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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Blayney (t/a Aardvark Jewelry) v Clogau St. David's Gold Mines Ltd & Ors [2002] EWCA Civ 1007 (16 July 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1007.html Cite as: [2002] EWCA Civ 1007

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		Neutral Citation Number: [2002] EWCA Civ 1007
		Case No: A3/2001/1755

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
MR. KIM LEWISON QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		16th July 2002

B e f o r e :

THE VICE-CHANCELLOR
LORD JUSTICE RIX
LORD JUSTICE JONATHAN PARKER
____________________

Between:


	BLAYNEY TRADING AS AARDVARK JEWELRY	Appellant
	- and -
	CLOGAU ST. DAVID'S GOLD MINES LTD AND OTHERS	Respondents

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr. Roger Wyand QC and Mr. Michael Edenborough (instructed by Messrs Martineau Johnson) for the Appellant
Mr. Mark Vanhegan (instructed by Messrs DLA) for the Respondents
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Crown Copyright ©

The Vice-Chancellor :

Introduction
1. The claimant, Mr Blayney, is a jeweller. He trades in the name of Aardvark Jewelry. The jewelry he sells is made by hand. In 1986 he made a gold ring to a twist strand plait design. In 1990 Mr Blayney met the fourth defendant Mr Roberts. Mr Roberts is the effective owner, through one or more of the other defendants (to whom I shall refer collectively as “Clogau”), of the Clogau St David’s Gold Mine, which is one of the few effective gold mines left in Wales. Welsh gold is much sought after because of the rose tint caused by the presence of certain impurities.
2. In January 1991 Mr Blayney entered into a business relationship with Clogau whereby he bought Welsh gold from Clogau, incorporated it into his ring and other articles of jewelry to a similar plait design, called “Lovers Twist”, and sold such articles to Clogau for resale to third parties. In November 1992 the relationship broke down. Mr Blayney stopped receiving supplies of Welsh gold from Clogau and Clogau stopped buying Lovers Twist articles from Mr Blayney. Instead Clogau engaged the services of a Mr Paget, who had formerly been employed by Mr Blayney, to make such articles for Clogau.
3. From November 1992 to March 1997, when these proceedings were commenced, Clogau continued to sell Lovers Twist articles to others but they were made by Mr Paget not Mr Blayney. During the same period Mr Blayney also sold Lovers Twist articles. Mr Blayney’s articles sold between November 1992 and February 1996 did not incorporate any Welsh gold. In the latter month Mr Blayney secured a supply of Welsh gold and thereafter incorporated it into the Lovers Twist articles he made.
4. In the proceedings to which I have referred Mr Blayney contended that the sales of Lovers Twist articles made by Clogau in the period from November 1992 to March 1997 were infringements of his copyright in the design. In due course his claim was conceded by Clogau and on 26th July 2000 an order was made by consent directing, amongst other things, an account of profits or an inquiry as to damages. After the usual disclosure, Mr Blayney decided to pursue an inquiry as to damages.
5. The inquiry was made by Mr Kim Lewison QC, sitting as a deputy judge of the Chancery Division. He gave judgment (now reported at [2002] FSR 14, 233) on 20th July 2001. He assessed the damages to be paid by Clogau to Mr Blayney as £18,492.03 with interest to be calculated by the joint financial expert. This is the appeal of Mr Blayney from that order. He contends that the judge was wrong in a number of respects the cumulative effect of which is substantially to undervalue the compensation to which he is entitled.
6. The principal conclusions of the judge may be summarised as follows (references being to paragraphs in his judgment):

(1) Damages were to be assessed liberally on the basis of such inferences as the evidence justified. [76]

(2) Damages were to be assessed by reference to two periods, November 1992 to February 1996 and March 1996 to March 1997. The difference between them is that in the latter period but not the former Mr Blayney was incorporating Welsh gold which the judge considered to be an important selling point. [85 and 73]

(3) Damages were to be assessed by reference to the profit Mr Blayney would have made in respect of such of the sales of infringing articles effected by Clogau as he could show he would have made but for the infringement. [81-84]

(4) In the absence of any evidence as to an appropriate rate of royalty for sales of infringing articles by Clogau which Mr Blayney could not show he would have made but for the infringement Mr Blayney was not entitled to damages. [108-113]

(5) Mr Blayney had not made out a case for an award of additional damages under s.97(2) Copyright Designs & Patents Act 1988. [117-123]

7. In applying those principles and arriving at a figure of £18,492.03 Mr Lewison QC made the following findings:

(1) Clogau sold 3,776 infringing articles of which some were sold by retail and some by direct sales to the public. The breakdown between the two periods and the methods of sale is

First Period

Retail Sales 1,373

Direct Sales 884

Total 2,257

Second Period

Retail Sales 1,341

Direct Sales 178

Total 1,519

Overall total 3,776

(2) During the first period Mr Blayney would have effected 10% of the retail sales made by Clogau, namely 138. [95] The notional loss of profit on those sales was to be measured by reference to the profits available to Mr Blayney on sales of such items to retailers. The joint accountancy expert Mr Swift considered that if all 3,776 items had been sold by Mr Blayney to retailers Mr Blayney would have made additional profits of £121,648. Such profits should be attributed to all sales pro rata so that the loss in respect of 138 sales in the first period was £4,445.82. [96]

(3) With regard to sales in the second period the evidence showed that Clogau jewelry outsold that of Mr Blayney by a factor of 10:1 and that the Clogau range of products was five to ten times larger than that of Mr Blayney. The judge continued [92]

“I find that, for the purpose of assessing damages, the Clogau range sells approximately twice as well as [Mr Blayney’s]. On this basis [Mr Blayney] would have sold one third of the number of items that Clogau sold to retailers.”

On that basis Mr Blayney would have made 25% of the retail sales made by Clogau in the second period (336) which at the same pro rata profit rate gave rise to a notional loss of profit of £10,824.60. [103]

(4) As Mr Blayney did not sell by mail order a liberal assessment of damages did not justify finding that more than 100 of the 1062 direct sales made by Clogau in both periods had been lost to Mr Blayney. Applying the same pro rata profit rate the loss sustained by Mr Blayney was £3,221.61. [106]

(5) Mr Blayney had failed to make out a case for damages in respect of the remaining 3,202 infringing sales effected by Clogau (see my paragraphs 6(4) and (5) above).

8. The respects in which Mr Blayney contends that the judge was wrong may be described as follows:

(1) The judge should have awarded compensation for the remaining 3,202 sales referred to in paragraph 7(5) above either (i) in the form of a notional royalty, or (ii) as additional damages under s.97(2) Copyright Designs & Patents Act 1988.

(2) In assessing compensation for those sales the judge found to have been lost to Mr Blayney because of the infringement the judge was wrong to take the same pro rata rate of profit for both periods.

(3) In assessing the number of sales lost to Mr Blayney because of the infringement in the second period the judge made two errors in that (a) he should have taken the mean of 7.5 as the factor by which Clogau’s range exceeded that of Mr Blayney and (b) the fraction referred to in the passage from the judgment I have quoted in paragraph 7(3) above should be one half not one third.

(4) The judge underestimated the number of direct or mail order sales lost to Mr Blayney because he overlooked evidence indicating, contrary to his conclusion in paragraph 104, that this form of sale had been employed by Mr Blayney.

9. The judge gave permission to appeal on issues 1 and 2. He was not asked to give permission to appeal on issues 3 and 4. Mr Blayney seeks the necessary permission from this court. We heard argument from both sides on all these issues whether or not permission to appeal had been granted. I will deal with the issues in the order in which I have set them out. As the conclusion on one issue may affect the calculations in respect of another I will leave to the concluding section of this judgment the monetary effect (if any) on the award of damages.
1(i). Notional Royalty (a) Recoverability at law
10. Though the judge found that Clogau had sold 3,776 pieces of jewelry which infringed Mr Blayney’s copyright, in the event he allowed him damages by way of compensation in respect of only 574 of them. This arose from the failure of Mr Blayney either to prove that but for the infringements he would have sold a larger number of his own products or to adduce evidence from which the judge was willing to infer an appropriate rate of royalty. It is not now disputed that the onus of proving lost sales was on Mr Blayney. Nor, subject to issues 3 and 4, are the judge’s conclusions on those matters challenged. The contention of Mr Blayney is that the judge did have adequate material on which to assess a reasonable royalty to be paid in respect of the remaining 3,202 infringing sales. This is challenged by Clogau on the bases that (a) such damages are not recoverable in law, (b) the point was not taken before the judge and (c) the matters relied on are not material to this issue.
11. The leading authority on the question of damages for infringement of an intellectual property right is the speech of Lord Wilberforce in General Tire and Rubber Co. v Firestone Tyre and Rubber Co Ltd [1976] RPC 197. That case concerned the amount of damages payable in respect of the infringement of a patent relating to an oil-extended rubber. The plaintiffs claimed damages by reference to the amount of a fair and reasonable royalty on all infringing sales. Lord Wilberforce pointed out (p.212) that the infringer of a patent committed a tort and so was liable to pay to the patentee such sum of money as would put him in the position he would have been in had he not sustained the wrong. He described the two essential principles as being that the plaintiff must prove his loss and that as the defendants were wrongdoers damages should be liberally assessed but as compensation not punishment. He then referred to three groups of reported cases as exemplifying the approach of the courts to typical situations. The first, appropriate to manufacturers who exploit their inventions, is the profit which would have been realised by the patentee if the sales had been made by him. The second, appropriate to those who exploit their inventions by licensing others to use them, is the amount the infringer would have had to pay by way of royalty for a licence legalising the infringements. Lord Wilberforce continued (p.213)

“In some cases it is not possible to prove either (as in 1) that there is a normal rate of profit, or (as in 2) that there is a normal, or established, licence royalty. 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 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 (2). 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.”

12. As counsel for Clogau pointed out there is nothing in the speech of Lord Wilberforce to suggest that a claimant can recover damages on the basis of the first group in respect of sales he can show to have been lost and on the basis of the third group for those he cannot. But there was no reason for Lord Wilberforce to consider that point. As he said, all he was doing was referring to three groups of reported case which exemplified the approach of the courts to typical situations.
13. It is common ground that there is no reported case which covers the point in the case of an infringement of copyright, the only relevant authorities relate to patent or trade mark infringement. It is convenient to start with those authorities. The first is Meters v Metropolitan Gas Meters (1911) 28 RPC 157. The case concerned the infringement of a patent for improvements in prepaid gas meters. The number of infringing meters sold by the defendants was agreed to be 19,500. The judge concluded on the evidence before him that 14,085 of those sales would not have been made by the Plaintiffs. Accordingly (and taking into account other factors (p158)) he awarded damages by reference to the lost profit of 13s 4d on 3,500 meters, namely £2,333.6s.8d. In addition he awarded damages to compensate the plaintiff for having to reduce his prices in order to mitigate the effects of the infringements. The defendants appealed in relation to the damages for the 3,500 sales; there was no cross-appeal regarding the 14,085.
14. Fletcher-Moulton LJ (p.163) rejected the submission that a plaintiff may only recover damages in respect of

“those which he can show would have been bought from him if the defendant had not infringed...I am quite aware that a good practical method of arriving at a fair estimate of the wrong done may, in some cases, be by forming a conception of how many sales of a particular article would have been made by the plaintiff and then giving him the full manufacturing profit for that proportion, but there is no rule of law which requires the court to do that in all circumstances...”

Later (p.164) he pointed out that every article manufactured or sold which infringes the rights of the patentee

“is a wrong to him, and I do not think that there is any case, nor do I think there is any rule of law which says that the patentee is not entitled to recover in respect of each one of those wrongs.”

15. In Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 the House of Lords was concerned with the assessment of damages for infringement of a patent. It was agreed that the defendant had sold 252 infringing articles. The Lord Ordinary assessed the damages at £1,500 but without explaining why. The Inner House of the Court of Session increased the damages to £3,000. The defendants appealed to the House of Lords on the ground that the plaintiff had not proved that but for the infringement he would have made 252 more sales. They contended that the plaintiffs would not have effected those sales even if there had been no infringement because of the superiority of the defendant’s agents and other attractions of the defendant’s product. Lords Kinnear and Atkinson were concerned with how to quantify the effect of these other causes of lost sales. Lord Shaw considered that the case raised an important question as to the assessment of damages in patent cases. He reviewed the practical working rules which had assisted judges to estimate the compensation to be awarded against an infringer, a task which he considered called into play “inference, conjecture and the like” and involved “the exercise of a sound imagination and the practice of the broad axe” (p 118). He referred (p.119) to a principle applicable but not confined to patent cases that

“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, of price or 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.”

16. The conclusion of Lord Shaw (p.120) is clear support for Mr Blayney. He said

“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.”

17. The entitlement of a plaintiff to damages computed both by reference to profits foregone in respect of lost sales and by way of royalty for other infringing sales was assumed in Catnic Components Ltd v Hill & Smith [1983] FSR 512 and Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383, 394.
18. Counsel for Clogau submitted that a patentee was not entitled to any damages for sales of infringing articles which would not have been made by him but for the infringement. If he were wrong about that he contended that any principle which enabled such recovery in patent cases should not be extended to other forms of intellectual property. He relied on Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 for the proposition that the user principle, of which the notional royalty rate is an example, is an exception to the usual rules as to compensation and should not be extended to copyright. He pointed out that in Dormeuil Frères S.A. v Feraglow Ltd.[1990] RPC 449 on an application for an interim payment Knox J was unwilling to apply the principle to a trade mark case. However, given the nature of the application the reluctance of Knox J is readily understandable.
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 RPC 104, 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 WLR 1406 that was certainly the view of Lord Nicholls of Birkenhead in A-G v Blake [2001] 1 AC 268. With reference to Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 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 plaintiff 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.
21. Accordingly I conclude that in principle Mr Blayney is entitled to damages by way of compensation in respect of infringing sales made by Clogau which he did not establish he would otherwise have made himself. I turn then to the second objection raised by Clogau, namely that Mr Blayney did not raise the point in the court below and should not be allowed to do so in this court.
(b) Is the issue open to Mr Blayney?
22. Counsel pointed out that there is no reported case dealing with the principles to be applied under the regime of the CPR. He submitted that those formerly applied under the regime of RSC are as applicable now as then. In that connection we were referred to note 59/10/10 in the Supreme Court Practice 1999. I am prepared to assume that the principles are substantially the same. But I do not accept that the point was not raised before the judge.
23. By his points of claim Mr Blayney sought damages in respect of each infringing copy sold by Clogau on the basis of lost profits. He contended that in respect of all infringements he would have made the sale himself either to Clogau or to third parties. Clogau contended in its points of defence that Mr Blayney would not have made any such sales so that, as alleged in paragraph 13

“the only relief to which [Mr Blayney] is entitled ...is the payment of a reasonable royalty rate in respect of each piece of [Clogau’s] jewelry sold by [Clogau]. Further and for the avoidance of doubt, [Clogau] will contend that a reasonable royalty rate should be no more than approximately 2% of [Mr Blayney]’s typical arms length net selling price on the net sales of products sold by [Clogau]...”

When asked to justify the figure of 2% Clogau responded that that was a matter for expert evidence.

24. In his skeleton argument when opening the inquiry counsel for Mr Blayney specifically drew the judge’s attention to the statement of principle made by Jacob J in Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383, 394 to the effect that a patentee was entitled to a reasonable royalty on sales by the defendant which he, the claimant, would not have made. The transcript of the oral argument shows that the same point was covered by counsel for Mr Blayney when opening his case to the judge on the first day [Tr.day 1 pp.16, 57-63] The point was adverted to by counsel for Clogau in paragraph 13 of his written closing submissions and in oral argument [Tr.day 3 pp.324-326]. In paragraphs 108 and 109 Mr Lewison QC dealt with the point. He said

“108. I have found that there were a number of sales which Clogau made but which in my judgment [Mr Blayney] would not have made even if Clogau had not been selling the infringing items.

109. Under normal circumstances I would have awarded Mr Blayney a notional royalty on these sales.”

The judge went on to consider whether there was sufficient evidence to enable him to fix such a royalty and concluded that there was not. In my view the second objection raised by counsel for Clogau is demonstrably unsustainable. The point was raised and dealt with by the judge and is open to Mr Blayney in this court.

25. I turn then to the third objection, namely that the judge was right to conclude that there was no evidence from which he could deduce an appropriate royalty and that the material relied on in this court is not relevant to that question.
(c) Is the evidence deficient?
26. The principal evidence before the judge was a report of the joint accountancy expert, Mr Swift. He was instructed by the parties jointly to report on financial loss suffered as a result of the copyright infringements by Clogau. He noted that the claim was advanced on the basis that but for the infringements Mr Blayney would have sold equivalent quantities of jewelry either to Clogau or to other wholesale/trade customers. His instructions included ascertaining what profit level Mr Blayney would have achieved from such sales. In paragraph 3.01 he set out the sales disclosed by Clogau by reference to specific quantities of each item per year from 1993 to 1997. There were, in all, 3,776. In paragraph 6.31 and 6.38 he set out the results of recasting Mr Blayney’s accounts for those years on the assumption, in paragraph 6.31 that he had supplied to Clogau the 3,776 items sold on by Clogau and in paragraph 6.38 that he had made the 3,776 items and sold them to other retailers. Such recastings produced lost profits in the aggregate sums of £65,074 and £121,648 respectively. The significance of these figures is that the latter is the profit lost to Mr Blayney if all the sales made by Clogau had been made by him. Thus it is some evidence of the profit available to the designer/manufacturer who also sells into the retail market. The former is the profit lost to Mr Blayney if he had supplied the 3,776 infringing items to Clogau for Clogau to sell them on to retailers or the public. Thus it is some evidence of the profits available to a designer/manufacturer who only supplies the wholesale market. The difference between the two, £56,574, is some indication of the profit available to Clogau from sales of infringing items bought from Mr Blayney. As such it is some evidence of a distributor’s margin in respect of sales of the infringing items.
27. Contrary to the statement of Clogau with regard to its claim that 2% was a reasonable rate or royalty there was no evidence on that point from Mr Swift or anyone else. Similarly there was no evidence as to the profits actually made by Clogau from the infringing sales.
28. The judge’s conclusion [110-113] was

“110. Lord Wilberforce indicated the sort of material which should be available to the court to enable it to make an assessment. 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 any other factor on which the judge can decide the measure of loss. Lord Wilberforce also made it clear that it is for the claimant to adduce this evidence.

111. In the present case the uncontradicted evidence of both experts is that there is no practice as regards royalty in the jewellery trade. There was no evidence of the practice in analogous trades. Neither expert was prepared to express an opinion. There is no course of dealing between the parties to which I can appeal. There was some evidence about the profit made on each item, but I have no evidence of how that profit should be split between licensor and licensee. Nor did Mr. Edenborough make submissions to me on how it should be split. In short there is no material on which I can base any conclusion about an appropriate royalty.

112. Mr. Edenborough submitted that I could assume a willing licensor and a willing licensee. I have no doubt that this is so, but it does not take me anywhere. In a field of law with which I am more familiar, it is common to have to assess a rent on the basis of a transaction between a willing landlord and a willing tenant. But the existence of those two hypothetical persons cast no light on what price or rent they would eventually agree upon.

113 I reach the conclusion that Mr. Blayney has failed to discharge the burden of proof on this part of the case. I therefore award nothing under this head.”

29. Counsel for Mr Blayney submits that the judge was wrong to criticise Mr Blayney for failing to adduce the requisite material when he had provided all his accounts to Mr Swift for analysis and comment. What more, asks counsel, could he have done? Counsel also suggests that the judge was wrong to say that there was no evidence of any course of dealing between Mr Blayney and Clogau when he had the figures to which I have referred in paragraph 26 above. It is suggested that at least the lost profit figure of £121,648 provides some measure of the profit element to be shared between licensor and licensee. Mr Blayney also relies on the concession made by Clogau in its defence as a fall back figure.
30. Clogau submits that the judge was right to reject the evidence relied on by Mr Blayney. He points out that the course of dealing and the figures relied on by counsel for Mr Blayney are as between buyer and seller not between licensor and licensee and that the profit to Mr Blayney estimated by Mr Swift was only incremental in the sense that it was a marginal profit which did not have to bear central overheads. He contends that the profit to Clogau would be much less due to its greater advertising costs. He relies on the fact that Mr Blayney lives on the profits of his business so that there is no charge for his services. He points out that Clogau was not asked to produce its books and that none of its witnesses was cross-examined with regard to the profits it derived from the infringing sales. Finally he relies on the fact that there was no evidence at all as to the proportions in which a willing licensor and a willing licensee would apportion the available profit between them. In the result, he suggests, any figure which we might select is bound to be unsupported by the evidence.
31. In SPE International Ltd v Professional Preparation Contractors (UK) Ltd [2002] EWHC 881 (Ch) Rimer J was faced with a similar problem. The claimant sought, as the third alternative way of putting his claim, a reasonable royalty based on a percentage of the turnover of each infringing shot-blasting machine or of gross profit or by way of a fixed sum per square metre. Rimer J rejected the first two alternatives, namely lost profit on sales of the infringing machines or on services provided by such machines.
32. After referring to the speech of Lord Wilberforce in General Tire and Rubber Co. v Firestone Tyre and Rubber Co Ltd [1976] RPC 197 he recorded the submission of counsel for the infringer that there being no evidence of any practice of licensing shot-blasting machines there was no basis for the assessment of any damages at all. Rimer J then said [para 86]

“I have to say that I find that submission an unattractive one. The absence of any evidence as to a relevant licensing arrangement does not mean that such an arrangement is an impossible one. In principle, I can see no reason why a notionally willing licensor and a like licensee should not come to an arrangement for the licensing of a shot blasting machine in consideration of the payment of a royalty calculated on some appropriate basis. The fact that there is no solid evidence that this has been done before does not mean that it cannot be done at all. Equally, if someone makes an unauthorised use of another’s machine for his own purposes, I can see no good reason why he should not pay proper compensation for the damage occasioned to the other’s property right by the unlawful use so made. Compensation by reference to a notional fee for the unauthorised use would, in my view, ordinarily be regarded as a fair and proper basis on which to provide compensation. For the court to refuse any compensation at all simply because there was no evidence that machines of that sort had ever been licensed out for a royalty would appear to me to involve a denial of justice.”

33. After referring to the speech of Lord Shaw in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 and the gaps in the evidence before him Rimer J continued [para 87]

“I can see no reason why I cannot and should not assess [compensation] by reference to a notional royalty payable under a notional licence agreement. The evidence leaves me short of information enabling me to make a precise calculation, and I can inevitably only adopt a somewhat rough and ready one. That may work to SPE’s disadvantage, since I also consider that I should err on the side of under-compensation. But inadequate compensation is better than none. In the circumstances of this case, I propose to take a broad axe and assess a sum of damages by reference to a notional royalty which will (a) reflect the uncertainty of the extent of the use of the infringing machines made by PPC, and (b) will also give the PPC the benefit of any doubts in the calculation.”

34. In my view the approach of Rimer J is correct. In this case the minimum compensation would be that conceded by Clogau in its defence, namely 2% of Mr Blayney’s net selling price of the 3,776 infringing items sold by Clogau. Exhibit M2 to Mr Swift’s report records the additional turnover Mr Blayney would have had if he had sold the 3,776 infringing items as £216,888, but from those figures would have to be deducted the selling price of the items for which compensation by reference to loss of profits had already been awarded. Accordingly the minimum notional royalty would be 2% of something less than £216,888, that is something less than £4,337.76.
35. But if that figure represents the minimum I see no reason why Mr Blayney should not rely on the figures to which I have referred in paragraph 26 above as other points of reference to which the court may pay regard in awarding some higher figure. As the figures to be used in calculating any such award may depend on the other matters argued on this appeal I defer further consideration of them until I have reached a conclusion on those matters.
1(ii) Additional Damages under s.97(2) Copyright, Designs and Patent Act 1988.
36. S.97(2) provides that the court may

“in an action for infringement of copyright having regard to all the circumstances of the case and in particular to:

(a) the flagrancy of the infringement, and

(b) any benefit accruing to the defendant by reason of the infringement

award such additional damages as the justice of the case may require.”

37. The claim for such damages was made in paragraphs 16 and 17 of the points of claim exclusively by reference to the alleged flagrancy of the infringement. This was recognised by the judge who concluded in paragraph 121 that the case based on flagrancy failed. He rejected the submissions made to him by counsel for Mr Blayney that additional damages might be awarded in the light of the justice of the case and the extra profit made by Clogau through employing Mr Paget to make the infringing items rather than buying them in from Mr Blayney.
38. Though permission to appeal had been given by the judge the case before us was pursued on the basis that an award of additional damages was an alternative to an award of damages in respect of those infringing items which Mr Blayney had not shown would have been sold by him but for the infringement. Given that I consider that Mr Blayney should recover damages for those infringing items as well as those for which the judge made his award the point does not arise. In those circumstances I will merely record that in my view the judge was right on this issue for the reasons he gave.
2. Was the judge wrong to apply the same pro rata profit for both periods?
39. As I have already indicated, the judge considered the issue of damages by reference to two periods, the first running from November 1992 to February 1996 and the second from March 1996 to March 1997. The difference between the two is that in the second Mr Blayney, having found a supplier, was incorporating Welsh gold into the Lovers Twist rings sold by him. The judge concluded [73] that the inclusion of Welsh gold was a strong selling point.
40. Having reached his conclusions on how many of the sales effected by Clogau would have been made by Mr Blayney but for the infringements by Clogau the judge then applied the same profit rate to both periods [96, 103 and 106] by prorating the aggregate profit as calculated by Mr Swift (£121,648) to all 3,776 items. In fact Mr Swift’s figures showed that the profit rate for the two periods was different. Thus the profit per infringing item sold in the first period was £28.32, but in the second was £37.99. As the judge found that Mr Blayney had established that, but for the infringements, he would have sold 138 in the first period and 336 in the second the use of the same profit rate for both underestimated the damages which Mr Blayney might reasonably expect. The under recovery is agreed to be £1,402.38.
41. Counsel for Mr Blayney contends that, the mistake having been discovered, Mr Blayney is entitled to have it rectified though the differential profit rate was not pointed out to the judge during the hearing. Counsel for Clogau submits that the use of the same profit figure in both periods was conceded by counsel for Mr Blayney. In addition he submits that the judge adopted the same figure for both periods to take account of other matters favouring Clogau, such as the cost of Mr Blayney’s labour and the time it would have taken Mr Blayney to make such sales.
42. I would reject the submissions of counsel for Clogau. It is plain that in the passage in the transcript said to constitute the concession counsel for Mr Blayney was dealing with a different point. The judge was being taken through the table in paragraph 3.01 of Mr Swift’s report. This shows the number of sales for individual products from each year from 1993 to 1997. The judge asked counsel for Mr Blayney if he could treat them as, broadly speaking, a single category. Counsel agreed that he could. [Tr.Day 2 pp.234-5] Plainly it was accepted by counsel for Mr Blayney that no distinction was to be drawn between one product and another. But nothing was said, and in my view cannot be implied, as to the use of the same or different rates of profit in respect of the different periods.
43. It is clear from paragraph 96 of the judgement that the amount of lost profit per unit was not arrived at by striking a balance between a number of competing items. The judge was seeking to apply Mr Swift’s figures by dividing the aggregate profit lost to Mr Blayney by the number of infringing items. But this did not reflect the loss to Mr Blayney because of the differences in both the profit figures and the number of lost sales attributable to the two periods. In my view Mr Blayney is entitled to have that error corrected.
3. Did the judge err in his assessment of the loss sustained by Mr Blayney in the second period?
44. This point arises from paragraph 92 of the judgment to which I have referred in paragraph 7(3) above. There are two aspects to it. The first relates to the judge’s reference to the evidence of Clogau’s sales agent that “the Clogau range is five to ten times bigger than the [Blayney] range”. It is evident that in his subsequent calculations the judge adopted the lower end of the range (5), neither the higher end (10) nor the mean (7.5). It is submitted that he should have taken the mean of 7.5. The second arises out of the judge’s conclusion that if the Clogau range sells approximately twice as well as that of Mr Blayney then Mr Blayney would have sold one third of the number sold by Clogau. It is submitted that the fraction should be one half not one third.
45. I would reject the first point. The evidence to which the judge referred would have entitled him to take 5, 10 or 7.5 as the appropriate factor. It is not open to this court to reject his finding of fact that 5 is the appropriate figure. There was evidence to support it; such a conclusion was not perverse. The fact that the assessment is to be liberal does not mean that the claimant is to get the benefit of all possible alternatives.
46. I would accept the second criticism. On the face of the judgment there is an arithmetical error. If Clogau’s range sells twice as well as Mr Blayney’s then Mr Blayney’s sells half as well as Clogau’s. One third can only be the correct proportion if one is looking to see how many sales are made by Mr Blayney compared to the aggregate sales made by both Mr Blayney and Clogau. It is plain from what he said that the judge was looking at sales made by Clogau, not aggregate sales by Clogau and Mr Blayney.
47. The effect of this error was to reduce from one half to one third the proportion from which the judge discounted to 10% and 25% for the two periods respectively. If the same discount is allowed from the higher proportion then the sales which but for the infringement Mr Blayney would have made should stand 50% higher (one half is 50% more than one third), viz at 15% or 207 for the first period and 37% (to be precise 37.5%, but Mr Blayney was content to work on 37%) or 497 for the second. To these figures should be applied the different profit rates for the two periods of £28.32 and £37.99 to produce lost profit damages of £5,862.24 for the first period and £18,881.03 for the second.
4. Did the judge underestimate the numbers of direct sales?
48. The judge dealt with direct sales in paragraphs 104 to 106 of his judgment. He concluded [105] that the direct sales to the public made by Clogau did not cost Mr Blayney any significant number of direct sales of his own. The judge had found [104] that over both periods Clogau had made 1062 direct sales to the public by mail order. He added “which is not a form of selling that Mr Blayney has ever employed”.
49. Counsel for Mr Blayney submits that the judge overlooked passages in the evidence to the opposite effect. He relied on answers of Mr Blayney in cross-examination [Tr.day 1 p.147] to the effect that he sold direct to the public not by mail order but at agricultural shows and the like. Later [Tr.day 2 pp.176-177] Mr Blayney agreed that he did not advertise his jewelry in national newspapers. He accepted that the vast majority of his sales were to wholesalers or retailers.
50. Whilst it may be that the judge slightly overstated the effect of Mr Blayney’s evidence he did allow him 100 lost sales out of 1062 direct sales made by Clogau. In my view it cannot be said that such a conclusion was not supported by evidence or was in any way perverse. I see no ground on which this court could be justified in interfering with the judge’s conclusions. I would add that the judge did not apportion the 100 direct sales as between the two periods. Counsel for Mr Blayney suggested that we should attribute all of them to the second period, thereby attracting a higher profit figure. I see no reason to do so. Nor in the light of that conclusion is it appropriate to use a profit figure other than the average over the two periods used by the judge. Accordingly I would not make any alteration to the judge’s award in respect of the 100 direct sales.
Conclusions
51. It follows from the conclusions I have reached so far that I would allow the appeal in relation to the notional royalty point (Issue 1(i)), the differential profit rate point (Issue 2) and, having granted permission to appeal, the percentage point (Issue 3(b)). I would dismiss the appeal in relation to the additional damages point (Issue 1(ii)) and refuse permission to appeal in relation to the 5 or 10 to 1 point (Issue 3(a)) and the direct sales point (Issue 4).
52. This leaves outstanding the calculation of lost sales damages and, in the light of those figures, the compensation for the other infringing sales. Given my conclusions so far the damages for the lost sales is calculated as

First period

Lost retail sales 207 x £28.32 = £5,862.24

Second period

Lost retail sales 497 x £37.99 = £18,881.03

Direct sales 100 x £32.21 = £3,221.61

Total lost sales damages £27,964.88

53. One consequence of this calculation is to reduce the number of other infringing sales from 3,202 to 2,972. Further the turnover and profit attributable to those sales shown in Mr Blayney’s accounts as reworked by Mr Swift are likewise reduced to £166,292 and £90,703.50 respectively. The minimum 2% royalty to which I referred in paragraph 34 above would produce a figure of £3,325.84 or £1.12 per infringing item. It is appropriate to cross check this figure against both the average sale price of £55.95 and the average profit to Mr Blayney, had he made the relevant sale, of £30.52. So regarded, in my view, a royalty rate of 2% is too low.
54. I accept that the notional profit to Mr Blayney may be higher than the profit to Clogau because there is no charge for his services and the advertising charges of Clogau were higher than his. Nevertheless if there had been a significant difference it was always open to Clogau to produce its own books to show the level of profit it actually made from these infringing sales. It may be noted that Clogau’s accounts indicate that as advertising expenditure increased, so did profits. Moreover Clogau, with its larger turnover, probably had economies of scale which Mr Blayney could not achieve. In the absence of such comparative figures I think that the court is entitled to infer that the profit derived by Clogau was not greatly dissimilar to that attributed by Mr Swift to Mr Blayney.
55. I do not suggest that the figure I propose is justified by any specific calculation. It is not necessary to do so. As Lord Shaw pointed out in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, 118 compensation is to be assessed on the basis of inference, conjecture and the like, by the exercise of sound imagination and the practice of the broad axe. Doing the best I can I consider that fair compensation for the remaining 2,972 infringing sales requires that Clogau pay by way of damages a sum equal to a royalty of 5% on Mr Blayney’s net selling price. This produces a figure of £8,314.60. At an average selling price and profit of £55.95 and £30.52 I do not think that a unit royalty of £2.80 is more than reasonable compensation. I put it that way because it is, in my view, necessary to guard against over-compensation where, as here, a claimant is obtaining both loss of profit on lost sales and a royalty on other infringing sales.
56. Accordingly I would award to Mr Blayney damages in the sum of £36,279.48 (£27,964.88 + £8,314.60). To that must be added interest. The judge awarded interest at 8% on half the amount for each period and on the whole amount from the end of that period until nine months before judgment [130]. This was to take account of the fact that sales took place throughout the respective periods but that any more precise calculation would involve disproportionate effort and expense. The principle behind the judge’s order has not been challenged by either side. In my view the same principle should be applied to the altered figures. Thus interest at 8% will be payable on

£2,931.12 from November 1992 to February 1996

£5,862.24 from March 1996 to March 1997

£9,440.52 March 1996 to March 1997

£1,610.80 from November 1992 to March 1997

£4157.30 from November 1992 to March 1997

£36,279.48 from March 1997 to judgment.

I would invite counsel to agree the computation of interest.

57. For all these reasons I would allow the appeal to the extent referred to in paragraph 51 above. In the light of those conclusions I would increase the damages payable by Clogau to Mr Blayney to £36,279.48 with interest as explained in paragraph 56 above.

Rix LJ

58. I agree.

Jonathan Parker LJ

59. I also agree.
Order: Appeal allowed in part. Judge’s order below for costs set aside and order that the defendant pay the claimant’s costs form 16^th January 2000 until conclusion of action substituted. Interim payment of £75,000 to be made. Cross appeal dismissed with costs. Permission to appeal to House of Lords refused. (Order does not form part of the approved judgment)