The two key remedies sought by intellectual property owners in infringement cases are an injunction to stop the infringing conduct and compensation in the form of damages or an account of profits. Typically, the Court will determine the question of infringement separately and prior to considering what, if any, compensation should be awarded. In many instances the issue of compensation is resolved between the parties without the need for judgement. However, this was not the case in the long running design infringement dispute between Gram Engineering and Bluescope Steel.
The recent decision of the Federal Court provides a useful reminder of the principles to be applied in assessing damages for IP infringement. Gram elected to calculate its compensation by reference to the damage caused by the sale of Bluescope’s infringing Smartascreen fencing panel. Although sales of the Smartascreen product had commenced in 2002, Gram did not commence proceedings until 2011 and so the six year limitation period meant that no claim could be made in respect of conduct occurring before 2005.
Gram sought to calculate its damage on the basis that its business had grown rapidly up until 2002 when the Smartascreen product entered the market and thereafter suffered a decline in sales. Gram claimed that but for the infringing conduct, its business would have continued to grow as it had previously. The Court considered this approach to be problematic for a number of reasons including that it was based on Gram’s total sales rather than sales of Gram’s products which competed with Smartascreen.
Further, it took no account of the actual sales of Smartascreen made by Bluescope or of other changes in the market during the infringement period including the introduction of other competing products. Bluescope contended that damages should be calculated on the basis of the lost sales to Gram being a percentage of its total sales of Smartascreen. It argued that because Gram had not provided any evidence that sales of Smartascreen represented lost sales to it and that its own evidence indicated that Gram was unlikely to have made such sales, the percentage should be low in the order of 5%.
In assessing damages, the Court noted the general proposition that speculation and guesswork may be required and are permissible. Once some level of loss was proven, doubts should be resolved against the infringing party and damages assessed with a ‘liberal hand’. While accepting that damages should be calculated as a percentage of Bluescope’s sales, the Court considered that 5% was too low. The Court inferred that Smartascreen, which was found to be an obvious imitation of Gram’s registered design, was intended by Bluescope to be directly substitutable for Gram’s products. Gram’s declining sales after 2002 was a strong indicator that this intention was in fact achieved.
Bluescope’s evidence that its customers would not have purchased Gram’s products was largely discounted because those customers were resellers rather than end users. If the Smartascreen product had not been available, demand for Gram’s products via its own resellers would have been higher, leading to greater sales for Gram. Bluescope’s resellers would still have been in competition with Gram’s, but would have done so without the benefit of Smartascreen.
While the Court took account of other market factors including the introduction of third party competing products, it also noted that Gram’s sales began declining from 2002, prior to those products coming onto the market. Ultimately the Court found that damages should be assessed based on Gram having lost sales volume in an amount equal to 25% of Bluescope’s actual sales volume of the infringing Smartascreen product as well as an equivalent proportion of sales of associated parts and accessories sold along with the infringing goods. This equated to an amount in excess of AUD2 million with a further amount in excess of AUD2 million awarded in interest.
Although the damages awarded to Gram were significant, the evidence it put forward to substantiate its loss was criticised as being less helpful than it might have been. This may have been because it simply did not have sufficient proof of the damages it believed it had suffered. Although rarely required in Court, this highlights the importance of maintaining good records relating to any loss suffered as a result of IP infringement.