Case: Colbeam Palmer v Stock Affiliates Pty Ltd [1968] HCA 50 ; (1968) 122 CLR 25
Outcome: applied
An account of profits is an alternative remedy to damages: see Patents Act 1990 , s 122(1). Its purpose is not to compensate the patentee, nor to punish the infringer, but rather to prevent the unjust enrichment of the infringer at the expense of the patentee: Dart Industries Inc v D&eacute;cor Corporation Pty Ltd [1993] HCA 54 ; (1993) 179 CLR 101 at 110-111. By reference to the judgment in Dart v D&eacute;cor [1993] HCA 54 ; 179 CLR 101 and the cases there cited, I have approached the calculation of the account of profits in this case on the following basis. The infringers should account for the actual profit that they have gained from the infringement. In calculating those profits, it is appropriate to deduct costs directly attributable to selling and delivering infringing articles from the revenue made from such sales and deliveries. It may be appropriate to deduct a proportion of general overhead costs such as plant, equipment and managerial costs. The deduction of such costs depends upon their being shown to have been attributable to the sales, the onus for which demonstration is upon the infringers. The account of profits is a discretionary remedy and the Court may decline to grant the remedy in respect of profits made by the infringer during the period in which it was unaware of the applicant's rights. In this latter respect, see in particular Colbeam Palmer v Stock Affiliates Pty Ltd [1968] HCA 50 ; (1968) 122 CLR 25 at 33-36 and the Patents Act 1990 , s 123 which is in the following terms: (1) A court may refuse to award damages, or to make an order for an account of profits, in respect of an infringement of a patent if the defendant satisfies the court that, at the date of the infringement, the defendant was not aware, and had no reason to believe, that a patent for the invention existed. (2) If patented products, marked so as to indicate that they are patented in Australia, were sold or used in the patent area to a substantial extent before the date of the infringement, the defendant is to be taken to have been aware of the existence of the patent unless the contrary is established. (3) Nothing in this section affects a court's power to grant relief by way of an injunction. 78 There are two possible reasons why these money sums should be varied. The first is one recognised by Colbeam v Palmer [1968] HCA 50 ; 122 CLR 25 and the Patents Act , s 123. The applicant's solicitors first wrote to the respondents on 23 February 2005, informing them of the patent and requiring undertakings. If one took 23 February 2005 as the date from which to calculate the profits, there would be no claim against the second and third respondents, the claim against the fourth respondent would be $25,051, the claim against the first respondent would be the same $83,089 and the claim against the sixth respondent would be the same $54. 79 It is important to note that in Colbeam v Palmer [1968] HCA 50 ; 122 CLR 25 , it was stated that it was for the moving party to prove the unconscionability of the profits, and therefore for the moving party that the defendant knew of the moving party's rights. The Patents Act 1990 , s 123 clearly involves discretion as to the question of refusing or discounting the award for the matters there identified. Also, s 123(2) makes plain that the defendant is to be taken to have been aware of the existence of the patent unless the contrary is shown, if patented products marked so as to indicate they are patented in Australia were sold or used in the patent area to a substantial extent before the date of the infringement. 80 The evidence discloses that the applicant's floor materials embodying the invention the subject of the patent had been distributed in Australia since late 1997. The evidence discloses that the introduction of those panels revolutionised the trade in laminated flooring and greatly expanded the market for such flooring. The evidence discloses that by 2003, when the relevant infringements commenced, the applicant's floor panels, or imitations of them, commanded over 75% of the Australian market for laminated panels. The evidence discloses that in 2003, the applicant's Australian agent and distributor sold about 312,000 packs of the floor panels, amounting to over 560,000 square metres of flooring. The evidence discloses that the panels were described as the "industry standard" in the October 2004 issue of a publication called " Flooring Australia and New Zealand ". The evidence discloses that the packs of the applicant's panels were, and have been since prior to 2003, clearly marked with the words "patented technology", with the individual panels bearing the number of the applicant's European and United States patents. The evidence discloses that since the grant of the Australian patent on 23 November 2003, the relevant promotional material has also carried the number of the Australian patent. The evidence discloses that the fact that the applicant's floor panels are patented has always been a prominent and important feature of promotions of the panels through sales representatives, exhibitions and distribution of catalogues and brochures. The evidence discloses that the website of the applicant's Australian agent and distributor has promoted the applicant's relevant patent rights since at least early 2003. 81 The Huili respondents have not adduced any evidence in respect of the above matters. They have not established that they were not aware of the applicant's rights prior to the receipt of the letter of demand of 23 February 2005. A general assertion was made in a letter in March 2005, sent in response to the letter of demand, but that statement has not been supported in these proceedings by any direct evidence. Further, the first to fourth respondents did not plead any such lack of knowledge in their defence, which was prepared when they were represented in the proceeding by solicitors and, for a time, by experienced patent counsel. This was to be contrasted with the defence of the fifth respondent, which was prepared earlier and which was available to the first to fourth respondents and which did raise the issue. 82 In all the above circumstances, I am satisfied that under s 123 I should not make any discount by reason of innocent infringement. Indeed, if the matter were to be judged by Colbeam v Palmer [1968] HCA 50 ; 122 CLR 25, I would be prepared to conclude, based on inferences from all the above matters, that the first to fourth and sixth respondents were aware of the patent of the applicant during the course of infringement. My willingness to draw these inferences is in part based on the lack of any evidence brought forward on behalf of any of the first to fourth and sixth respondents of their ignorance prior to February 2005. 83 Also, given the state of the documentation provided by the respondents to which I have earlier referred, to the extent that there is a discretion within s 123 to deal with innocent infringement and to reduce the account of profits by the reason thereby, I am not able to be confident that the respondents have so approached the conduct of this case that they should be entitled to any discount under s 123. This last consideration is a separate consideration from the matters of proof and evidence to which I have earlier referred. 84 The second possible basis for reduction of the profits is the claim made by Mr Sun that the fifth respondent owes him or the first respondent sums of money as reflected in the cross-claim. During the course of the hearing, Mr Sun made no attempt to contest any aspect of the report of Mr Dunstan. He concentrated his submissions on what he said was the injustice of being held liable for an account of profits in circumstances where he has not been paid for a significant amount of the supplies which he or his associated entities gave to the fifth respondent. In this respect, Mr Sun made reference to the detailed material and identified a series of invoices totalling $138,901. They were as follows: Invoice Amount (ex GST) S134 $20,505 S136 $23,275 S163 $22,959 S166 $25,362 4094 $23,396 S190 $23,404 85 This total differs from the $158,000 referred to by Mr Sun in the hearing and also differs from the sum alleged in the cross claim. 86 The Huili respondents are liable to account for the profits made at the wholesale level of sales. The fifth respondent was liable to account for its profit at the next level of sale, retail sale. The fifth respondent has accounted for those profits in the order which it submitted to by consent on 22 March 2007. There is no reason in principle why the applicant should not be entitled to both the wholesale profit and the retail profit if attributable, as they are, to the infringement.