FEDERAL COURT OF AUSTRALIA

Black & Decker Inc v GMCA Pty Ltd (No 5) [2008] FCA 1738

INTELLECTUAL PROPERTY – patent infringement ­­– account of profits ­­– profits made on one of two infringing products but losses on the other over several years – whether losses from one product to be deducted from profits from the other – whether losses in later years to be deducted from profits in earlier years

Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 distinguished

Dart Industries Inc v The Décor Corporation Pty Ltd (1993) 179 CLR 101 distinguished

Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585 applied

BLACK & DECKER INC and BLACK & DECKER (AUSTRALIA) PTY LTD v GMCA PTY LTD

VID 1262 of 2005

HEEREY J

20 NOVEMBER 2008

MELBOURNE

THE COURT ORDERS THAT:

1.                  Judgment for the Applicants shall be entered forthwith against the Respondent in the sum of $77,275.10 (which sum excludes any interest to which the Applicants may be entitled under section 51A of the Federal Court of Australia Act 1976), such sum to be payable forthwith.

2.                  The Respondent shall pay the Applicants’ costs of or incidental to the determination of their pecuniary relief, including any reserved costs.

3.                  These orders shall be signed by a Judge and authenticated forthwith by the Registrar.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     From 2002 the respondent GMCA Pty Ltd sold in Australia a manual power saw.  The initial model, referred to in these proceedings as T1, was superseded by a later model, T2.

2                     I found that the sale of T1 and T2 infringed Black & Decker’s standard and innovation patents in respect of power tools: Black & Decker Inc v GMCA Pty Ltd (No 2) [2008] FCA 504. 

3                     Black & Decker having elected to take an account of profits, it emerges that sales of T1 were profitable but sales of T2 were not.  Two issues arise.  First, should GMCA be entitled to set off losses it made on sales of T2 against profits made on sales of T1?  Secondly, should profits and losses be amalgamated over all the years in question? 

4                     The primary figures are not in dispute.  Mr Peter Hosking, a director of GMCA, swore an affidavit which provided, on a confidential basis, details of the computation of profits and losses. 

5                     To arrive at a gross profit Mr Hosking deducted from the GST-exclusive gross sales figure the cost of goods sold and a rebate that GMCA gave to its customers.  This rebate was negotiated specifically with individual customers. 

6                     The net profit was calculated by deducting from the gross profit figure percentages for freight, “company overhead”, warranty, R&D, and (in respect of T2 only) amortisation.  A summary, with the confidential dollar figures excluded, is as follows:

7                     Counsel for GMCA argued that there was insufficient evidence to perform an “article by article analysis”.  While accepting that each sale of an infringing article is a separate act of infringement of each patent, which is separately actionable, counsel said it was impossible to “disentangle” T1 from T2.

8                     This is incorrect.  A fair reading of Mr Hosking’s affidavit is that the figures he gives for each year are the total receipts and expenses for sales of the relevant product.  As a matter of ordinary commercial practice, it is to be expected that the relevant activity would be summarised by reference to periods of a year.

9                     Counsel also said that it was necessary to look at the business as a whole, to the extent it engaged in infringing activities, and not at separate product lines.  The analysis, he said, should take into account GMCA’s business activities which infringed both patents.  The infringer is treated as if he conducted his business on behalf of the patentee.  He relied on the decision of Laddie J in Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 and in particular a passage at [36] where his Lordship said:

An account of profits is very different [from damages].  Instead of looking to the harm inflicted on the plaintiff it considers the profit made by the infringer.  The defendant is treated as if he conducted his business and made profits on behalf of the plaintiff.  A number of consequences flow from this.  One of them is that the maximum payment which can be ordered is the total profit made by the defendant.  It may be that that figure far exceeds the damage suffered by the plaintiff as was pointed out in Colburn v. Simms (1843) 2 Hare 543.  The hope of obtaining more is the normal reason why plaintiffs elect an account in those comparatively rare cases in which they do so.  Furthermore there is only one profits "pot".  If different plaintiffs seek accounts in respect of different infringing activities of a defendant within a single business, the totality of the profits ordered to be paid should not exceed the total profits made by the defendant in that business.  

10                  Celanese involved an account of profits for infringement of a patent for an improved method for the manufacture of acetic acid with reduced iodide content.  The infringer used the patented process in two separate factories, with profit in one but not the other (see at [32]).  The main dispute in the case was that the infringer argued for an “incremental” approach, ie the difference between the profits in fact made and the profits, if any, that would have been made if a non-infringing process were used (at [16]).  The patentee argued for an “apportionment” approach in which all profits are recoverable, subject to apportionment of those profits between those to which the infringement contributes and the remainder (at [25]-[28]). 

11                  Laddie J, in a very detailed discussion of principle and authority (at [35]-[54]), adopted the apportionment approach.  His Lordship then discussed the application of the apportionment approach to the facts of the case (at [77]-[130]). 

12                  The facts in Celanese are quite different from the present case where no apportionment based on infringing and non-infringing parts of T1 or T2 is claimed.  The passage quoted at [9] above deals with the situation of different infringing activities within a single business, but only to make the points that the maximum payment is the total profit made and that if there are several plaintiffs they are limited to the one “pot” of profit.  The present case does not raise such issues.  What is relevant to the present case is a passage at [33] where Laddie J said:

The general proposition that nothing is payable to the plaintiff if the defendant's business is loss-making ignores the possibility of a case in which those loss-making activities can realistically be treated as a sequence of separate and self-contained businesses where profits made on one are obliterated by losses on others so that, looked at as a whole, the profits attributable to infringement are hidden.  In such a case it may be possible to disentangle the profits made on the infringing business and order them to be paid to the plaintiff notwithstanding the losses made elsewhere.  It was not suggested that any such analysis was possible on the facts of this case.

13                  The present case is a straightforward one and consistent with the hypothetical example discussed by Laddie J.  GMCA made a profit on some infringements but a loss on others.  It should disgorge the profits it made.  It would be ironic in the extreme if GMCA could take the benefit of its own infringing conduct in respect of T2 by setting off the losses made in such activity against the profits on the T1 infringements which it is required to disgorge to Black & Decker. 

14                  The point was specifically dealt with by Harvey CJ in Equity in Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585 at 591-2.  The case concerned infringement of a patent for concrete mixing machines.  His Honour said:

Every sale of a machine gives the plaintiff a separate right to recover profits made on the sale of that machine, and the plaintiff has a right to require that he shall have details of the sale and cost of every individual machine.  That is the enquiry that is directed.

If the defendant has made a profit on some machines and a loss on others he cannot – and this seems too clear for argument – claim to be allowed the losses he has suffered on the sale of machines.  What he has to account for is the profits on any machines on which he happens to have made a profit.

In Leplastrier the losses the infringer sought to set off were made on sales of non-infringing products (see at 592).  However, for the reasons already stated, the present case seems stronger against allowing any set off.

15                  While Leplastrier was the subject of some criticism by the majority of the High Court in Dart Industries Inc v The Décor Corporation Pty Ltd (1993) 179 CLR 101 at 115, that was on a quite different point, namely the allowance of a proportion of overhead expenses.  As has already been indicated, that is not an issue in the present case.  A claim for a proportion of overhead expenses has been made by GMCA and accepted by Black & Decker.

16                  Likewise it is inconsistent with principle to amalgamate profits and losses across years.  Anyway Mr Hosking’s figures do not purport to be a profit and loss statement for the business as a whole.  isHis His affidavit is confined to gross and net profits and losses in each year made on infringing products.

17                  I accept Black & Decker’s submissions.  The result is that on the agreed figures there will be judgment for $77,275.10.  There will be an order that GMCA pay Black & Decker’s costs.

Associate:

Dated:         20 November 2008