaking of damages for patent infringement, said:

“… wherever an abstraction of property has occurred, then, unless the abstraction or invasion were to be sanctioned by law, the law ought yield a recompense under the category or principle … either of price or hire.”

27    Allsop P made specific mention of patent cases exemplifying the application of the user principle to award damages where there has been an interference with property rights. His Honour said (at [176]-[177]):

176    The law of patents has always viewed the determination of damages arising from patent infringement as compensatory in character and as wide enough to encompass the amount which the infringer would have had to pay had he taken a licence upon terms normally granted by the patentee: see generally W Aldous et al, Terrell on the Law of Patents 13th ed (1982) London, Sweet & Maxwell at 427 [14–160] and the cases cited at fn 83; and W Cornish et al, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights 7th ed (2010) London, Sweet & Maxwell at 81–83 [2–38]–[2–40], or on a reasonable royalty basis if the patentee does not grant licences or makes its profit as a manufacturer: Aldous at 427 [14–160] and the cases at fn 84; and Cornish at 83 [2–40].

177    Care needs to be exercised in any comparison between the principles attending the torts of conversion and detinue, on the one hand, and infringement of patents, on the other, and the lengths to which any such comparison is taken (cf Leman v Krentler-Arnold Hinge Last Co 284 US 448 (1932) at 456–457). Nevertheless, the analogy is of assistance in understanding the concepts involved in compensation and the law’s proper response to the interference with property rights. Compensatory damages for conversion of goods and compensatory damages for patent infringement have some basal features in common. The former involves the denial of the property rights of the plaintiff, including the right to possession, through an act repugnant to those rights; the latter involves the denial of the plaintiff’s statutory monopoly rights by infringement being the acts that the statute identifies as the denial of, or interference with, those rights. In each, if a property right has been invaded by a wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in the broad sense, focusing on the interference with the right in question. Recompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring a price or hiring charge to be paid for the wrongful use. What is being compensated for is the wrongful denial of property rights, not merely the injured party’s financial position analysed subjectively: see Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323; [2003] 1 All ER (Comm) 830 at [26] per Mance LJ. Essential to the notion of compensation here is the use by the wrongdoer that gives reality and content to the denial of, or interference with, the plaintiff’s rights. So to say is not to transform damages into restitution; rather it is to set a practical limit to the principle based on the feature of the wrong (the wrongful use) which calls for the law’s response to award damages for the denial or interference with the right.

28    Allsop P continued (at [178]):

178     Though only Denning LJ in Strand Electric expressly based his judgment on restitutionary principles, Somervell and Romer LJJ expressing the matter in terms of compensation, each of their Lordships included as an element in his reasoning use by the converter/detainer. This element of suit for the use of the chattel was a suggestion of Lord Mansfield in Hambly v Trott (1776) 1 Cowp 371 at 375; 98 ER 1136 at 1138. Thus the use of a sum for the hire of the chattel to inform the monetary remedy can be seen as referable to the capacity of the chattel to be hired by the owner (and the refusal to permit the wrongdoer to assert that he would or could not): Romer LJ at 256–257, or to the actual use by the wrongdoer: Denning LJ at 254–255 or to the user of the wrongdoer based on what he would have paid if he had been lawfully in possession: Somervell LJ at 252. The element of use by the wrongdoer was central to at least two of their Lordships and it was part of the action referred to by Lord Mansfield in Hambly v Trott. The element of use can be seen in the analogue of mesne profits and like cases: Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538 at 541–542; Hall & Co Ltd v Pearlberg [1956] 1 WLR 244; Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798; Bracewell v Appleby [1975] Ch 408; Jaggard v Sawyer [1995] 1 WLR 269; Swordheath Properties Ltd v Tabet [1979] 1 WLR 285; Inverugie; and in respect of a dock: Penarth Dock Engineering Co v Pounds [1963] 1 LlL Rep 359.

29    Allsop P then turned to consider the nature of the use in that case and what the hiring fee should be. His Honour concluded (at [185]) that the market or standard rate should be chosen as the hiring fee because it best reflected what the converter or detainer would have to pay and what the owner should obtain for the use of the property wrongfully detained.

30    I turn now to consider the patent cases. In Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157 (Meters), Fletcher Moulton LJ reasoned that, in assessing damages for patent infringement, each infringing article manufactured or sold is an infringement of the patentee’s rights. His Lordship said that the patentee is entitled to recover for each one of those wrongs:

You may estimate the damage by taking the whole of the infringing articles, and making an allowance in respect of each one, or you may consider how many he would have sold, and make a full allowance in regard to those. They are both, in proper cases, reasonable methods of ascertaining what he has lost. The latter is certainly only a rough practical method which in some cases may be efficient. It rests on no theoretical basis, because in the eye of the law each article is a wrong.

31    His Lordship continued (at 164-165):

There is one case in which I think the manner of assessing damages in the case of sales of infringing articles has almost become a rule of law, and that is where the patentee grants permission to make the infringing article at a fixed price—in other words, where he grants licences at a certain figure. Every one of the infringing articles might then have been rendered a non-infringing article by applying for and getting that permission. The Court then takes the number of infringing articles, and multiplies that by the sum that would have had to be paid in order to make the manufacture of that article lawful, and that is the measure of the damage that has been done by the infringement. The existence of such a rule shows that the Courts consider that every single one of the infringements was a wrong, and that it is fair—where the facts of the case allow the Court to get at the damages in that way—to allow pecuniary damages in respect of every one of them. I am inclined to think that the Court might in some cases, where there did not exist a quoted figure for a licence, estimate the damages in a way closely analogous to this. It is the duty of the defendant to respect the monopoly rights of the plaintiff. The reward to a patentee for his invention is that he shall have the exclusive right to use the invention, and if you want to use it your duty is to obtain his permission. I am inclined to think that it would be right for the Court to consider what would have been the price which—although no price was actually quoted—could have reasonably been charged for that permission, and estimate the damage in that way. Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. But I am not going to say a word which will tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reason of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully.

(Emphasis added.)

32    This approach was accepted in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 (Watson, Laidlaw & Co). In that case, the appellants manufactured and sold machines which infringed the respondents’ patent. A large number of the machines were sold in Java. It was argued that this trade would never have gone to the respondents, for various reasons. Lord Shaw put the argument in the following way (at 118-119):

And then comes in an astute argument, that in all cases where the infringer can establish that the trade in the machines which happened to contain the patented article or part would, under no circumstances, have ever reached the patentee himself, no claim can be admitted. To take an instance such as the present case affords, the Patentee was not in a position to carry on business in a certain part of the world exclusively possessed for commercial purposes by the energies of the infringer and his agents. It is said in such a case: —“Where is the damage which the patentee has incurred? On the other heads of the case he has obtained his damages; but on this part, which covers a section of trade which in no circumstances he could have touched, he can have sustained no damage, because he would never have sold his patented articles within that section. The duty of an infringer is covered by the principle of restoration, and the patentee has surely been restored to as good a position as he was in before the infringement, or would have been in but for it, if he has been put into the same financial position as he would have occupied in that region of trade where alone he would have been operating.”

33    Lord Shaw dealt with that argument in the following way (at 119):

It is at this stage of the case, however, my Lords, that a second principle comes into play. It is not exactly the principle of restoration, either directly or expressed through compensation, but it is the principle underlying price or hire. It plainly extends—and I am inclined to think not infrequently extends—to Patent cases. But, indeed, it is not confined to them. For wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle, as I say, either of price or of hire. If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: “Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.”

34    In applying this “second principle”, Lord Shaw said (at 119-120):

[I]t is clear to my mind that, suppose the Respondents had chosen to ask for an account of the profits made by the infringers upon the infringing machines, they would have been entitled to obtain it and a decree for the amount, and it would have been no answer to say: “The account shall be given, but there shall be excluded from it places which we shall establish your trade would never have reached.” In the second place, my Lords, it appears to me that, although it be true that a patentee cannot have both remedies at the same time, namely, the damages to his own business and the profits of the infringers’ business, still this is true simply because it is in that way that overlapping is prevented. But in the instances of which the present is an excellent type there is no overlapping whatsoever. If with regard to the general trade which was done, or would have been done by the Respondents within their ordinary range of trade, damages be assessed, these ought, of course, to enter the account and to stand. But in addition there remains that class of business which the Respondents would not have done; and in such cases it appears to me that the correct and full measure is only reached by adding that a patentee is also entitled, on the principle of price or hire, to a royalty for the unauthorised sale or use of every one of the infringing machines in a market which the infringer, if left to himself, might not have reached. Otherwise, that property which consists in the monopoly of the patented articles granted to the patentee has been invaded, and indeed abstracted, and the law, when appealed to, would be standing by and allowing the invader or abstractor to go free. In such cases a royalty is an excellent key to unlock the difficulty, and I am in entire accord with the principle laid down by Lord Moulton in Meters Ld. v. Metropolitan Gas Meters Ld. (28 R.P.C. 163). Each of the infringements was an actionable wrong, and although it may have been committed in a range of business or of territory which the patentee might not have reached, he is entitled to hire or royalty in respect of each unauthorised use of his property. Otherwise, the remedy might fall unjustly short of the wrong.

35    In General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 (General Tire), Lord Wilberforce (with whom Viscount Dilhorne, Lord Diplock and Lord Kilbrandon agreed) identified three main groups of reported cases which exemplify the approach of courts when assessing damages for patent infringement.

36    The first group relates to manufacturers who exploit an invention by making articles or products which they sell for profit. Lord Wilberforce said that, in these cases, if the patent is infringed, the effect of the infringement will be to divert sales from the patentee to the infringer. Therefore, normally, the measure of damages will be the profit which would have been realised by the patentee if the sales had been made by it.

37    The second group relates to inventions that are exploited through the granting of licences in return for royalty payments. Lord Wilberforce said that, in these cases, if the infringer uses the invention without a licence, the measure of damages will be the sums which the infringer would have paid by way of royalty if it had acted legally.

38    Lord Wilberforce identified a third group where it was not possible to prove a normal rate of profit (as in the first group) or a normal or established licence royalty (as in the second group). In relation to this third group, Lord Wilberforce said (at 826):

Yet clearly damages must be assessed. In such cases it is for the plaintiff to adduce evidence which will guide the court. This evidence may consist of the practice, as regards royalty, in the relevant trade or in analogous trades; perhaps of expert opinion expressed in publications or in the witness box; possibly of the profitability of the invention; and of any other factor on which the judge can decide the measure of loss. Since evidence of this kind is in its nature general and also probably hypothetical, it is unlikely to be of relevance, or if relevant of weight, in the face of the more concrete and direct type of evidence referred to under [the second group]. But there is no rule of law which prevents the court, even when it has evidence of licensing practice, from taking these more general considerations into account. The ultimate process is one of judicial estimation of the available indications. The true principle, which covers both cases when there have been licences and those where there have not, remains that stated by Fletcher Moulton L.J. in Meters Ltd. v. Metropolitan Gas Meters Ltd. (1911) 28 R.P.C. 157, 164–165 …

39    There is a passage in Lord Wilberforce’s speech (at 832-833) which might be read as a rejection of the user principle in awarding damages for patent infringement. After some reflection, it seems to me that the passage should not be read in that way but, rather, as no more than a rejection of the particular royalty rate that had been determined by the courts below in calculating damages. I have come to this view not least because of Lord Wilberforce’s acceptance of the passage in the judgment of Fletcher Moulton LJ in Meters which I have quoted at [31] above. With respect to that passage, Lord Wilberforce said (at 827):

A proper application of this passage, taken in its entirety, requires the judge assessing damages to take into account any licences actually granted and rates of royalty fixed by them, to estimate their relevance and comparability, to apply them so far as he can to the bargain hypothetically to be made between the patentee and the infringer and to the extent to which they do not provide a figure on which the damage can be measured to consider any other evidence, according to its relevance and weight, upon which he can fix a rate of royalty which would have been agreed. If I may anticipate, I have to find that the process carried out by the courts below does not satisfy this requirement.

40    It should be appreciated that each approach to awarding damages referred to by Lord Wilberforce is not exhaustive of the total damages that can be awarded in a given case. As Lord Shaw made clear in Watson, Laidlaw & Co, there is no reason why a successful plaintiff cannot recover lost profits on sales made by the defendant which the plaintiff can show it would have made but for the infringement and also damages assessed on the basis of a notional royalty or licence fee (ie, on the user principle) in respect of all other sales made by the defendant. Other losses can also be recovered by way of damages: see, for example, Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383.

41    In the United Kingdom, the approach to awarding damages in patent cases has been extended to damages awarded for the infringement of other intellectual property rights: see, for example, the discussion in Garnett K et al, Copinger and Skone James on Copyright (16th ed, Sweet and Maxwell, 2011) at [21-193]-[21-197]; Vitoria M et al, The Modern Law of Copyright and Designs (4th ed, LexisNexis, 2011) at [63.25]-[63.27]; and Howe M, Russell-Clarke and Howe on Industrial Designs (8th ed, Sweet and Maxwell, 2010) at [6-049]-[6-051].

42    In Blayney (t/a Aardvark Jewellery) v Clogau St David’s Gold Mines Ltd [2003] FSR 19; [2002] EWCA Civ 1007 (Blayney), the user principle was applied to award damages for infringement of copyright in a design. In that case, the infringer argued that the patent cases do not support an award of damages for the sale of infringing articles which would not have been made by the patentee. Alternatively, the infringer argued that if there were any doubt about that, any principle which enabled such recovery in patent cases should not be extended to other forms of intellectual property. These arguments were rejected by Sir Andrew Morritt V-C (with whom Rix and Jonathan Parker LJJ agreed) at [19]-[20]:

19     I do not accept either of these propositions. In my view it is clear that since at least the speech of Lord Shaw in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 R.P.C. 104 at 120 damages have been recoverable in respect of all infringements whether proved to have resulted in lost sales or not. The relevance of lost sales is to enable the court to assess the damages by reference to lost profits; it is not a limitation on the recoverable loss. Whatever the position in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 W.L.R. 1406 that was certainly the view of Lord Nicholls of Birkenhead in Attorney-General v Blake [2001] 1 A.C. 268. With reference to Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 R.P.C. 104 he said (p.279):

“That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article.”

20     Given that that is the rule in the case of infringements of patents I can see no reason not to apply it in cases of infringements of copyright. In each case the infringement is an interference with the property rights of the owner, Copyright, Designs and Patents Act 1988, s. 1(1) and Patents Act 1977, s. 30(1). Though the nature of the monopoly conferred by a patent is not the same as that conferred by copyright I see no reason why that should affect the recoverability of damages in cases where the monopoly right has been infringed. The fact that the claimant may not be able to prove the application of one measure of damages, namely lost sales, does not mean that he has suffered no damage at all, rather some other measure by which to assess the compensation for that interference must be sought. Whilst, no doubt, there are differences between the rights granted to a patentee and those enjoyed by the owner of the copyright they draw no distinction between the effect of an infringement of a patent rather than a copyright.

43    Further examples of the user principle being applied when awarding damages for design infringement are P B Cow Limited v The Cannon Rubber Manufacturers Limited [1961] RPC 236 and Kohler Mira Ltd v Bristan Group Ltd (No 2) [2015] FSR 9; [2014] EWHC 1931 (IPEC) (Kohler).

44    The user principle appears to have been accepted as a basis for awarding damages for copyright infringement by the Full Court in Bailey v Namol Pty Limited (1994) 53 FCR 102 at 111-112, where the following passage from Wells THW, “Monetary Remedies for Infringement of Copyright” (1989) 12 Adelaide Law Review 164 at 168, was quoted with approval:

“For a single act of user, for example of an architect’s plans, damages are the equivalent of a licence fee; for multiple reproductions, damages are assessed on a royalty basis. Awarding such damages seems at odds with the usual tortious principle of compensation, since it suggests a ratification of the tortious acts. But copyright is not only the right to restrict interference with the copyright subject-matter as a piece of property. Copyright embodies rights to control and exploit that subject matter, and user by the defendant without licence represents an invasion of those rights.”

(Citations omitted.)

45    Reference should also be made to the following observations of Bowen CJ in Eq in Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR 445 at 446-447, which have been taken as recognising the application of the user principle when awarding damages for copyright infringement (see Vitoria et al (2011) at [63.27] fn 1):

The purpose of damages is to compensate the plaintiff for the loss which he has suffered as a result of the defendant’s breach. It would, in my opinion, be wrong to regard it as the exclusive measure of damages for breach of copyright appropriate to all circumstances. Somewhat different considerations may apply to unpublished works from those which apply to published works. Furthermore, the circumstances in which breach of copyright arises vary widely. Various measures of damage appropriate to the particular circumstances have to be applied. This was recognised when the Copyright Act 1968 was passed (see ss 115, 116 and 122). Examples of cases where a different measure of damages from that suggested by the defendant has been applied to infringement of copyright are: Performing Right Society Ltd v Bradford Corporation (1921) MacG Cop Cas (1917-23) 309 (fee which would have fairly been charged for the performance of a song); Pike v Nicholas (1869) 5 Ch App 260n (damages on conversion basis); and Stovin-Bradford v Volpoint Ltd [1971] 3 WLR 256; [1971] 3 All ER 570 (fee which would have been fair for using architect’s plans).

46    However, in Aristocrat, Black CJ and Jacobson J, after accepting that damages for infringement of copyright can be awarded on a royalty basis, considered that such a basis does not provide an appropriate measure of damages where the copyright owner would not have granted a licence to the infringer: see at [26]-[28]. In the same case, Rares J referred to Lord Shaw’s speech in Watson, Laidlaw & Co. His Honour did not reject that approach but said (at [96]) that the basis upon which one could assess a royalty was not laid before the Court.

47    The reasoning of Black CJ and Jacobson J is at odds with the user principle, which does not depend for its application on the willingness, in fact, of the property owner and the wrongful user to offer and accept a licence or, what is more, on the willingness of the wrongful user to pay a royalty or licence fee. The user principle can be understood as proceeding on the basis of an hypothetical negotiation in which both parties are presumed to act reasonably. As Lord Walker of Gestingthorpe remarked when delivering the judgment of the Board in Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2011] 1 WLR 2370; [2009] UKPC 45 at [49], the fact that one or both parties would in practice have refused to make a deal is to be ignored: see also Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 at 815; Jaggard at 282-283; 32Red Plc v WHG (International) Ltd [2013] EWHC 815 (Ch) (32Red plc) at [38]; Kohler at [41].

48    The respondents place considerable reliance on Aristocrat. They submitted that it was binding on me and precluded me from finding that damages for passing off could be awarded on the basis of a reasonable royalty given the applicant’s acceptance that it would not have been willing to allow the respondents to use the Winnebago marks for a reasonable royalty or licence fee. On the other hand, the applicant criticised the reasons of Black CJ and Jacobson J in this regard, and argued that those reasons do not preclude me finding, in the present case, that damages for passing off can be awarded on the basis of a reasonable royalty or licence fee. I accept the applicant’s submission. To the extent that the reasoning of Black CJ and Jacobson J at [26]-[28] is binding on me, it could only be so in the context of determining damages for copyright infringement awarded under s 115(2) of the Copyright Act 1968 (Cth).

49    In Force India Formula One Team Limited v 1 Malaysia Racing Team SDN BHD [2012] RPC 29; [2012] EWHC 616 (Ch), Arnold J concluded that it would be appropriate to award damages by reference to the user principle where the misuse of confidential information has been established. Arnold J said (at [424]):

424     I conclude there is nothing in the authorities which prevents me from adopting the [the user principle] which, as a matter of principle, I consider to be correct. The same approach is to be adopted to the assessment of damages or equitable compensation whether the obligation of confidentiality which has been breached is contractual or equitable. Where the claimant exploits the confidential information by manufacturing and selling products for profit, and his profits have been diminished as a result of the breach, then he can recover his loss of profit. Where the claimant exploits the confidential information by granting licences to others, and his licence revenue has been diminished as a result of the breach, he can recover the lost revenue. Where the claimant would have “sold” the confidential information but for the breach, he can recover the market value of the information as between a willing seller and a willing buyer. Where the claimant cannot prove he has suffered financial loss in any of these ways, he can recover such sum as would be negotiated between a willing licensor and a willing licensee acting reasonably as at the date of the breach for permission to use the confidential information which has been misused in the manner in which the defendant has used it …

50    The trade mark cases are particularly relevant because of the close relationship between trade marks as indicia of a trade connection and those forms of passing off which involve an injury to reputation shown to exist in such indicia.

51    In Dormeuil Frères S.A. v Feraglow Limited [1990] RPC 449 (Dormeuil Frères), Knox J observed (at 464) that, as at 1990, there was no reported authority for damages being granted on a royalty basis (ie, on the user principle) for trade mark infringement or passing off. That observation was made in the course of considering whether an interim payment on account of damages should be made under the applicable rules of Court: The Rules of the Supreme Court (UK) O 29 rr 9-11. The case was one where the infringer wrongfully applied the plaintiffs’ mark, as well as a seal device and labels, to cloth and sold the cloth with certificates of origin purporting to be certificates issued by the plaintiffs. The claim for damages was advanced on the basis of lost profits and a reasonable royalty in respect of the cloth sold. Having noted that there were no reported cases where damages had been awarded on a royalty basis for trade mark infringement or passing off, Knox J went on to say that, of course, that fact was not conclusive of a plaintiff’s entitlement to damages on that basis. It is also important to observe that two cases had been brought to Knox J’s attention (Lego System Aktieselskab v Lego M. Lemelstrich Ltd [1983] FSR 155; IPC Magazines Ltd v Black & White Music Corporation [1983] FSR 348) in which, in the context of considering whether interlocutory injunctive relief should be granted, observations were said to reveal assumptions that an award of damages on the basis of a reasonable royalty would be available if the plaintiff ultimately succeeded at trial. In the end, Knox J considered that the framework of an interim payment was “not a happy one” for deciding whether there would be a royalty basis available to the plaintiffs should they succeed at the inquiry into damages. After recording some other difficulties involved in ordering the interim payment that was sought, Knox J said (at 464):

For all of those three reasons I do not feel that this is an appropriate case for me to approach the matter on a royalty basis. I am, of course, neither saying that the loss of profit basis may not be a proper subject of an application before the inquiry is heard, nor am I saying that the royalty basis will fail at the inquiry. All I am saying is that at this stage the royalty basis is not one which I am satisfied is, as a matter of principle, likely to succeed at the inquiry. Further than that it is neither necessary nor desirable for me to go.

52    In Blayney, Morritt V-C did not see Dormeuil Frères as standing in the way of damages being awarded on the user principle. His Lordship simply observed that, given the nature of the application in Dormeuil Frères, the reluctance of Knox J was “readily understandable”.

53    Other reported decisions show that, in the context of trade mark infringement and passing off, damages are awarded on the user principle. This is made clear, for example, in Reed Executive plc v Reed Business Information Ltd [2004] RPC 40; [2004] EWCA Civ 159 (Reed Executive) at [159]-[165], although, in that case, Jacob LJ expressed the reservation that the user principle does not automatically apply in trade mark or passing off cases, especially where the mark concerned is “not the sort of mark available for hire”. His Lordship did not, however, explain the concerns he had in mind when making this observation. Certainly, at first instance, Pumfrey J considered that damages should be awarded on the user principle: Reed Executive plc v Reed Business Information Limited [2002] EWHC 2772 (Ch) at [23]-[25].

54    In 32Red plc, an inquiry as to damages for trade mark infringement proceeded on the basis of the user principle. The plaintiff accepted that it was not in a position to prove that it had suffered a loss of profits as a result of the defendants’ infringing use. It nevertheless claimed to be entitled to a sum equal to a reasonable royalty on account of that use. The defendants’ pleaded case was that user principle damages were not available in the circumstances of that particular case. However, by the time of the hearing, the defendants had accepted that such damages can potentially be appropriate for trade mark infringement. Notwithstanding that concession, the reasons for judgment of Newey J contain a useful discussion of the user principle at [22]-[42]. In that case, two specific issues arose for determination. The first issue concerned the extent to which the specific characteristics and circumstances of the parties are important in the assessment of user principle damages. The second issue was the extent to which it is appropriate to have regard to alternative courses of action that would have been available to the parties at the date of the hypothetical negotiation. I mention this matter in particular because it is relevant to an argument raised by the respondents that, at the relevant time, they had the option—“the alternative course of action”—of using the Winnebago marks with a disclaimer: see [192]-[195] below.

55    As to the first issue, Newey J said (at [29]):

29    There are plainly limits to the extent to which the Courts will have regard to the parties’ actual attributes when assessing user principle damages. The parties are taken to have been willing to make a deal even if one or both of them would not in reality have been prepared to do so. It is also assumed that the parties would have acted reasonably regardless of whether that would in fact have been the case.

56    Nevertheless, Newey J concluded that, leaving aside certain matters, such as the defendants’ particular financial circumstances (see Irvine v Talksport Ltd [2003] FSR 35; [2003] EWCA Civ 423 (Irvine) (see [58] below)) and what might be thought to be the parties’ idiosyncrasies (see Stadium Capital Holdings (No 2) Ltd v St Marylebone Property Co plc [2011] EWHC 2856 (Ch)), regard must be had to the objective circumstances in which the parties actually find themselves. In this connection, Newey J referred to the following passage from Lord Wilberforce’s speech in General Tire (at 833):

The “willing licensor” and “willing licensee” to which reference is often made (and I do not object to it so long as we do not import analogies from other fields) is always the actual licensor and the actual licensee who, one assumes, are each willing to negotiate with the other—they bargain as they are, with their strengths and weaknesses, in the market as it exists. It is one thing (and legitimate) to say of a particular bargain that it was not comparable or made in comparable circumstances with the bargain which the court is endeavouring to assume, so as, for example, to reject as comparable a bargain made in settlement of litigation. It is quite another thing to reject matters (other than any doubt as to the validity of the patent itself) of which either side, or both sides, would necessarily and relevantly take account when seeking agreement.

57    As to the second issue, Newey J rejected the submission that the availability of a non-infringing alternative is not a relevant factor in the calculation of a reasonably royalty: see also, in this connection, Sinclair v Gavaghan [2007] EWHC 2256 (Ch) at [16]-[17] and [42]-[43]; Enfield LBC v Outdoor Plus Ltd [2012] EWCA Civ 608 at [47] and [51]. Newey J said (at [42]):

[42]    … If the parties can be expected to have taken such an alternative into account in their hypothetical negotiation, it appears to me that I must do so as well. Further, I do not think an alternative need have had all the attributes of [the mark in suit] to be relevant. In Sinclair v Gavaghan, an alternative access route was considered important even though it would have been less convenient. Similarly, it seems to me that in the present case what matters is what impact the possibility of re-branding would have had on the hypothetical negotiation, not whether a substitute mark would have shared the attributes of [the mark in suit].

58    In Irvine, damages for passing off were awarded on the basis of the user principle. The damages were calculated as a reasonable endorsement fee which, on the balance of probabilities, the defendant would have had to pay in order to lawfully obtain the plaintiff’s endorsement. The principles discussed in General Tire were applied. In applying those principles, Jonathan Parker LJ (with whom Brooke and Schiemann LJJ agreed) said (at [106]):

[106]    It is clear from Lord Wilberforce’s speech in General Tire that a reasonable endorsement fee in the context of the instant case must represent the fee which, on a balance of probabilities, TSL would have had to pay in order obtain lawfully that which it in fact obtained unlawfully (see in particular the passage from the judgment of Fletcher Moulton J. in the Aluminium case, quoted by Lord Wilberforce). It is not the fee which TSL could have afforded to pay: hence the judge was correct to conclude … that TSL’s financial situation is irrelevant.

(Emphasis in original.)

59    Further, damages for trade mark infringement and passing off were awarded on the user principle in National Guild of Removers & Storers Ltd v Silveria [2011] FSR 9; [2010] EWPCC 15 (Silveria). In that case, the plaintiff was a company incorporated to represent members of what was called the removals and storers industry. The plaintiff was the owner of a number of trade marks which members of the guild were entitled to use to show that they belonged to the guild. There were four separate actions. Judgment was obtained in each action. The conduct consisted, in each case, of the unauthorised use by the defendant (who was not a member of the guild) of the plaintiff’s name or one or more of its marks or logos. The plaintiff was unable to show a loss of sales resulting from the various infringements. Nevertheless, it claimed damages on the basis of a reasonable royalty. In accepting that approach, Judge Birss QC (now Birss J) referred to the principles in General Tire and Meters and said (at [17]):

[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 … 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.

60    In a later decision (National Guild of Removers & Storers Ltd v Jones [2011] EWPCC 4), Judge Birss QC qualified (at [15]) these observations, having regard to the reservation expressed by Jacob LJ in Reed Executive. His Honour said that, for the purposes of deciding the earlier case, it was not necessary for him to have expressed his reasons so broadly because the mark in suit was, in fact, one that was “available for hire”.

61    It is not necessary for me to dwell on the significance of whether, in awarding damages under the user principle, a mark is of the sort that is “available for hire”. This is because, as I will come to address, the Winnebago marks are and were of the sort “available for hire”. The evidence shows that, in appropriate circumstance, the applicant is and was prepared to license the Winnebago brand.

62    Finally, I note that the leading United Kingdom text on trade marks and passing off (Mellor J et al, Kerly’s Law of Trade Marks and Trade Names (15th ed, Sweet and Maxwell, 2011) at [20-139]-[20-141]) treats the “basic principles” for assessing damages in patent cases (including on the user principle) as generally applicable to damages for trade mark infringement.

63    These cases and the literature to which I have referred reveal a principled and established basis for awarding damages on the user principle for the tortious interference with property, including intellectual property. Indeed, the patent cases are regarded as paradigmatic of damages awarded on that basis. As I have discussed, the approach to awarding damages in patent cases on this basis has been extended to damages for the wrongful interference with other forms of intellectual property, including, in passing off, for the wrongful interference with a plaintiff’s reputation. Nevertheless, the respondents resisted the application of the user principle in awarding damages in the present case.

The respondents’ submissions on the user principle

64    The respondents submitted that, as a matter of principle, damages for passing off cannot be awarded on the basis of the user principle. They also submitted that, in any event, in the circumstances of the present case, damages should not be awarded on that basis. The respondents advanced six principal reasons for those submissions.

65    First, the respondents focused on the restitutionary aspect of damages awarded under the user principle. Relatedly, they pointed to the Full Court’s refusal to remit the applicant’s claim for an account of profits. The respondents then argued that, by seeking damages based on the user principle, the applicant was seeking to “outflank” the Full Court’s refusal to remit the claim for an account of profits by a “doctrinal sleight of hand” which involved the applicant seeking, in substance, nothing more than an account of profits calculated by an expense notionally saved by the respondents—a reasonable royalty. Thus, the respondents argued, the applicant was effectively seeking a remedy already denied to it by the Full Court.

66    I do not accept this submission. Although damages awarded under the user principle have an avowedly restitutionary aspect, it is a conceptual error to confuse damages in tort with the separate remedy in equity that compels a wrongdoer to give up profits which, having been derived by wrongdoing, should not be retained. Plainly, in the present case, the Full Court’s refusal on discretionary grounds to remit the applicant’s claim for an account of profits was informed by the equitable nature of that relief. But neither matter relied upon by the Full Court in refusing to remit the applicant’s claim for an account of profits stands as a reason for refusing the applicant’s claim for damages. Delay is no bar to a claim for damages, other than by preclusion and extinguishment of the underlying action by statute. And a defendant seeking to resist a claim for damages calculated under the user principle (here, by reference to a reasonable royalty or licence fee) is not confronted or vexed with the difficulties that might confront and vex a defendant seeking to resist an order to account for and give up profits wrongfully made. Indeed, had that not been so, the Full Court would not have remitted the applicant’s claim for damages. It is inconceivable that, having refused to remit the applicant’s claim for an account of profits for stated discretionary reasons, the Full Court would have immediately put out of mind those reasons when remitting the applicant’s claim for damages.

67    Secondly, the respondents submitted that the joint reasons of Black CJ and Jacobson J in Aristocrat (see [46] above) represent the present state of Australian law in respect of damages for the infringement of intellectual property rights. They submitted that damages, assessed on the basis of a reasonable royalty, are not available where, as a matter of established fact, the owner of the property in question would never have licensed it to the infringer.

68    In this connection, it has always been conceded by the applicant that it would not have been willing to allow the respondents to use the Winnebago marks in Australia for a reasonable royalty or licence fee. Thus, the respondents submitted, the applicant’s “novel claim” should be dismissed “in short order” because, based on Black CJ’s and Jacobson J’s reasons in Aristocrat, a notional royalty or licence fee does not provide an appropriate measure of damages in such circumstances.

69    I do not accept this submission. I do not accept that, at [26]-[28] of their joint reasons in Aristocrat, Black CJ and Jacobson J were dealing with anything other than the particular claim that was then before the Full Court. Further, as I have recorded at [48] above, I do not, with respect, understand their Honour’s conclusion in Aristocrat, or reasoning at [26]-[28] thereof, in respect of damages under s 115(2) of the Copyright Act 1968 (Cth), to be binding on me when awarding damages at general law for passing off.

70    Thirdly, the respondents submitted that the user principle should not apply to damages for passing off because the principle on which the remedy of damages is awarded in tort is compensation. The respondents submitted that the United Kingdom cases do not in fact support the principle for which the applicant contends. Further, the respondents submitted that the user principle cannot be extended in any event to passing off cases because damage is the gist of the action in such cases. The last-mentioned submission was repeated by the respondents in their fourth principal submission. I will deal with it in that context: see [81]-[91] below.

71    The respondents developed their third principal submission in the following way. They emphasised that the general purpose of damages in tort is compensatory: Baume v Commonwealth (1906) 4 CLR 97 at 117; Butler v The Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 at 191; State of South Australia v Johnson (1982) 42 ALR 161 at 169-170; Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 12; Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 at 99. They submitted that the reception in Australia of the United Kingdom cases applying the user principle has only been “on a tort by tort basis” with a concern to ensure that there is minimal, if any, violation of the compensation principle. They submitted, for example, that Strand Electric has been understood as only applying the user principle to cases where the tortious interference was to profit-earning chattels deployed for hire by the plaintiff: Gaba Formwork at 188; Bunnings at [174]-[175]; Roder Zelt-Und Hallenkonstruktionen Gmbh v Rosedown Park Pty Ltd (in liq) & Eustace (unreported, von Doussa J, 30 November 1995) at [24]. Thus, the respondents contended, on no view can the limited reception in the Australian cases of the user principle be extended to a situation where, as here, it has been established that there would have been no “hiring out” and where it has been effectively conceded that no actual loss can be established.

72    Further in this regard, the respondents submitted that there is no warrant in the United Kingdom patent cases for a gain-based approach to damages, regardless of the actual loss of the plaintiff. They submitted that, in both Meters and Watson, Laidlaw & Co, damages were awarded on the basis of lost profits, not on the basis of a reasonable royalty.

73    It is true that, in Meters and in Watson, Laidlaw & Co, damages were awarded on a loss of profits basis, including also in Meters for loss of profits due to the patentee’s need to reduce its selling price in order to meet the infringer’s unlawful competition. But it is necessary to bear in mind how Meters and Waston, Laidlaw & Co were each dealt with on appeal.

74    In Meters, it had been found that the infringer had sold 19,500 infringing products (prepayment gas meters). On the inquiry as to damages, a Master had certified that 5,000 additional meters would have been sold by the plaintiff but for the defendants’ infringing sales. The Master awarded damages for the plaintiffs’ loss of profits on these lost sales and, as I have noted, also for the plaintiffs’ loss of profits on the sales actually made by it, where it had reduced its selling price to meet the defendants’ unlawful competition. On a summons to vary the Master’s certificate, the trial judge (Eve J) reduced from 5,000 to 3,500 the number of additional meters which the patentee would have sold but for the defendants’ infringing conduct. Damages were reduced accordingly. The plaintiffs did not appeal from this judgment. However, the defendants did appeal to the Court of Appeal, claiming that the damages that had been awarded by the trial judge were excessive and should not have been assessed at more than a certain, relatively nominal, sum.

75    It was in this particular context that Fletcher Moulton LJ made the remarks quoted at [30]-[31] above. His Lordship specifically rejected (at 163) an argument advanced by the defendants (as appellants) that a patentee can only recover damages in respect of sales which it would have made but for the infringer’s infringements. His Lordship said (at 165):

In the present case … I think that the learned Judge went too far in wholly refusing to consider the 14,000 infringing instruments, which were sold to regular customers of the Defendants. If such a principle existed then you could infringe with impunity if you only sold to relations or settled customers. I think on the whole that the total sum, which he has awarded, is not a bit too much, taking the whole of the evidence in the case; and although perhaps I should not have reasoned it out in the same way as he did—certainly I should not have excluded entirely from my consideration the 14,000 instruments that were sold to regular customers of the Defendants—I am satisfied that there is nothing in his decision as to amount, which I ought to change in favour of the Defendants, and therefore I think that this Appeal should be dismissed with costs.

76    It was, of course, the principles espoused by Fletcher Moulton LJ that Lord Shaw considered to be correct in Watson, Laidlaw & Co: see [32]-[34] above.

77    Watson, Laidlaw & Co, like Meters, was a case in which the appeal was brought by an unsuccessful defender who claimed that the damages that had been awarded were excessive. The intermediate appeal court, the Court of Session, had found that every sale of an infringing article represented damage to the pursuer and, having so found, assessed damages on a loss of profits basis. However, in the appeal to the House of Lords, the defender, as appellant, accepted that a fair test of loss was the amount that it would have had to pay to acquire legally the right which it had infringed (ie, a reasonable royalty).

78    Lord Kinnear (at 112) saw the controversy as turning on facts, in particular whether the amount of damages awarded by the Court of Session was excessive. His Lordship was not satisfied that the amount of the assessed damages was excessive. Lord Atkinson reasoned that not all the infringing sales would have been made by the pursuer but, after making various adjustments, including, it would seem, by accepting the defender’s concession as to a reasonable royalty, was also not satisfied that the amount of the assessed damages was excessive. I have already set out Lord Shaw’s reasoning in [32]-[34]. His Lordship, too, was not persuaded that the amount of the assessed damages was excessive. The Earl of Halsbury dissented, on the basis that there was no principle in debate and no material which would enable the amount of the damages awarded to be properly evaluated on appeal.

79    While the individual reasons in Meters and Watson, Laidlaw & Co are not uniform in their discussion of principle, it is Fletcher Moulton LJ’s judgment in Meters that has been found to be influential, first in Lord Shaw’s speech in Watson, Laidlaw & Co and then in Lord Wilberforce’s speech in General Tire. These three judgments have been taken as establishing foundational principles for the assessment of damages not only in patent infringement cases but, as I have discussed, in other cases where intellectual property rights have been infringed. Thus, while the respondents are correct to point out the facts in Meters and Watson, Laidlaw & Co, their submissions do not embrace the principles developed from those cases, which have been greeted with general, judicial acceptance.

80    The respondents also submitted that General Tire stands for the contrary of the contention that damages can be awarded on the user principle. To support this submission, the respondents pointed to the particular passage in Lord Wilberforce’s speech to which I have briefly alluded. For the reasons given at [39] above, I do not accept the respondents’ submission. It is also contrary to the way in which Lord Wilberforce’s speech has been received and applied in the cases.

81    Fourthly, the respondents submitted that the user principle is inapplicable to damages for passing off because, as damage is the gist of the action, only actual loss arising from the damage found can be claimed by way of damages. The respondent submitted that, although the Full Court in the present case has implicitly found that the applicant has suffered damage to its reputation, the payment of a reasonable royalty, in circumstances where the applicant would not have licensed the Winnebago marks to the respondents, does not fall within the “framework” of passing off.

82    The respondents argued:

Thus, there is a fundamental mismatch between the reasonable royalty claimed by Winnebago and the elements of the tort of passing off. Winnebago is seeking gain-based damages, independent of any damage actually suffered, in circumstances where liability on the cause of action itself is limited to circumstances where there is actual damage to business or goodwill/reputation. Thus, the stream (the remedy) seeks to rise higher than the source (the cause of action). It is [a] fundamental principle of damages that they must compensate for the type of harm against which the cause of action protects.

83    The respondent submitted that a case for passing off is unlike a case for infringement of a patent or copyright in that, in the latter class of case, each infringement represents a separate and complete cause of action relating to interference with a property right whereas, for passing off, the essence of the tort is not the interference with a property right, but damage.

84    I do not accept that patent and copyright infringement cases can be distinguished from passing off cases in this way. Undoubtedly, on orthodox principles, damage must be established in order to complete a cause of action for passing off. But I do not think that it can be cogently argued, as the respondents seem to argue, that passing off is not concerned with an interference to property rights.

85    It has been accepted doctrine, for at least 100 years, that the action of passing off is founded on the defendant’s interference with the plaintiff’s right of property in its reputation or goodwill: A.G. Spalding & Bros v A.W. Gamage Ltd (1915) 32 RPC 273 per Lord Parker of Waddington at 283-285. In ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 (ConAgra), Lockhart J and Gummow J, in their respective reasons, each emphasised that passing off involves an interference with the plaintiff’s property right in its reputation. Indeed, Lockhart J stressed (at 340) that reputation is “the key business facet that passing off protects”. After discussing the nature of the property right protected in a passing off action, Gummow J quoted with approval (at 369) the following statement by Learned Hand J in Yale Electric Corp v Robertson 26 F2d 972 (2d Cir 1928) at 974:

If another uses [the plaintiff’s mark], he borrows the owner’s reputation, whose quality no longer lies within his own control. This is an injury, even though the borrower does not tarnish it, or divert any sales by its use: for a reputation, like a face, is the symbol of its possessor and creator, and another can use it only as a mask. And so it has come to be recognised that, unless the borrower’s use is so foreign to the owner’s as to insure against any identification of the two, it is unlawful.

86    The distinction which the respondents draw between patent and copyright cases on the one hand, and passing off cases on the other, in terms of the interference with property rights, does not exist. In each case, the essence of the wrong is an interference with a property right.

87    Here, the respondents’ principal contention appears to be that the applicant suffered no damage by way of a lost royalty (in effect, no lost “sale”) because the applicant would not have licensed the respondents to use the Winnebago marks in the first place. Therefore, according to the respondents, damages representing a reasonable royalty should not be awarded because such an award would not match a loss actually suffered by the applicant.

88    I am unable to accept that the wrongful interference with the plaintiff’s property in passing off—where the defendant has effectively misappropriated the plaintiff’s reputation—is not, in and of itself, an aspect of damage for the purposes of establishing passing off. Further, the decisions in Irvine and Silveria are illustrations of where, in passing off, such interference was regarded as damage that was compensable, regardless of whether the plaintiff had lost “sales”.

89    Moreover, it seems incongruous that a defendant should be able to rely, in its defence to a claim for damages, on the very matter that rendered its conduct unlawful—the right holder’s lack of permission to use the property, regardless of whether that permission would have been granted if asked for. This incongruity is reflected in the passage from Lord Shaw’s speech in Watson, Laidlaw & Co which I have quoted at [33] above.

90    At this point it is convenient to introduce another argument advanced by the respondents. They submitted that, on any view, damages for passing off can only be available for the proportion of sales which arose from a misappropriation of the applicant’s reputation so as to result in damage. The respondents distinguished these sales from sales which arose from the use of the first respondent’s reputation in the same marks. The respondents submitted that, as the applicant has offered no evidence as to the relevant proportion of the respondents’ sales that had resulted from the misappropriation of the applicant’s reputation, there was no rational basis on which damages could be assessed. The result, according to the respondents, was that only nominal damages could be awarded.

91    The answer to the respondents’ submission is that the applicant does not seek damages based on lost sales. If it were claiming damages on that basis, the applicant would have to establish the likely number of sales it would have made but for the respondents’ wrongful conduct. But that is not its claim. The applicant claims compensation for the wrongful use of the Winnebago marks to which its reputation attaches. In that context, it is not to the point that, potentially, only some sales resulted from the deception practised by the respondents. The respondents effectively used the applicant’s reputation for the purpose of making all their sales. It is that case for which compensation lies. The matter can be considered in this way: had a licence to use the Winnebago marks been granted by the applicant, it could be no answer to a claim for payment of the licence fee for the respondents to say, after the event, that the applicant’s reputation in the Winnebago marks was only found to be useful for making some of the sales and, therefore, that only part of the agreed licence fee should be paid.

92    Fifthly, the respondents submitted that a notional licence construct is “self-defeating” of the applicant’s claim for damages based on the user principle. The respondents’ argument in this connection was that a common law trade mark may only be validly licensed if some form of selection or quality control is exercised, otherwise a connection in the course of trade with the owner is lost and the very act of licensing is misleading and destroys the essential function of the trade mark as a badge of origin. The respondents submitted that the applicant had adduced no evidence as to the manner in which it would have exercised, even notionally, quality control over the respondents’ RVs. The respondents submitted that the available evidence suggested that the respondents’ RVs did not meet the applicant’s quality standards. The respondents continued:

Thus, the entire notional licence construct, which forms the basis for the notional royalty, is that Winnebago’s marks must notionally be licensed to be used on Knott’s vehicles unaltered from their current form, in circumstances where Winnebago contends that those vehicles do not conform with Winnebago’s own quality standards. The inevitable consequence is that the notional licence is invalid – and no royalty can be charged pursuant to an invalid licence. The notional licence construct is thus self-defeating on the facts of this case.

93    I do not propose to unravel the intricacies of this submission. The simple answer is that it raises considerations that are entirely irrelevant to the task at hand. When applying the user principle to determine the sum that should be paid for use of the property, the Court proceeds on the assumption that the parties are willing to make a deal and that, to that end, they are prepared to act reasonably. This is, of course, a legal fiction. Such a device should not be given a legal operation beyond that required to achieve the object of its incorporation: Wellington Capital Ltd v Australian Securities and Investments Commission (2014) 254 CLR 288; [2014] HCA 43 at [51]. The question of whether a licence that does not secure quality control is a valid licence raises an extraneous inquiry that can, and should, be put aside. However, as I explain in a later section of these reasons (see [180]-[181] below), I accept that, in the circumstances of a given case, the need to maintain quality control may be a factor that is relevant when considering the amount to be fixed for a reasonable royalty or licence fee.

94    Sixthly, the respondents submitted that if, contrary to all their submissions, damages based on the user principle are available, such damages should not be awarded where it is not “fair”, “just” or “appropriate” for the Court to do so. The respondents submitted that the award of such damages in the present case would be “unjust, unsuitable, inappropriate, and/or offend common sense” for a number of reasons, as follows.

95    The respondents submitted that their sale of Winnebago branded vehicles in Australia between 2004 and 2013 arose because of the applicant’s failure to prevent the first respondent from using the Winnebago marks for more than 19 years after it became aware of the first respondent’s use in 1985 or to take any acts in reasonable mitigation of any damage allegedly suffered by the applicant after 2004. The respondents submitted that by awarding damages to the applicant on the basis of the user principle the Court would, in effect, be rewarding the applicant for its tardiness and presenting it with a windfall.

96    The respondents further submitted that, in the period from 1985 to 2004, the first respondent built up its own reputation in the Winnebago marks, whilst the applicant stood by and allowed it to do so. The respondents submitted that it would be unjust for the respondents to be required to pay damages amounting to a reasonable royalty or licence fee for each vehicle sold in circumstances where many of the sales were the consequence of the first respondent’s own reputation, which the applicant allowed it to develop.

97    The respondents pointed again to the impossible task of ascertaining, years after the event, what sales were produced by the respondents trading on the applicant’s reputation in the Winnebago marks and what sales were produced by the respondents trading on the reputation developed by the first respondent.

98    I do not accept that these submissions, individually or collectively, stand as reasons or as the reason for denying the applicant an award of damages on the user principle. The respondents embarked on a deliberate course of conduct to use the Winnebago marks. Any suggestion that the sales made by the respondents in the relevant period were the result of the applicant’s failure to act, rather than the respondents’ own deliberate conduct, should be rejected. So too should the suggestion that awarding damages to the applicant on the user principle would constitute a windfall to the applicant. There is no windfall. As the applicant put it, a reasonable royalty or licence fee is no more than compensation referable to that which was taken from it. As I have discussed above, such compensation reflects the fact that the respondents used the Winnebago marks, to which the applicant’s reputation attaches, for the purpose of making all their sales of Winnebago branded RVs.

99    The respondents’ submissions made in this connection echo some of the submissions advanced at the trial on liability, and on the appeal, with respect to estoppel, laches, acquiescence and delay. The Full Court had regard to these submissions and varied the injunctive relief granted by Foster J. The Full Court also refused to remit the applicant’s claim for an account of profits. It can be taken that the Full Court did not itself consider that any of these matters would bar the claim for damages which the applicant had foreshadowed. Certainly, the passages in the cases on which the respondents rely (Blake at 278 and 281; Devenish Nutrition Ltd v Sanofi-Aventis SA [2009] Ch 390; [2008] EWCA Civ 1086 at [147]; Bunnings at [175]) do not support some discretionary rejection of such a claim.

Conclusion

100    I am not persuaded that the user principle cannot apply when awarding damages for passing off or should not be applied in the circumstances of the present case. As I have said, the cases to which I have referred reveal a principled and established basis for awarding damages on this basis in intellectual property cases. Even though no Australian case has been brought to my attention in which damages for passing off have been awarded on this basis, the United Kingdom cases do provide relevant and instructive examples, which I propose to follow.

101    I therefore turn to consider what sum should be paid by way of damages for the unauthorised use of the applicant’s reputation in the Winnebago marks in the relevant period.

The evidence

The evidence of the lay witnesses

Randy J Potts

102    Mr Potts is the Chief Executive Officer of the applicant. He gave evidence about the circumstances in which the applicant entered into various agreements with a local company, Winnebago RV Pty Ltd, on 25 July 2014, including a licence agreement to which I make further reference below (see [130]). Mr Potts was cross-examined.

Karen Christine Jefson

103    Ms Jefson is the Executive Legal Secretary of the applicant. She produced certain licence agreements to which I make further reference below (see [124]-[126]), and correspondence and other records relating to those licences.

William Cunynghame Daymond

104    Mr Daymond is a solicitor employed by the solicitors for the applicant. Mr Daymond produced certain documents from the Australian Bureau of Statistics.

Bruce Arthur Binns

105    Mr Bruce Binns is a director and shareholder of the first respondent. He gave evidence in response to Mr Harvey’s opinion on the appropriate royalty rate to be applied (see [132] below). He pointed to certain differences between the United States and Australia in respect of the market for RVs. He also gave evidence concerning whether the first respondent, if approached in 2004, would have agreed to pay a royalty to the applicant to use the Winnebago marks in Australia. Mr Binns was cross-examined. The cross-examination was directed, principally, to estimating the first respondent’s sales income for Winnebago branded RVs in the period 14 October 2004 to 30 June 2005 and for the two succeeding financial years: see [196] below.

Benjamin Binns

106    Mr Benjamin Binns is the Chief Executive Officer of the first respondent. He was called to give evidence concerning the first respondent’s manner of use of the Winnebago marks on RVs since June 2014.

The evidence of the expert witnesses

107    Two expert witnesses gave evidence. Mr Anthony James Harvey gave evidence for the applicant. Mr Tim Heberden gave evidence for the respondents. It is convenient to deal, firstly, with Mr Heberden’s evidence.

Mr Heberden

108    Mr Heberden is the Director of Intellectual Property Valuation at Griffith Hack. He is a Registered Business Valuer, Chartered Accountant and Certified Practising Marketer. During the last 16 years, he has specialised in the valuation of brands and the value-based management of brands and other intangible assets. This work has included brand licensing and the determination of appropriate royalty rates for licensing transactions as well as for financial reporting, tax compliance, mergers and acquisitions, and securitisation, amongst other purposes. Mr Heberden provided a report, verified by affidavit, and was cross-examined.

109    Mr Heberden was asked by the respondents’ solicitors to provide an opinion in relation to the following question:

In the event that Knott and Winnebago-Inc had entered into an agreement on 14 October 2004 under which Winnebago-Inc licensed Knott to use the name WINNEBAGO as a vehicle brand and as a business name, and to use the WINNEBAGO logo, in relation to recreational vehicles in Australia, what would have been a reasonable licence fee payable by Knott in respect of such a licence?

110    Mr Heberden was asked to provide his opinion by reference to alternative assumptions.

111    The first assumption (which Mr Heberden called the Spillover Assumption) was that the Winnebago name and logo had not been used by the first respondent in Australia prior to 14 October 2004 and that, as at 14 October 2004, the first respondent had no ability to lawfully use the Winnebago name and logo in any way without a licence from the applicant.

112    The second assumption (which Mr Heberden called the Disclaimer Assumption) was that during the financial years 1992 to 2004, the first respondent had in fact sold RVs under the Winnebago brand and logo in Australia in certain quantities and had promoted the vehicles without any form of disclaimer. Further, as at 14 October 2004, the first respondent would have been lawfully entitled to use the name Winnebago as a vehicle brand and as a business name, and to use the Winnebago logo in relation to RVs in Australia, without entering into any licence with the applicant, provided that it complied with the orders made by the Full Court in relation to using a disclaimer.

113    Although, in his report, Mr Heberden referred to “the Winnebago name and logo” or “the Winnebago brand and logo”, and often just “the Winnebago brand” (amongst other iterations), I have treated his evidence as meaning the Winnebago marks. The following summary of Mr Heberden’s evidence should be understood in that light. I have used the expressions “Winnebago brand” and “Winnebago marks” interchangeably.

114    Mr Heberden undertook an evaluation of the Winnebago brand in the United States and its spillover reputation in Australia as at October 2004. He said:

The attractiveness of a brand to licensees and purchasers is a function of its earnings capability and the associated risks.

Whether valuing a brand, assessing an appropriate royalty rate, or developing brand strategy, I gauge its strength through an economic rating process. The metrics within the rating process gauge the asset’s earnings capability and the associated risks – to reflect the factors considered by a licensee or purchaser of a brand. The rating attributes consist of brand equity (brand familiarity, perceived quality, image and affinity), the brand’s market presence and the strength of legal protection.

The findings are best interpreted with reference to performance of the brand against each attribute, ideally with reference to a benchmark. However, we aggregate the findings into a single brand rating, using the following scale:

115    Mr Heberden rated the Winnebago brand in the United States as “[s]trong to extremely strong”. He rated the brand in Australia, based only on the spillover of United States activities, as a “[w]eak brand”. He rated the strength of the brand in Australia, based on spillover effects and the first respondent’s own activities, as “[a]bove average to moderate strength”. In so doing, he reasoned that the first respondent’s reputation in the Winnebago brand had a significantly greater economic impact than the spillover reputation alone.

116    Mr Heberden said:

    Brand equity assessments and brand ratings can provide robust findings when supported by quantitative research which is representative of the brand’s target market. However, even where quantitative data is not available, the brand rating framework provides a systematic way of collating qualitative information and forming a view of the strength of a brand.

117    It is to be noted that, in undertaking his evaluation, Mr Heberden did not rely on quantitative research. His ratings are, accordingly, the product of his own perceptions, albeit informed by the various matters set out in his report. In cross-examination, Mr Heberden was challenged on his rating, as at October 2004, of the Winnebago brand based solely on spillover reputation and his conclusion that, as at that time, the first respondent’s reputation in the Winnebago brand was greater than the applicant’s spillover reputation. Mr Heberden accepted that, at least in one respect, his assessment of the first respondent’s reputation in the Winnebago brand was misinformed: he assumed, incorrectly, that the first respondent’s reputation was entitled to monopoly protection in Australia, whereas the Spillover Assumption required him to assume that the first respondent had no ability to lawfully use the Winnebago marks in any way without a licence from the applicant.

118    With respect to the Spillover Assumption, Mr Heberden undertook a profit-split analysis to estimate the contribution that the Winnebago brand made to the first respondent’s profit, compared to the contribution made by other assets of its business. For this purpose, Mr Heberden analysed the first respondent’s profit margins for the four years prior to the period commencing 14 October 2004. Using the first respondent’s average operating profit margin in the four years prior to the commencement of the relevant period, Mr Heberden opined that an appropriate royalty rate, on this analysis, would be between 1.5% and 2.2%.

119    However, according to Mr Heberden, this royalty rate would reflect the contribution made by the applicant’s spillover reputation and the reputation that the first respondent had developed using the Winnebago brand. Mr Heberden reasoned, therefore, that it was necessary for him to take into account the first respondent’s own-developed reputation in the Winnebago brand and to isolate and separate that reputation from the applicant’s reputation in order to provide an answer that was consistent with the Spillover Assumption. Adopting this approach, Mr Heberden proceeded on the basis that the first respondent’s reputation had “a significantly greater economic impact” than the applicant’s spillover reputation during the period covered by his profit-split analysis. If followed, according to Mr Heberden, that the applicant’s spillover reputation “would require a significantly lower royalty rate for an introductory period”. On this basis, he said that he would “anticipate” a royalty rate of between 0.5% and 1.0%. However, given the strength of the Winnebago brand in its own home market (the United States), Mr Heberden said that “it is likely that the commercial practice of the licensor would be to insist on a royalty ‘floor’/minimum royalty rate of 1.0%”. Thus, Mr Heberden expressed the opinion that 1% would be a reasonable royalty rate.

120    Based on his profit-split analysis, Mr Heberden also concluded that a royalty rate of 5% was not sustainable; it would have exceeded the first respondent’s operating profit in 2001 and subsumed a significant part of the first respondent’s profit in the other years.

121    In its closing written submissions, the applicant stated that Mr Heberden’s evidence on profit-split analysis had been rejected. The applicant then argued that this rejected evidence was an essential premise for the adoption of the 1% royalty rate to which I have referred at [119] above, with the consequence that Mr Heberden’s opinion in respect of the Spillover Assumption could not stand. Whilst certain passages from Mr Heberden’s report were objected to and rejected, other passages were not objected to and were admitted. The entirety of Mr Heberden’s evidence on profit-split analysis was not objected to or rejected. Indeed, Mr Heberden was cross-examined on aspects of his profit-split analysis. I should, therefore, make clear at the outset that I do not accept the applicant’s submission at the level of generality at which it is expressed. However, the rejection of certain parts of Mr Heberden’s evidence in this regard has undermined the weight that I can attach to his overall conclusion based on that analysis. I will discuss this further at [190] below.

122    With respect to the Disclaimer Assumption, Mr Heberden hypothesised that the first respondent would either continue to use the Winnebago brand without a licence but with a disclaimer, or enter into a licence with the applicant. He said that he did not believe that it was possible “to accurately quantify an appropriate royalty for not displaying the disclaimer”.

123    Mr Heberden analysed three licensing agreements entered into between the applicant and licensees in the United States (the US licences).

124    The first licence was between the applicant and Chariot Eagle, Inc for use of the Winnebago trade mark and other intellectual property in respect of the design, manufacture, advertising, sale and promotion of single chassis non-motorised park model trailers in the United States and its territories, Canada and the Caribbean Islands (the Chariot Eagle licence). The licence was entered into on 9 September 1997 for a term of approximately one year, with extensions. The royalty was 6% on Net Shipments (the aggregate of the invoiced amounts of licensed products less: (a) refunds, credits and allowances made to customers; (b) freight charges charged to customers; and, (c) sales and excise taxes).

125    The second licence was between the applicant and Choo Choo Customs Group, Inc for the use of the Winnebago trade mark and other intellectual property in respect of the design, manufacture, advertising, sale and promotion of up-fitted or conversion vans of specified manufacturers and up-fitted or conversion sports utility vehicles, in the United States and its territories (the Choo Choo licence). The licence was entered into on 16 March 1998 for a term of 21 months, with extensions. The royalty was 3.5% on Net Shipments for the initial term, 5% for the first extension term, and 6% for subsequent extension terms.

126    The third licence was between the applicant and Sun-Lite, Inc for the use of the Winnebago trade mark in respect of the design, manufacture, advertising, sale and promotion of pick-up truck campers in the United States and its territories and Canada (the Sun-Lite licence). The licence was entered into on 1 July 1998 for a term of 17 months, with extensions. The royalty was 3% on Net Shipments for the period 1 July 1998 to 31 December 1999, increasing to 4% and then 5% in subsequent, defined periods.

127    Mr Heberden sought to distinguish these licences from the present facts on the basis that the royalty rates in them were referable to the Winnebago brand in the United States market where the strength of the brand had been developed for 44 years, and in circumstances where the applicant was the market leader, with sales of US$1.1 billion, a substantial customer base and ongoing advertising investment. Apart from differences between the United States and Australia in terms of market characteristics and brand strength, Mr Heberden also noted two additional matters which he saw as raising further doubts about the comparability of the US licences for the purpose of assessing a suitable royalty or licence fee in the present case.

128    First, Mr Heberden noted that the US licences were for different product categories—namely, non-motorised park homes, up-fitted/conversion vans, and pick-up truck campers, respectively. He said:

Profit margins and the role of branding can vary significantly between different product categories within the same industry. It seems likely that there will be differences in the mark-up on motorhomes as opposed to park-homes and conversion vans. There is not sufficient information for me to determine whether brand royalty ranges would vary between these product categories.

129    Secondly, Mr Heberden noted that only 93 vehicles had been sold under the Chariot Eagle licence and that, in respect of the Choo Choo licence and the Sun-Lite licence, actual royalties did not in fact exceed 3.5% and 3%, respectively.

130    Mr Heberden also considered a licence entered into between the applicant and Winnebago RV Pty Ltd (the Australian licence). The licence was entered into on 25 July 2014. It covers the territory of Australia and New Zealand, with an initial term of five years and a renewal term of five years. The licensed products are Winnebago branded RVs (both motorised and caravans). The licence is an exclusive licence with a headline royalty rate of 2.5% of net sales (as defined) for sales in excess of 100 units. However, this royalty is off-set by a marketing contribution payable by the applicant of 1.5% of net sales in excess of 100 units. The parties proceeded on the basis that this resulted in a net royalty rate of 1%. There is a minimum royalty of $50,000 per annum, for the initial term. In closing submissions, the respondents argued that, if 100 units were sold at an assumed price of $150,000, the minimum royalty payment would reflect an effective royalty rate of 0.3% for those units. Mr Heberden said that the Australian licence “highlights the differences in the economic capability of the Winnebago brand in Australia compared to the USA”. In cross-examination, Mr Heberden expressed the view that the Australian licence was comparable to the circumstances he was asked to assume in providing his opinion on the basis of the Spillover Reputation.

Mr Harvey

131    Mr Harvey is a licensing executive with over 21 years’ experience in brand licensing. He is currently the principal of his own licensing company, Blue Chip Brands Pty Ltd, which specialises in the management and development of consumer products programs on behalf of trade mark owners. The brands he has represented or managed since July 2003, when his company’s business was established, include Jeep, Ford, and Honda Motorcycles and Power Equipment. However, Mr Harvey’s experience with licensing motor vehicle brands is in relation to complementary or accessory products, not the manufacture of the vehicles themselves. Mr Harvey made two affidavits and was cross-examined.

132    Mr Harvey was asked by the applicant’s solicitors to express an opinion on what would have been a reasonable commercial arm’s length licence fee “for use of the Winnebago [marks] … as a vehicle brand name, and a business name by an Australian manufacturer of recreational vehicles between late 2004 and late 2013”, based on certain assumptions. Mr Harvey expressed the opinion that the licence fee would have been in the range of 4% to 5% of the selling price, “due to Winnebago being a very well known and recognised brand, a brand known for the quality of its vehicles, and the fact that the [licence] is for the use of the Winnebago [marks] in relation to its core product, namely recreational vehicles.”

133    Mr Harvey considered the US licences to be consistent with and confirmatory of his own opinion. He said that there was a close commonality between licensing deals in the United States and those in Australia. He acknowledged that there was a difference in market size between the United States and Australia, based on population size. However, according to Mr Harvey’s experience, royalty rates are “not necessarily lower due to the relative size of the retail market or due to the brand in question not being made available in a territory.” He said that, despite the fact that some brands have far greater recognition and strength in the United States, and the size of the market is significantly larger, the royalty rates paid by Australian licensees are “in the same region as in the [United States].” Indeed, he said that royalty rates in Australia are “among the highest in the world and often higher than in larger markets such as the United States.” He said that, in his experience, royalty rates in the United States were “often the starting point for negotiations on licensing deals in Australia” for certain brands. Mr Harvey expressed the view that markets in the United States and Australia were “otherwise generally similar as developed countries with similar commercial systems and consumers interested in similar products and services.” He regarded the US licences as relevant and as “providing a good guide to what would be an appropriate licensing deal for Australia”. In this, he disagreed with Mr Heberden. However, Mr Harvey’s evidence in this regard was qualified in cross-examination when he accepted that, in setting a reasonable licence fee in Australia for a United States RV brand, it would be important to understand whether a licensee in Australia could achieve the economies of scale in the Australian market that a United States licensee might achieve in the United States market.

134    Mr Harvey also considered the Australian licence. He pointed to two factors which he said “may impact the royalty rate agreed” in that licence. He said:

Firstly, and most importantly, Winnebago RV Pty Ltd does not currently have the benefit of exclusivity in ultilising the Winnebago brand on RVs in Australia. The fact that Knott is still able to use the Winnebago brand in conjunction with their vehicles (albeit with the use of a disclaimer) severely reduces the value that Winnebago RV Pty Ltd can leverage from the brand. Winnebago RV Pty Ltd is further disadvantaged by having to pay a royalty for the use of the Winnebago brand (thus either increasing the price of the end product or reducing their margin) whereas Knott does not have this cost impost. Therefore, the royalty rate that Winnebago is able to justify is significantly compromised by the above factors.

135    Secondly, Mr Harvey noted that the applicant had received a number of complaints from Australian residents in relation to RVs supplied by the first respondent in Australia that had been branded with the Winnebago name. Based on these communications, Mr Harvey opined that, in relation to these sales by the first respondent, it was likely that damage had been sustained to the Winnebago brand reputation and that this would likely have an impact on the royalty rate that the applicant was able to attain when licensing the brand in Australia. He said that this consideration would not be relevant to any negotiation of a licence between the applicant and the first respondent.

136    Mr Harvey disagreed with Mr Heberden’s assessment that 1% would be an appropriate royalty rate to apply. He challenged certain conclusions reached by Mr Heberden in relation to the strength of the Winnebago brand in Australia. He disagreed with Mr Heberden’s rating of the Winnebago brand’s spillover reputation in Australia, stating that “the spillover reputation of Winnebago in Australia is considerably higher than Mr Heberden suggests”. He opined that “the Winnebago brand has considerable spillover reputation in Australia and a much greater level of brand equity and value than Mr Heberden gives it credit for.”

137    Mr Harvey also argued that the Winnebago brand’s spillover reputation “would be higher than that created by Knott”. In this connection, he argued that any value or reputation attributable to the brand from the first respondent’s activities was generated solely through the applicant’s reputation. In other words, no independent value in the Winnebago brand had been built up by the first respondent’s own activities or by the first respondent itself. This conclusion, however, is inconsistent with the Full Court’s findings (see [6]-[7] above) and cannot be accepted.

138    As to Mr Heberden’s profit-split analysis, Mr Harvey said that not enough detail had been provided in order for him to comment on how such an analysis should impact on setting a reasonable royalty to use the Winnebago brand on RVs in Australia. Nevertheless, Mr Harvey commented that the use of the Winnebago brand on an RV should facilitate a higher price than the price for the product without the brand. Although having expressed that view, Mr Harvey accepted in cross-examination that he had never been involved in carrying out a profit-split analysis.

139    As to the Disclaimer Assumption, Mr Harvey gave the following evidence:

In my opinion, an appropriate royalty rate for not displaying the disclaimer should be no different to the royalty rate appropriate for the legitimate licensing of the brand. This leads consumers to believe and expect that there is a strong association between Winnebago and the third party utilising the brand and that the product available would be endorsed and approved by Winnebago.

140    Notwithstanding this evidence, Mr Harvey accepted in cross-examination that, when considering the value, say, the first respondent would pay the applicant to use the Winnebago name without a disclaimer, the fact that the first respondent could use the name with a disclaimer is something that would be taken into account and weighed up.

141    Mr Harvey was also cross-examined on his opinion that the appropriate royalty rate was 4% to 5%. He accepted that, in providing this opinion, he did not know, and had made no inquiries about, the values with which the Winnebago brand was associated or the nature of the RVs manufactured by the first respondent to which the Winnebago brand had been applied. He accepted that a licensee would take into account a licensor’s requirements for quality control, and the cost of those requirements, when considering whether to take a licence, and what it would be prepared to pay for a licence. However, Mr Harvey did not investigate that matter when forming his opinion that a royalty rate of 4% to 5% was appropriate in the present case.

142    Mr Harvey also made clear in cross-examination that he provided his opinion on the assumption that the licence to use the brand would be an exclusive licence. He agreed that he had given no consideration as to what the royalty would be for a licence that did not give the exclusive right to use the brand. He accepted that a non-exclusive licence would yield a lower royalty rate than that for an exclusive licence.

The submissions

The applicant’s submissions

143    As I have noted, the applicant seeks, by way of damages, a reasonable royalty or licence fee for each use by one or more of the respondents of the Winnebago marks in the period from 14 October 2004 to 17 October 2013.

144    The applicant submitted that an appropriate royalty or licence fee, based on the available evidence, is approximately 4% to 5% of net revenues (sales) from products bearing the Winnebago brand. In another section of its written closing submissions, the applicant claimed damages using the same royalty rate based on total sales revenue. The royalty rate appears to be based on Mr Harvey’s evidence. As I have noted, Mr Harvey regarded the US licences as consistent with and confirmatory of his suggested royalty rate. However, Mr Harvey’s royalty rate was based on “selling price” whereas the royalty rates in the US licences were based on Net Shipments.

145    Nevertheless, the applicant submitted that the US licences provided “a substantive and probative basis” for setting a reasonable royalty rate. It also submitted that other evidence supported the adoption of a royalty rate broadly consistent with the US licences.

146    In this latter connection, the applicant pointed, firstly, to the fact that it had initially proposed a royalty of 5% on net sales for the Australian licence, even though it was not able to secure agreement to that royalty by Winnebago RV Pty Ltd.

147    Secondly, the applicant relied on the first respondent’s profitability, on the basis that, when negotiating a royalty rate, an intending licensee, as a rational commercial party, would consider the licensee’s expected profitability over the life of the licence term. The first respondent’s profit and loss statements for the 2001 to 2010 financial years are in evidence. The applicant relied on the first respondent’s actual average operating profit (earnings before interest and tax) for the 2004 to 2010 financial years as signifying what its expected profits would have been, looking forward from 14 October 2004. It submitted that Mr Heberden’s reliance on the first respondent’s operating profit for the 2001 to 2004 financial years was limited, in that it did not take into account expected profits. In this connection, the applicant submitted that Mr Heberden’s analysis ignored what the applicant saw as a trend of increasing profitability in the years preceding October 2004. The applicant also submitted that Mr Heberden’s analysis was inappropriate because it included an abnormally low percentage profit for the 2001 financial year which, the applicant submitted, should have been treated as an outlier and ignored. The applicant submitted that, taking these adjustments into account, and applying them to Mr Heberden’s profit-split analysis, a higher royalty than the one expressed by Mr Heberden would result.

148    Thirdly, the applicant submitted that, by acting in the unilateral manner in which it did, the first respondent obtained the equivalent of a licence without quality control restrictions. The applicant submitted that this should result in a higher royalty rate than would be the case if the licence contained quality restrictions, because a higher rate would be needed to compensate the licensor for the greater risk to its brand. The applicant argued that this approach was supported by the decision in 32Red plc at [56]-[58] and [105].

149    Fourthly, the applicant submitted that the royalty should be set at a rate that reflected an exclusive licence, not the rate for a non-exclusive licence. The applicant argued that this approach was also supported by the decision in 32Red plc at [53]-[55] and [105].

150    The applicant advanced a significant attack on Mr Heberden’s evidence.

151    First, the applicant submitted that Mr Heberden was not a fair-minded and impartial expert. In support of this submission, the applicant pointed to various answers given by Mr Heberden in cross-examination. It also pointed to what it argued were certain omissions from his report. I should say at once that I do not accept this submission. There may be matters, such as those noted below, that may lead to me to not accept Mr Heberden’s opinion, but I do not think that the substance of his evidence, or the way in which he gave his evidence, reasonably justifies this particular criticism by the applicant.

152    Secondly, the applicant submitted that the basis for Mr Heberden’s assessment of a 1% royalty rate was destroyed because it relied on the correctness of Mr Heberden’s profit-split analysis. I have already briefly commented on that submission at [121] above.

153    Thirdly, the applicant challenged the correctness of Mr Heberden’s assessment that the first respondent’s reputation in Australia in the Winnebago marks was, as at October 2004, greater than the applicant’s spillover reputation in that regard. The applicant submitted that Mr Heberden’s conclusion was not open on the facts. It argued that, having regard to the findings made by Foster J and the Full Court, amongst other things, the applicant’s reputation in Australia in the Winnebago marks “far exceeds” that of the first respondent.

154    The applicant also submitted that, in any event, Mr Heberden’s conclusion ran counter to the principle that a party cannot take advantage of its own wrongdoing: Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 189. In this connection, the applicant submitted that the first respondent’s initial use of the Winnebago marks was wrongful. It further submitted that, had the first respondent acted lawfully from the outset, all such continuing use would have been an accretion to the applicant’s reputation, not to the first respondent’s reputation. I pause to observe that, although it must be taken that the first respondent’s initial use of the Winnebago marks was wrongful, a conclusion that all the first respondent’s continuing use has been an accretion to the applicant’s reputation cannot be accepted in light of the Full Court’s findings: see Appeal Reasons 2 at [3]; Appeal Reasons 1 at [67]-[68].

155    Fourthly, the applicant challenged the correctness of Mr Heberden’s assessment that the applicant’s reputation in the United States in the Winnebago marks is far greater than its spillover reputation in the Winnebago marks in Australia. The applicant submitted that, while its reputation in the United States would be greater than its reputation in Australia, its reputation in Australia was, nevertheless, “a very substantial one”. The applicant argued that any difference between the applicant’s reputation in the United States and in Australia would not translate into a different royalty rate in the two markets.

156    As regards the Australian licence, the applicant submitted that it cannot be used as “a comparable arrangement”, substantially because of the circumstances under which it was entered into. The applicant submitted that, if anything, the circumstances in which the Australian licence was entered into tends to show that a royalty rate greater than 1% should be adopted.

157    Here, the applicant relied, principally, on Mr Potts’ evidence. Mr Potts was closely involved in negotiating the Australian licence. He gave evidence to the effect that, at the time of those negotiations, he believed that “the position in the Australian market” (namely, the first respondent’s use of the Winnebago marks) would pose considerable difficulties for any company seeking to establish motorhome manufacture and distribution in Australia under the Winnebago brand. He said that, in addition, the first respondent had threatened litigation against the applicant or any person acting as the applicant’s licensee or distributor in Australia. Mr Potts also said that he regarded it as “urgent to establish authorised use” of the Winnebago marks in Australia. Mr Potts said that his goal was to make it easier for Winnebago RV Pty Ltd to reach agreement with the applicant. He said he was prepared to approve the terms on which the Australian licence was agreed because he was prepared to take “a long term view”. He said that he regarded the terms of the Australian licence as a “special introductory offer” which contained terms more favourable, both as to royalty rate (2.5%) and the marketing contribution (1.5%), than he would have been prepared to approve in different circumstances.

158    The applicant also relied on the evidence which revealed that the applicant had received certain complaints about the RVs supplied in Australia by the first respondent: see also the findings made by Foster J at [84]. The applicant referred to this evidence to advance the submission that these complaints would have damaged the applicant’s spillover reputation and “would likely lower or impact the royalty rate” that was agreed. This, however, was not a circumstance which found expression in Mr Potts’ explanation of why he was prepared to approve the terms of the Australian licence. Further, there is no evidence from the licensee, Winnebago RV Pty Ltd, that it regarded the applicant’s reputation in the Winnebago marks to be diminished because of the quality of the first respondent’s RVs. Indeed, there is no evidence at all from Winnebago RV Pty Ltd as to the matters which informed its agreement to the terms of the Australian licence, apart from documentary evidence tendered in the respondents’ case: see Ex 4.

159    The applicant’s position was that the objective circumstances to which it referred indicated that the royalty rate adopted in the Australian licence could not be regarded as indicative of a reasonable royalty rate freely entered into in 2004. The applicant further submitted that, when these objective circumstances are taken into account, a reasonable royalty rate must be “substantially in excess of the 1% figure adopted”.

160    The applicant advanced the following submissions in respect of the Disclaimer Assumption.

161    First, the applicant submitted that the respondents “must pay for that which they took from Winnebago, that being the use of the Winnebago [marks]”.

162    Secondly, based on certain observations made by Cozens-Hardy MR in Meters at 160 (when his Lordship was dealing with a submission in that case that no damage was suffered by the patentee because of the trivial contribution of the invention to the infringing products), the applicant submitted that it was “wholly irrelevant” to consider that the first respondent could use the Winnebago marks with a disclaimer. The applicant also relied, in this regard, on the passages from Strand Electric which I have quoted at [22] and [25] above.

163    Thirdly, the applicant submitted that the deployment of the Disclaimer Assumption was another example of the respondents impermissibly seeking to take advantage of their own wrong.

164    Fourthly, the applicant challenged the respondents’ submission that the Disclaimer Assumption was justified on the basis that the first respondent had, on any view, developed its own significant reputation in the Winnebago marks by October 2004, as a result of the applicant standing by. By way of background, the respondents argued that there was no reason to think that the circumstances which caused the Full Court to vary the injunctive relief granted by Foster J were not also circumstances that obtained in October 2004. The applicant submitted that this assumption was simply not justified. The applicant also submitted that it should not be assumed that, at the time of an hypothetical negotiation, the parties would have known that the respondents could use the Winnebago marks with a disclaimer.

165    Fifthly, the applicant submitted that the very point of entering into a licence agreement is for a licensee to obtain a trade association with a particular brand. The royalty or licence fee is paid for that trade association. The effect of the disclaimer in the present case would be to sever the trade association which had been found to exist with respect to the applicant’s reputation. But what is at issue here is the royalty or licence fee payable for that association. The applicant submitted that a reasonable royalty or licence fee would be no different to the royalty or licence fee paid in an ordinary licence transaction.

The respondents’ submissions

166    I have already addressed the respondents’ submissions on whether the user principle can apply when awarding damages for passing off and whether, in the circumstances of the present case, that principle should be applied.

167    Against the possibility that it became necessary to assess an appropriate royalty rate, the respondent submitted that a notional royalty must be measured with reference to the value of the minimum grant of rights which could have been conferred on the first respondent by the applicant as at 14 October 2004. The respondents submitted that the value of those rights must take into account the fact that all the applicant could offer was a non-exclusive right whose content was the enforceable ability to use the Winnebago marks on RVs. In this connection, the respondents submitted that the first respondent already had the ability as at 14 October 2004 to use the Winnebago marks to the exclusion of all others except the applicant, provided it used a disclaimer.

168    The respondents also submitted that the cost to a licensee of complying with the quality control requirements of a licensor must be taken into account in determining an appropriate royalty rate. Here, the respondents submitted, the right which the applicant could offer must be regarded as one that was subject to its exercise of quality control so as to ensure that the licensed use conformed to its quality standards. It was only in this way that a trade connection between the applicant and the Winnebago marks could be maintained.

169    The respondents submitted that the applicant had failed to adduce evidence that would take all these considerations into account. For this reason, the respondents argued, no damages should be awarded.

170    The respondents raised the following additional matters.

171    The respondents criticised Mr Harvey’s evidence. They said that he had provided “no proper reasoning” as to how he had arrived at a royalty rate of 4% to 5%. They also submitted that his opinion suffered from a number of “defects”. These may be summarised as follows. First, Mr Harvey assumed that the licence would be exclusive. Secondly, Mr Harvey did not take into account the fact that the respondents had the ability to use the Winnebago marks with a disclaimer. Thirdly, Mr Harvey did not investigate or take into account the increased expenses needed to comply with any quality control specifications to maintain a trade connection between the use of the Winnebago marks on RVs and the applicant. Fourthly, Mr Harvey failed to distinguish between the applicant’s and the first respondent’s respective reputations in the Winnebago marks in Australia, with the result that, in assessing the appropriate royalty rate, Mr Harvey included the first respondent’s own reputation in the royalty that it was required to pay. Fifthly, there was no finding or evidence to support Mr Harvey’s assertion that, in 2004 in Australia, the United States Winnebago brand was a “very well known and recognised brand, a brand known for the quality of its vehicles”, especially when Mr Harvey did not himself make any study of the brand qualities associated with the Winnebago brand.

172    The respondents also criticised Mr Harvey’s expertise. In this connection, they argued that Mr Harvey’s expertise in relation to “automotive brands” was limited to licensing accessory items or promotional items. The respondent submitted that Mr Harvey had never been “involved in an exercise whereby the name of a motor vehicle company has been used in respect of a licence to manufacture the actual vehicle itself, as opposed to some accessory”. Relatedly, the respondents criticised Mr Harvey for relying on “some general principle relating to higher royalty rates for core products than for non-core products”. The respondents submitted that this “principle” was based on Mr Harvey’s experience in licensing automotive accessories. It was not based on any experience in licensing brands for automobiles as such. The respondents argued that there was an insufficient basis in the evidence to generalise that a royalty rate for a core product would be higher than the royalty rate for a non-core product.

173    Next, the respondents submitted that the US licences “do not inform the calculation of a reasonable royalty with respect to any hypothetical licence that would have been entered into” by the applicant and the first respondent as at 14 October 2004. The respondents advanced eight reasons.

174    First, the US licences were with respect to the applicant’s “home territory” where it had a reputation that was “significant, favourable and of long duration”: see Foster J’s finding at [124]. The respondents submitted that this reputation was supported by a large volume of actual sales. The respondents submitted that, in contrast, the applicant’s reputation in Australia as at October 2004 was only a spillover reputation that was “real” but “thin”; it was not equivalent to the applicant’s reputation in the United States. Secondly, the US licences were for different products, which the respondents described as “other non-motorhome products”. There was no evidence to establish that the royalty rates specified in the US licences were representative of the royalty rate with respect to the use of the Winnebago marks on motorhomes, whether in North America or elsewhere. Thirdly, the US licences were exclusive licences. Fourthly, the licensees under the US licences, unlike the first respondent, did not have an existing ability to use the Winnebago marks with a disclaimer. Fifthly, the US licences expired or were terminated no later than 2000, some four years before the relevant date for assessing the royalty rate in the present proceeding. There was no evidence that the applicant had granted any other licences, apart from the Australian licence. Sixthly, the headline royalty rates in the US licences were not achieved, thereby indicating that such rates are “not an appropriate comparator”. Seventhly, there are important differences between the United States and Australian markets with respect to RVs. Eighthly, the tiered royalty rates in the Choo Choo licence and the Sun-Lite licence recognise that the profitability of a licensee is an important matter to bear in mind when setting an appropriate royalty rate. The respondents submitted that the Australian licence is relevant in this regard because the course of negotiations between the applicant and Winnebago RV Pty Ltd revealed that Winnebago RV Pty Ltd resisted the 5% royalty initially sought by the applicant on the basis that RVs “cost twice as much in AU/NZ”. This resulted in Winnebago RV Pty Ltd seeking, and obtaining, a royalty set at 2.5%. It also sought, and obtained, a sales and marketing contribution of 1.5% on all sales to which the royalty applied.

175    Further, the respondents argued that the applicant was not able to extract the “price” that it wanted because the applicant could never grant Winnebago RV Pty Ltd a licence that was exclusive of the first respondent and its dealers. In this connection, the respondents submitted that the rights licensed by the applicant to Winnebago RV Pty Ltd were much more valuable than the rights which the applicant could notionally offer the first respondent because, once again, the first respondent could use the Winnebago marks with a disclaimer.

176    The respondents submitted that, as Winnebago RV Pty Ltd was only willing to pay an effective licence fee in the range of 0.3% to 1% of net sales (see [130] above), it followed that a notional licence would be worth “far less than that”. Thus, the respondents submitted, the only safe conclusion for the Court to draw was that such a licence would be “of negligible or undeterminable value”.

The appropriate royalty or licence fee

177    I have come to the conclusion that the Australian licence provides the most reliable starting point for determining an appropriate royalty or licence fee that, making all necessary assumptions, would have been agreed as at 14 October 2004 for the use in Australia of the applicant’s reputation in the Winnebago marks in relation to RVs.

178    Having regard to the Full Court’s findings concerning the existence of concurrent reputations (see Appeal Reasons 2 at [3]; Appeal Reasons 1 at [67]-[68]), I am satisfied, on balance, that these concurrent reputations were in existence as at 14 October 2004. Further, there is no evidence before me that would suggest that, in the period 14 October 2004 to 25 July 2014 (when the Australian licence was entered into), there was any significant difference in the manner in which the applicant and the first respondent each used the Winnebago marks, such as to signify that the strength and scope of their respective reputations in the Winnebago marks in Australia would have varied materially over that period. Thus, while I accept that caution must be exercised in using the Australian licence as a guide—having regard to the fact that it was entered into nearly ten years after the relevant assessment date of 14 October 2004—I am nevertheless satisfied, on balance, that the bargain struck as at 25 July 2014 in terms of the agreed royalty, reflects, broadly, the bargain that, in all likelihood, would have been struck had a negotiation been carried out as at 14 October 2004.

179    In this connection, although the Australian licence purports to be an exclusive licence, it is undeniably the case that it was negotiated and entered into with knowledge that the first respondent and its dealers were and had been concurrently using the Winnebago marks for RVs, and could lawfully continue to do so, albeit with the disclaimer required by the Full Court’s orders: see, for example, clauses 7 and 10 thereof. Contrary to the applicant’s submission, I am persuaded that it is appropriate to proceed on the basis that, just as the first respondent was entitled on 17 October 2013 (when final injunctive relief was granted by the Full Court) to use the Winnebago marks in Australia with an appropriate disclaimer, so too in 2004 the first respondent would have been entitled to use the Winnebago marks in the same way. I accept, of course, that, in 2004, the applicant and the first respondent could not have known that the Full Court would make orders that would permit the first respondent to continue to use the Winnebago marks with a disclaimer. But I have no doubt that, if challenged in 2004, the applicant and first respondent would each have asserted a reputation in the marks and claimed an entitlement to use them.

180    The Australian licence also provides for quality control to be exercised by the applicant as licensor. I am satisfied on the evidence before me that brand licences typically impose conditions of quality control on licensees and that the costs incurred by licensees in meeting the licensor’s requirements in that regard are taken into account when setting the appropriate royalty. I have no reason to think that the Australian licence was not negotiated and entered into with that consideration in mind. I am also satisfied that I should proceed on the basis that the notional bargain between the applicant and the first respondent to use the applicant’s reputation in Australia in the Winnebago marks should reflect a royalty or licence fee based on a licensor’s right to exercise quality control with respect to the licensed goods and thus maintain the connection between its reputation and those goods. I therefore respectfully disagree with the approach of Newey J in 32Red plc at [58] and [105] on this matter—at least to the extent that those paragraphs might be seen to support the applicant’s submissions—for the reason that, as Lord Wilberforce stated in General Tire at 833, a court should not reject what the notional parties would necessarily and relevantly take into account when seeking agreement. I accept that, in such a negotiation, it would be unusual for a licensor not to insist on the licensee maintaining the quality of the licensed goods to a standard acceptable to the licensor. I would add that if, in passing off, the defendant’s wrongful conduct leads to a diminution of the plaintiff’s reputation because of a want of quality control, then damages will lie, separately, for that injury.

181    In any event, although there is evidence of complaints made about the first respondent and its RVs, the evidence falls far short of establishing that, overall, the first respondent was not exercising appropriate quality control. Further, there is no evidence of the applicant’s specific quality control standards or that, as a general matter, its quality control is or was of a materially different and superior standard to the quality control exercised by the first respondent. Thus, if I am wrong, and Newey J’s approach in 32Red plc at [58] and [105] is to be preferred—namely, that a hypothetical licence should be taken as having permitted the wrongdoer to use the terms and conditions it in fact used—the evidence does not lead me to conclude that there was a material difference between the quality control exercised by the applicant and the quality control exercised by the first respondent, complaints notwithstanding. I also note that, even on Newey J’s approach, it would not be appropriate to assume that the parties were negotiating for a licence that would leave the wrongdoer “free to misbehave to whatever extent it might theoretically have liked.”

182    More generally, while Mr Potts’ evidence reveals his own reasons for agreeing to the Australian licence, I am not persuaded that I should view the Australian licence as having been negotiated and concluded on terms unduly favourable to the licensee, Winnebago RV Pty Ltd. Whatever anxieties Mr Potts harboured in that regard, there is no evidence that Winnebago RV Pty Ltd considered itself to be getting a “special introductory offer” or that it considered that it was obtaining a licence that did not reflect, on reasonable commercial terms, the proper value to be attributed to the applicant’s reputation in the Winnebago brand. Nevertheless, I think it should be acknowledged that the Australian licence was negotiated in circumstances of new market entry. I accept that, more likely than not, these circumstances would have been taken into account when agreeing upon the royalty rate and the royalty structure under which, subject to payment of the guaranteed minimum royalty, Winnebago RV Pty Ltd was not required to pay a royalty on the first 100 units sold. I will return to that consideration: see [197] below.

183    Subject to that matter, I am satisfied that the Australian licence reflects the realities of the Australian market that would have faced the applicant and the first respondent as at 14 October 2004 had they entered into a negotiation for the first respondent’s use of the applicant’s reputation, distinct from the first respondent’s own reputation, in Australia in the Winnebago marks for RVs.

184    I do not accept Mr Harvey’s opinion that that the licence fee would have been in the range of 4% to 5% of the selling price. Mr Harvey’s opinion was based, in part, on his own subjective evaluation of the relative strengths of the applicant’s and first respondent’s respective reputations in Australia in the Winnebago brand. In my view, the value of the applicant’s reputation in Australia is best reflected, objectively, in the bargain struck in the Australian licence.

185    Mr Harvey’s opinion was also based on the assumption that the notional licence would be for the exclusive use of the Winnebago brand, whereas, as at 2004, the applicant could not offer such use. The best it could license in 2004 was a concurrent reputation in the Winnebago brand with the prospect of the first respondent and its dealers continuing to use the brand, albeit with an appropriate disclaimer. I accept, therefore, the respondents’ submission that a reasonable royalty or licence fee should reflect only that which the applicant could give. I am persuaded that Mr Harvey’s opinion did not take this consideration into account. He sought to argue that no independent value had been added to the Winnebago brand by the first respondent’s own activities and that all value in the Winnebago brand in Australia should be attributed to the applicant. As I have noted at [137], this argument cannot be accepted. It is inconsistent with the Full Court’s findings on concurrent reputation. Contrary to the applicant’s submission, I do not understand Newey J’s observations on exclusivity in 32Red plc (at [53]-[55]) to be directed to a case, such as the present, where, at the relevant time, the applicant and the first respondent had concurrent reputations in the trade indicia in issue.

186    Further, Mr Harvey’s opinion appears to have been influenced by the US licences. Contrary to the applicant’s submissions, there are a number of reasons why I am not persuaded that the US licences are comparable or should otherwise be taken as providing a reliable guide to the royalty or licence fee that should be adopted in the present case.

187    First, the products licensed under the US licences are not RVs. The applicant argued that these products could be regarded as analogous products. I do not accept that simply because, in some general sense, it can be argued that the products licensed under the US licences are analogous to RVs, it follows that the royalties in the US licences are a reliable indicator of the royalty that should be applied in a brand licence for RVs, let alone for RVs manufactured and supplied in Australia. For one thing, one would need to know more about the market for those particular products, including such matters as the sales volumes and profit margins referable to them, before coming to an informed view as to whether licences for those products are in any way comparable to a licence for RVs. The evidence is silent on these matters.

188    Secondly, I am not persuaded that the market conditions in the United States for RVs or even “analogous products” are comparable to market conditions in Australia for RVs. For example, when negotiating the Australian licence, Winnebago RV Pty Ltd successfully resisted the applicant’s claim to a 5% royalty on the basis that manufacturing costs in Australia are “twice as much in AU/NZ” and that a royalty of 5% would lead to “very skinny margins”. Further, Mr Bruce Binns gave evidence about the greater suitability of roads in the United States, compared to roads in Australia, for the use of RVs and the fact that, in the United States, tax deductions are available to customers who take out loans to purchase RVs. The influence of these particular factors on sales volumes in the United States, compared to Australia, is uncertain on the evidence. Nevertheless, I can comfortably proceed on the basis that the market for RVs in the United States is considerably larger than the market for such vehicles in Australia. I do not think that there is any real disagreement between the parties on that matter. Similarly, I do not think that there is any real disagreement between the parties about the fact that projected sales volumes will be instrumental in setting the royalty that can be charged under a brand licence. The applicant submitted that the fact that one market is larger does not mean that the same economies of scale are not achievable in a smaller market or that the costs of production in a smaller market are necessarily higher than in a larger market. Stated at that level of generality, these propositions may be correct. But, in the present case, the applicant’s submission is not supported by the stance taken by Winnebago RV Pty Ltd when negotiating the Australian licence. That stance appears to have been accepted by the applicant at the time. It was not contradicted at the hearing before me by evidence showing that manufacturing costs for RVs in Australia are the same as or similar to manufacturing costs for RVs in the United States or for “analogous products”.

189    Thirdly, the US licences are exclusive licences and provide for royalties accordingly. Even then, the evidence shows that, in fact, royalties at the headline rates were not paid to the applicant.

190    I turn now to consider Mr Heberden’s evidence. Mr Heberden’s opinion, like Mr Harvey’s opinion, was based, in part, on his own subjective evaluation of the relative strengths of the applicant’s and first respondent’s respective reputations in Australia in the Winnebago brand. Although ultimately coming up with a 1% royalty under the Spillover Assumption, Mr Heberden’s opinion rested on his profit-split analysis. The weight that I can give to that analysis is significantly undermined by my rejection of Mr Heberden’s functional analysis, which Mr Heberden used to allocate a particular percentage range of the first respondent’s profit margin to the Winnebago brand. In the circumstances, I prefer, once again, the objective evidence provided by the Australian licence.

191    As will be apparent from my summary of the parties’ submissions, other criticisms were made of Mr Harvey’s evidence and Mr Heberden’s evidence. It is not necessary for me to address all those criticisms. A number of them fall away in light of the findings I have made. Further, the findings I have made are sufficient to convey the essential reasons why I prefer the objective evidence provided by the Australian licence to the evidence of either witness.

192    There is, however, a remaining submission that I must address. I have referred to the Australian licence as providing a reliable starting point for determining an appropriate royalty or licence fee. As I have noted, the respondents submitted that the royalty or licence fee should be significantly less than the 1% royalty under the Australian licence. This was because the first respondent, and hence its dealers, unlike others, could use the Winnebago marks with a disclaimer. In other words, an alternative course of action was available to them. This argument finds expression in Mr Heberden’s Disclaimer Assumption.

193    I have come to the conclusion that no deduction should be made on account of this factor. I have accepted that, as at 14 October 2004, the applicant and the first respondent had concurrent reputations in the Winnebago marks in Australia for RVs. I have also accepted that it is appropriate to proceed on the basis that, at that time, the first respondent would have been entitled to use the Winnebago marks in Australia for RVs with an appropriate disclaimer. The fact that the first respondent could, at that time, use the Winnebago marks in Australia for RVs with an appropriate disclaimer means that, although the applicant and the first respondent had concurrent reputations in these indicia at that time, their respective reputations could be differentiated. In other words, by using the Winnebago marks with an appropriate disclaimer, the trade and the public in Australia, who associated the Winnebago marks with the applicant and its RVs, would know that the applicant’s reputation was not being deployed. Conversely, by using the Winnebago marks without an appropriate disclaimer, the same section of the trade and the public would understand that the applicant’s reputation was being deployed. This is the rationale for the Full Court’s final orders on injunctive relief. The making of such orders recognises that the applicant had a real reputation in Australia in the Winnebago marks for RVs prior to the first respondent’s use of them and that its (the applicant’s) reputation was current. It also recognises the fact that, at the relevant time, the first respondent could only lawfully use the Winnebago marks if, when doing so, it explicitly disclaimed any association with the applicant. Thus, even though the first respondent had its own reputation in the Winnebago marks, the undeniable fact is that, at the relevant time, the use of the Winnebago marks in Australia for RVs, without a disclaimer, carried with it a use of the applicant’s reputation for which its permission was necessary. The Australian licence shows the applicant’s “price” for its permission, negotiated on an arm’s length basis.