Judge Hacon :
Introduction
- This is an inquiry as to damages following the judgment by Mr Recorder Richard Meade QC of 14 June 2013 and his order of 18 July 2013, in which Mr Meade made a declaration that three letters and an email sent by the defendants constituted groundless threats of patent infringement.
- The patent in question is UK Patent No. 2 472 483 ("the Patent"). The Patent is concerned with an induction heating unit for hair rollers. Induction heating allows the rollers to be heated for use in a shorter time than is required for rollers heated conventionally. The proprietor is the first defendant ("Next Row"). The application for the Patent was filed on 8 June 2010 ("the Patent Application") and the Patent was granted on 15 August 2012.
- At the trial before Mr Meade there was also an action in which the claimant in these proceedings ("SDL") and six other parties were sued for infringement of the Patent.
- At the start of April 2012 SDL began to offer for sale in this country a product called 'Ego Boost', a unit for heating hair rollers using induction heating technology. The initial marketing of the product took place at a trade show for hair products in Manchester called 'Pro Hair Live', which started on 2 April 2012.
- Among the parties which became interested in the Ego Boost product were QVC the well known shopping channel, Ideal Hair & Beauty Supplies Ltd ("Ideal Hair") a distributor of hair care products and Alan Howard (Stockport) Limited ("Alan Howard") another distributor of hair care products.
- This gave rise to a number of letters from the defendants' solicitors (then trading as Lupton Fawcett LLP and I will refer to them as "Lupton Fawcett") alleging that the Ego Boost product fell within the claims of Next Row's Patent Application. There was a letter dated 3 May 2012 to SDL ("the SDL Letter) in which Lupton Fawcett stated that they were acting for Next Row. There followed three further letters in similar terms, all dated 9 May 2012, to Ideal Hair ("the Ideal Hair Letter"), QVC ("the QVC Letter") and Alan Howard ("the Alan Howard Letter"). In each of these Lupton Fawcett said they were acting on behalf of both Next Row and the second defendant ("RMG").
- SDL claim that three of the four letters I have referred to caused disruption to SDL's business in sales of the Ego Boost. Although pleaded, the Ideal Hair Letter played no part in this inquiry.
- After early May 2012 there was an initial drop in sales to Alan Howard and, as I will come on to discuss, by June 2012 a severe loss of confidence in the Ego Boost on the part of Alan Howard. However towards the end of the summer of 2012 Alan Howard decided on a fresh push of sales. On 18 September 2012 the fourth defendant ("Gavin Rae") sent an email to Alan Howard on behalf of the third defendant ("Cloud Nine") stating that the Patent had now been granted and raising again the question of infringement ("the Alan Howard Email").
- The claim form in the infringement action was issued on 10 January 2013. In his judgment of 14 June 2013 Mr Meade found that the Patent was not infringed. He also found that the Ideal Hair Letter, the QVC Letter, the Alan Howard Letter and the Alan Howard Email were each actionable threats pursuant to s.70 Patents Act 1977. The SDL Letter was not considered by Mr Meade but I was told that at the CMC in the inquiry on 8 November 2013 Arnold J gave SDL permission to raise at the inquiry the question whether the SDL Letter was a threat. The defendants subsequently admitted that the SDL Letter constituted a threat in their Amended Defence in the inquiry.
- The losses to SDL arising from the SDL, QVC and Alan Howard Letters ("the Three Letters") and the Alan Howard Email now fall to be considered.
- There is also a dispute about joint liability that remains outstanding. Next Row and RMG are directly liable in relation to the Three Letters. It is not disputed that Cloud Nine is liable for the Alan Howard Email and there was a finding by Mr Meade that Gavin Rae is also personally liable for that email. In addition SDL argues that Cloud Nine and Gavin Rae are liable as joint tortfeasors in relation to the threats in the Three Letters. I have to resolve this last point.
Promotion of the Ego Boost to QVC and Alan Howard
QVC
- In February 2012, i.e. before the launch of the Ego Boost in April of that year, SDL presented the Ego Boost to QVC for suggested promotion and sales on its TV channel. When QVC are impressed that a product has a particularly good potential for sales, the product will be given a promotion known as 'Today's Special Value' or 'TSV'. Each day one product is chosen for enhanced marketing on the channel as that day's TSV. Understandably, those who seek promotion of their product on QVC will try to persuade QVC to give the product TSV status. Clare Havill, a buyer at QVC, gave evidence that QVC regards a TSV as successful if at least 80% of the initial order for the product is sold on the date of the TSV.
- The Ego Boost was one of several products marketed by SDL under the Ego brand name. Since 2010 SDL has sold several of these on QVC and six of them have been awarded TSV status.
- This includes the Ego Boost. It was pitched to Clare Havill in early 2012. She and the TSV committee at QVC were sufficiently impressed to decide that Ego Boost should qualify for a TSV. It was arranged for a day in July 2012. QVC asked SDL to have 3000 units available for the day of the TSV and 1500 units available for sale thereafter, all on a sale or return basis. The agreed price to be charged by SDL to QVC was £56.62 per unit.
Alan Howard
- Alan Howard first became aware of the Ego Boost through a meeting between Stuart Laing, a director of SDL and Jonathan Littler, a director of Alan Howard. This was at the end of 2011. His interest was maintained through the early part of 2012 by further discussions with Mr Laing even though no prototype was available for inspection.
- Mr Littler first saw a prototype when he visited Pro Hair Live in Manchester at the start of April 2012 with about 40 sales colleagues from Alan Howard. Mr Littler said that the team from Alan Howard were really excited about the product and estimated that Alan Howard could sell 9000 Ego Boost units a year. A price of £55 per unit was agreed.
Reactions to the threats
SDL
- SDL placed its first order with its Chinese manufacturer in February 2012, for 6000 units. (The identity of the manufacturer was treated as confidential to SDL and was not revealed in the proceedings). As part of the deal SDL was offered a discounted price if orders for at least 20,000 units were placed by the end of 2012.
- On receiving the SDL Letter on 3 May 2012 SDL was concerned enough by the threat for Mr Laing to tell the Chinese manufacturer to stop production for the time being. In the meantime legal advice and a technical opinion from an engineer were sought. The opinion was received in the middle of June 2012. The engineer's view was that the Ego Boost did not infringe the Patent. So on or about 18 June 2012 the Chinese manufacturer was asked to finalise the preparation of the tool and to begin production. The design and production of the packaging for the product, which had also not been done, likewise resumed. The first delivery to the UK finally arrived about 2 months later. A shipment of 204 products was sent directly to Alan Howard on 13 August 2012.
QVC
- Shortly after receiving the QVC letter QVC suspended the TSV for the Ego Boost. It was then cancelled on the advice of QVC's in-house counsel on 3 July 2012.
- No further progress was made with QVC until after judgment before Mr Meade on 14 June 2013. In August 2013 a new TSV was organised for the Ego Boost with a price charged of £52.50 per unit. The TSV was successful. About 90% of the 3000 units ordered for the day were sold and sales continued afterwards. However QVC insisted that its dealings with SDL were to be done through a broker to protect QVC from financial loss. The broker used was First Trade Limited.
Alan Howard
- Mr Littler said that the Alan Howard Letter of 9 May 2012 caused concern. But there had been a good consumer reaction to the product and the Alan Howard sales team had done a lot of work promoting it at considerable cost. Also Mr Laing offered to protect Alan Howard from any costs and damages arising from an action for infringement of the Patent. So a decision was taken at Alan Howard to persevere with the product. Nonetheless by mid-June 2012 there was what Mr Littler described as a huge drop-off in orders and a loss of confidence in the Ego Boost.
- In an email of 14 June 2012 Mr Laing informed Mr Littler that SDL's engineer had concluded that the Ego Boost did not infringe the Patent. Mr Littler said that this came as good news, in particular because he estimated that by 14 June 2012 Alan Howard had spent about £200,000 on the promotion of the product, most of this calculated by reference to the salaries of sales representatives who had been doing the promoting. There were discussions about how to go forward. On 15 June 2012 Mr Laing and Mr Littler agreed that the price per unit charged to Alan Howard would be reduced to £50. Alan Howard still drastically reduced its sales targets and the energies of the sales team were directed elsewhere.
- There were significant problems from Alan Howard's point of view in the lack of supply of the product. The initial order of 1000 units placed at Pro Hair Live had still not been supplied by early August. There was reduced customer enthusiasm for the product and some cancellations of orders.
- On 13 August 2012 the first delivery reached Alan Howard, although not all the 1000 units ordered. Only 204 products were delivered, 30 of which were water-damaged. A rebate of £5 was agreed with SDL for each product.
- By mid-August 2012 Mr Littler was becoming more optimistic, enough to contemplate a sales push for the Ego Boost up until Christmas. In early September Alan Howard took delivery of 1,397 products. Work was done on designing promotional material to be given to customers and copy was created for an advertising promotion that was later run in the November/December issue of Alan Howard's 'Good News' brochure.
- On 18 September 2012 Mr Littler's father, Howard Littler, received the Alan Howard Email. As a consequence a decision was taken to do no further promotion of the Ego Boost.
- From mid-September onwards sales of the Ego Boost were predominantly limited to fulfilling pre-existing orders, including those dating back some months, and meeting orders generated by the promotion in the 'Good News' brochure. A further consignment of 1,250 units was received on 28 November 2012. Sales in the three months of September to November 2012 totalled only 881 units. At the end of 2012 Alan Howard had over 1000 units remaining in its warehouse. No further orders for the product were made.
- After Mr Meade's judgment of 14 June 2013 there were limited attempts by Alan Howard to re-ignite interest in the product among its customers. SDL agreed to pay each of Alan Howard's sales force £5 on each Ego Boost sold from September to Christmas 2013. Even so, in the three months from September to November 2013 only 232 units were sold.
The Issues
- By the time of the trial SDL's claimed losses fell under the following heads:
(1) Loss of profit caused by the cancellation by QVC of the TSV which was to have been held on 3 July 2012, including sales in the 7-10 days immediately following the TSV.
(2) Loss of profit on orders that QVC would have placed between August 2012 and judgment on 14 June 2013.
(3) Loss of profit caused by the reduction in price charged to QVC which was required to persuade QVC to resume promotion of the Ego Boost.
(4) Loss of profit caused by the reduction in price negotiated with Alan Howard on sales up to judgment in June 2013.
(5) Loss of profit resulting from the reduction in sales to Alan Howard caused by one or more of the Three Letters in the period up to 18 September 2012 (the date of the Alan Howard Email).
(6) Loss of profit resulting from the reduction in sales to Alan Howard in the period 18 September 2012 to judgment on 14 June 2013 caused in particular by the Alan Howard Email.
(7) Loss of profit resulting from the reduction in sales caused by the Three Letters and the Alan Howard Email from 14 June 2013 to the end of 2013.
(8) Loss of profit caused by (a) the reduction of £5 in the price charged to Alan Howard and (b) the payment of £5 per unit to Alan Howard's sales force in relation to sales between 14 June 2013 to the end of 2013.
(9) Loss of profit resulting from the reduction of £5 in the price for the Ego Boost in relation to projected sales in the years 2014 to 2016 caused by the Three Letters and the Alan Howard Email.
The total sum claimed easily exceeds the cap of £500,000 damages which can be awarded in this court.
- In addition there are two further issues:
(10) Interest on any of the heads of loss identified above to which SDL is entitled.
(11) Whether the defendants are jointly liable for the threats. In particular whether Cloud Nine and Gavin Rae are jointly liable in relation to the losses caused by the Three Letters.
The law
- I derive the following principles from authorities in relation to an inquiry as to damages:
(1) A successful claimant is entitled, by way of compensation, to that sum of money which will put him in the same position he would have been in if he had not sustained the wrong, see Livingstone v Rawyards Coal Co. (1880) 5 App.Cas., 25 per Lord Blackburn at 39.
(2) The claimant has the burden of proving the loss, see General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197, at 212.
(3) The defendant being a wrongdoer, damages should be liberally assessed but the object is to compensate the claimant, not punish the defendant, see General Tire at p.212.
(4) The claimant is entitled to recover loss that was (i) foreseeable, (ii) caused by the wrong and (iii) not excluded from recovery by public or social policy, see Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443, at 452.
(5) In relation to causation, it is not enough for the claimant to show that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss. It is not necessary for the tort to be the sole or dominant cause of the loss, see Gerber at p.452.
(6) An inquiry will generally require the court to make an assessment of what would have happened had the tort not been committed and to compare that with what actually happened. It may also require the court to make a comparison between, on the one hand, future events that would have been expected to occur had the tort not been committed and, on the other hand, events that are expected to occur, the tort having been committed. Not much in the way of accuracy is to be expected bearing in mind all the uncertainties of quantification. See Gerber at first instance [1995] RPC 383, per Jacob J, at 395-396.
(7) Where the claimant has to prove a causal link between an act done by the defendant and the loss sustained by the claimant, the court must determine such causation on the balance of probabilities. If on balance the act caused the loss, the claimant is entitled to be compensated in full for the loss. It is irrelevant whether the court thinks that the balance only just tips in favour of the claimant or that the causation claimed is overwhelmingly likely, see Allied Maples Group v Simmons & Simmons [1995] WLR 1602, at 1609-1610.
(8) Where quantification of the claimant's loss depends on future uncertain events, such questions are decided not on the balance of probability but on the court's assessment, often expressed in percentage terms, of the loss eventuating. This may depend in part on the hypothetical acts of a third party, see Allied Maples at 1610.
(9) Where the claim for past loss depends on the hypothetical act of a third party, i.e. the claimant's case is that if the tort had not been committed the third party would have acted to the benefit of the claimant (or would have prevented a loss) in some way, the claimant need only show that he had a substantial chance, rather than a speculative one, of enjoying the benefit conferred by the third party. Once past this hurdle, the likelihood that the benefit or opportunity would have occurred is relevant only to the quantification of damages. See Allied Maples at 1611-1614.
- The last category has relevance to this inquiry. I will adopt a label used by Nugee J (see below) and refer to the circumstance of a potential lost chance, dependent on the hypothetical act of a third party, as an 'Allied Maples type of case'.
- Allied Maples has twice been the subject of consideration by the Court of Appeal in recent years, first in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486; [2011] QB 477. The claimant was a successful trader in stock, shares and derivatives. He was defrauded over a sustained period by the defendants. Flaux J found that but for the fraud, on the balance of probability the claimant would have traded profitably up to the period when its relationship with the defendants came to an end (stage 1) and would have traded more profitably than it did in the period from then until trial (stage 2) because it would have had a larger fund. The claimant was entitled to claim in respect of both stages. This was upheld in the Court of Appeal. Toulson LJ (with whom Rimer and Mummery LJJ agreed) said that once the two heads of loss had been established on the balance of probability, the next stage was to quantify the loss. Where this involved a hypothetical exercise, it was not to be done by applying the balance of probability approach as would be applied to the proof of past facts. The court had to estimate the loss by making the best attempt it could to evaluate the chances, taking all significant factors into account (at [23]).
- In Vasiliou v Hajigeorgiou [2010] EWCA Civ 1475 a restaurant was unable to trade because of the defendant's breach of covenant. There were two separate assessments of damage. In each case the judge found that the restaurant would have been a success had it traded and assessed the profits it would have made. This approach was approved by the Court of Appeal. In particular the Court of Appeal rejected the submission by the defendant/appellant that the judge should have applied a discount to his award to reflect the risk that the claimant would not in fact have achieved the level of profit assessed. Patten LJ (with whom Black and Ward LJJ agreed) said this:
"[25] Where the quantification of loss depends on an assessment of events which did not happen the judge is left to assess the chances of the alternative scenario he is presented with. This has nothing to do with loss of chance as such. It is simply the judge making a realistic and reasoned assessment of a variety of circumstances in order to determine what the level of loss has been."
- Parabola and Vasiliou were cited to Nugee J in Wellesley Partners LLP v Withers LLP [2014] EWHC 556 (Ch). This was an action for professional negligence against a firm of solicitors relating to the drafting of a limited liability partnership agreement. The defendant solicitors were found to be negligent in relation to one of the allegations made against them. The quantum of damages was assessed at the same trial. Nugee J reviewed both Parabola and Vasiliou in some depth and reached the following conclusions as to the combined effect of Allied Maples, Parabola and Vasiliou:
"[188] As these citations show, despite Allied Maples having been the leading authority for nearly 20 years, this area is one that continues to cause real difficulties of classification and application. What I understand from these authorities can be summarised, with I hope suitable diffidence, as follows:
(1) There is a difference between the question whether a loss has been caused by the wrong complained of, and if it has, the quantification of that loss. The fact that there is a distinction is in principle clear; what is not always clear is where the line is to be drawn.
(2) Sometimes what the claimant has lost was only ever an opportunity to obtain something else, for example the chance to take part in a competition or the opportunity to bring litigation. Such an opportunity is a valuable right in itself, and what the claimant proves (on the balance of probabilities) is that he has lost that right; the assessment of the value of the right then depends on the chances of success. As Patten LJ says in Vasiliou at [21] this is because what has been lost is by definition the loss of a chance. It would obviously be wrong to value the right to take part in a competition at the value of the prize that might be won as the claimant never had a right to the prize, only the right to enter the competition. It would also be wrong to value the right to bring litigation as if it were bound to succeed, if, as is almost inevitably the case, the outcome of the litigation is uncertain. A claim with a prospect of success has a value, but until judgment has been obtained (and indeed it is clear that it can be successfully enforced) that value is not the same as the amount which would be awarded were it to succeed.
(3) What Patten LJ makes clear, which had not I think been so clear before, is that this is not quite the same type of case as Allied Maples. In an Allied Maples case the claimant has not lost a valuable right, but he has lost the opportunity of gaining a benefit, albeit one which depends on a third party acting in a particular way. In such a case the claimant is not required to prove that the third party would have acted in that way, only that there was a real and substantial chance that he would. This is still a question of causation, not of quantification (see Vasiliou at [22], and also First Interstate Bank of California v Cohen Arnold & Co [1996] CLC 174 at 182 per Ward LJ, cited in Vasiliou at [43]); but if the claimant does establish that there was such a real and substantial chance, then when it come to quantification, his damages will be assessed not at 100% of the value of the benefit he would have obtained, but at the appropriate percentage having regard to the chances of his obtaining it. I only add the obvious point that in some cases, where the chance is found to be say 30%, the requirement that the claimant only need show that he has lost a real and substantial chance is beneficial to him (as if he had to prove how the third party would have acted on the balance of probabilities, he would recover nothing); but in other cases, where the chance is assessed at say 70%, it has the effect of only enabling him to recover 70% of the damages he otherwise would. But as I read the authorities, the claimant does not have a choice whether to adopt the Allied Maples approach; if the case is an Allied Maples type of case, this is the appropriate way to approach the issues of causation and quantification.
(4) However, as Parabola and Vasiliou illustrate, there are other cases where the claimant does not seek to establish as a matter of causation that he has lost the opportunity of acquiring a specific benefit which is dependent on the actions of a third party; rather, he claims he has lost the opportunity to trade generally, and claims the loss of profits that he would have made.
(5) It seems that in such a case the Court must first decide whether the claimant would have traded successfully. It is not entirely clear if this is part of the question of causation and a separate exercise from quantification; or whether it is to be regarded as part of the quantification exercise. Toulson LJ in Parabola at [23] fairly clearly treats the finding of Flaux J that "on a balance of probability Tangent would have traded profitably…" as part of the question of causation as he deals with it in the context of the claimant having first to establish an actionable head of loss, and coming before the "next task" which is "to quantify the loss". On the other hand Patten LJ in Vasiliou at [23] seems to have regarded the question as part of the exercise of quantification: see his reference to there being "no doubt at all that the breach had caused the loss subject only to the quantification of that loss", and to Mr Vasiliou's competence and the restaurant's prospects of success not being matters that went to causation at all but being relevant at most to the assessment of how profitable the restaurant would have been.
(6) On either view this is clearly a different type of exercise from that undertaken in an Allied Maples case. It does not require the Court to find that there was a real and substantial chance of a third party acting in a particular way; but to reach a conclusion whether trading would have been profitable or not. However the exercise is characterised, I think it must follow that this is a simple yes/no question (would the trading have been profitable?), and hence falls to be decided on the balance of probabilities. I accept that this is so, even though as a matter of strict logic it is not entirely obvious why there should be such a sharp difference of approach from the Allied Maples type of case. The profitability of the restaurant in Vasiliou presumably depended on whether it would have attracted sufficient custom, or in other words whether a number of third parties would have chosen to come to Mr Vasiliou's restaurant; and this does not seem very different in kind, only in degree, from the question in Allied Maples which was whether the third party in question would have chosen to accede to Allied Maples' request for a particular contractual term. It may be that the difference is between one particular third party and a pool of potential customers; in the case of an individual third party, the Court must assess the chance of his acting in a particular way, but in the case of a pool of potential customers, the Court is not concerned with how any individual would have behaved but with whether there would have been sufficient custom generally to make the business a success.
(7) Be that as it may, it is clear from Parabola and Vasiliou that if the Court finds that trading would have been profitable, it then makes the best attempt it can to quantify the loss of profits taking into account all the various contingencies which affect this: see Parabola at [23]. This neither requires any particular matter to be proved on the balance of probabilities (see Parabola at [24]) nor has anything to do with the loss of a chance as such (see Vasiliou at [25]). The assessment of the loss will itself include an evaluation of all the chances, great or small, involved in the trading (see Parabola at [23]). Once the judge has assessed the profits in this way, any further discount is therefore inappropriate (see Vasiliou at [28])."
The categories of loss in the present case
- I think the first head of loss claimed by SDL, caused by the cancellation of the QVC TSV scheduled for 3 July 2012, is an Allied Maples type of case. I will return to discuss this further below.
- Under the second head SDL claims the loss of profit on the orders that QVC would have placed between August 2012 and judgment, i.e. in the period following the TSV. This is tied to the first head.
- The remaining heads of loss are not Allied Maples types of case. With regard to the fifth, sixth and seventh heads, it is true that the loss under each of these depends on the hypothetical acts of a single third party, Alan Howard. But the chance lost as contemplated in Allied Maples is in the nature of a one-off chance. The specific examples in the authorities are the chance to take part in a competition (see Chaplin v Hicks [1911] 2 KB 786) or in litigation (see Kitchen v Royal Air Forces Association [1958] 1 WLR 563) and Allied Maples itself in which, because of the defendant solicitors' negligence, the plaintiff lost the chance of benefiting from a particular warranty or indemnity in a contract for the sale of four department stores. By contrast the loss claimed under these heads is akin to the loss of trading opportunity considered in Parabola and Vasiliou.
- The third head of loss is not exactly the same in that it claims the loss caused by SDL having to negotiate a reduction of £5 in the price charged to QVC per unit in order to obtain the TSV in August 2013. This is not a loss of opportunity to trade, rather it is a lost opportunity to trade on particular terms. However this seems to me akin to Parabola and Vasiliou. The same applies to the fourth and eighth heads of loss.
- The ninth head is different again. It claims the loss caused by the price reduction of £5 negotiated with Alan Howard as it will apply to projected sales in 2014 to 2016.
Dates of delivery of the Ego Boost to SDL
- In February 2012 SDL placed an order with its Chinese manufacturer for 6000 units of the Ego Boost. This was to accommodate orders generated by a QVC TSV and initial orders from SDL's other potential customers, including Alan Howard. Much hangs on when that order was actually delivered to SDL and when it would have been delivered had the SDL Letter not been sent. SDL argues that the threat of patent proceedings caused it to put the Ego Boost project on hold and in particular to instruct the Chinese manufacturer to stop production. Because of the hiatus thus created supplies of Ego Boost units were necessarily delayed.
- The first consequence was that SDL could not meet the deadline for the proposed TSV. But that would not have gone ahead anyway because of the QVC Letter.
- Mr Pritchard, who appeared for SDL, submitted that the primary effect of the SDL Letter and the consequent delay in supplies was its inability to meet the demand for the product from Alan Howard. The Alan Howard Letter did not have the equivalent effect of the QVC Letter, it did not put a stop to all trading. SDL argues that such was the enthusiasm among Alan Howard's sales force and its customers and such was the investment Alan Howard had made in the Ego Boost, Alan Howard would have sold the product in large numbers but for the delays in supply caused by the SDL Letter.
- An important matter to resolve, therefore, is the degree to which the problems in supply were caused by the SDL Letter as SDL alleges.
- There was telephone discussion between Mr Laing and 'Jessica', an officer or employee of the Chinese manufacturer on 21 April 2012. A record of the conversation was created using the instant messaging function of Skype and I was shown a copy. A number of points emerge. First, the tool for the Ego Boost was not completely ready. Jessica estimated that it would take another 10 days. She thought that 1500 units could be produced within 25 days. Mr Laing explained that there was a real urgency from his point of view.
- Shortly after the SDL Letter of 3 May 2012 was received, on 8 May 2012 Mr Laing again spoke to SDL's Chinese manufacturer. This was also recorded. Mr Laing explained the potential difficulty caused by the threatened patent action and said that he needed production to be "slowed down" until SDL clarified the legal position.
- As I have mentioned, SDL received an encouraging opinion from an engineer in the middle of June suggesting that the Ego Boost did not fall within the claims of the Patent. There followed another conversation between Mr Laing and the Chinese manufacturer on 18 June 2012. This suggests that Mr Laing or someone else at SDL had already contacted the Chinese manufacturer and in this conversation an individual called 'Jessica' from the manufacturer told Mr Laing that they were ready to start again and would send more product. There was also a discussion about finalising the packaging.
- Thus there was roughly a six week period during which SDL's manufacturer was under instructions to slow down. It is not at all clear exactly what happened or did not happen in China during this six weeks. One possibility is that production of the Ego Boost and the creation of the packaging came to a complete standstill. It is also possible that when the manufacturer was given the go-ahead on or shortly before 18 June 2012, it was not possible for it to resume as if there had been no stoppage, so the overall delay caused to the production schedule was more than six weeks.
- Another possibility is that preparations and production continued in China during the six weeks, albeit at a slower rate. The conversation on 18 June 2012 suggests that the manufacturer was in a position to deliver units immediately, although not in a form suitable for SDL's customers because the packaging had still not been finalised.
- Mr Jory QC, who appeared for the defendants, pointed out that the absence of a production schedule from the Chinese manufacturer in the evidence left entirely uncertain what happened during the six weeks and that any presumption should go against SDL.
- There is also the question of how much the hiatus delayed SDL's second order. After the first order for 6,000 units in late February 2012, SDL decided in early July to follow this up with an order for a further 14,000 units to take advantage of the Chinese manufacturer's improved terms for a total order of 20,000 by the end of 2012. Mr Laing speculates that this second order would have been placed in the early part of May 2012 had the threats not been made and, by implication, this also delayed the supplies of the products reaching the UK from China.
- I have come to the view that the best rough and ready approach to this is for me to assume that the slow down requested by SDL to the Chinese manufacturer caused all deliveries of the Ego Boost to SDL to be delayed by six weeks. Those deliveries came to SDL via its Danish parent. My assumption will be that had no threat been made the deliveries would have taken the same route using the same mode of transport, air or sea, as actually happened. I think there would have been equivalent urgency.
Actual history
- The dates of delivery were as follows:
13 August 2012 204 units delivered directly to Alan Howard.
Of these 30 were water damaged.
7 September 2012 1,397 units delivered directly to Alan Howard.
Mid-October 2012 4,500 units delivered to SDL
Late February 2013 Date by which all 20,000 had been delivered to
SDL's Danish parent company.
Counterfactual history
- Before turning to the hypothetical delivery timetable on which I will rely, I should say something about Mr Laing's evidence on this. He did not pretend to know with any accuracy the dates on which the various deliveries would have been made had the threats not been issued. But he speculated that the whole of the first consignment of 1500 units would have reached the UK by mid to late June 2012 assuming they were transported by air freight (as happened), the second consignment of 4,500 would have arrived in the UK in early to mid-July if sent by air and by mid-October if sent by sea (the actual delivery was by sea) and the remaining 14,000 would have reached Denmark by late December 2012.
- These dates strike me as being unlikely. The hidden assumption is that the manufacturing hiatus of 6 weeks generated more than 6 weeks delay in delivery to the UK (or Denmark) and thus the hypothetical dates of delivery would have been more than 6 weeks earlier. I do not accept that.
- Secondly, I think Mr Laing's estimates may assume that all the production of the Ego Boost available from the Chinese manufacturer would have gone to SDL. That may not be correct. I was shown a "Letter of Intent (Strategy Paper)" dated 4 April 2012 and signed by Mr Laing, his wife and Flemming Nielsen of IdHair Company A/S ("IdHair"), the Danish company that had recently acquired SDL. It includes projected sales of the Ego Boost with a value of £1.72m in the period April 2012 to March 2013. Of these, £625,000 were to be in the UK market, £187,000 in the US market and £558,000 elsewhere. The point is not so much the figures themselves, which may or may not have been optimistic, but that a significant proportion of the sales were to go to markets outside the UK. I was also shown invoices issued to IdHair by the Chinese manufacturer from which it is plain that some of the deliveries of the Ego Boost to IdHair did not have a UK plug and were destined for a continental market. There was a suggestion that some of the plugs that reached SDL's customers had the wrong plug. Ms Havill said that was not the case at least as far as QVC was concerned. I think the more likely inference is that IdHair had commitments to customers other than those of SDL in the UK. I do not think I am entitled to assume that in the absence of threats all the production from the Chinese manufacturer would have been sent to SDL to be sure that SDL's customers, particularly QVC and Alan Howard, were satisfied. This was not a matter referred to either by Mr Laing or by Flemming Nielsen who is director and chief financial officer of both IdHair and SDL. The absence of clear evidence about the commitments of IdHair and the relative priority that would have been given to SDL's customers reinforces my view that the best assumption to make is that had there been no threats SDL would have received the same deliveries, but six weeks earlier.
- I will therefore go forward on the basis that had no threats been issued, the dates of delivery of Ego Boost products to SDL would have been as follows (here I do not specify any particular customer of SDL's):
2 July 2012 204 units delivered (30 damaged).
27 July 2012 1,397 units delivered.
Start of September 2012 4,500 units delivered.
Mid January 2013 Date by which all 20,000 units would have been
delivered to SDL's Danish parent company.
The effect on sales to QVC
- The most immediate cause of the cancellation of the TSV for the Ego Boost in July 2012 was the QVC letter. As a consequence, on the advice of its chief in-house counsel, QVC refused to have any involvement with the Ego Boost until the issues over the alleged infringement of the Patent had been resolved. Even an offer by SDL of an indemnity in relation to any claim for infringement against QVC made no difference.
- I think that if the QVC Letter had not been sent QVC would have wished to go ahead with the TSV. But SDL would have had to satisfy QVC that it could meet the order of 3000 units for the day of the TSV and the back-up order of 600 for the days afterwards. On my revised estimate of delivery times there was no prospect of this happening before the start of September 2012 at the earliest. In fact Ms Havill said that QVC liked to have the product lined up for a TSV to be their warehouse about three weeks before the TSV, so realistically the earliest date for a rescheduled TSV would have been the end of September.
- It seems that QVC was open to rescheduling TSVs. QVC liked the Ego Boost sufficiently for a TSV in August 2013, so on balance I think it likely that SDL could have persuaded QVC to reschedule the TSV for some time in late 2012.
- This raises at least two alternative ways that SDL might have gone forward. The first possibility is that SDL regarded a TSV as its priority and pushed for one in late 2012. The main alternative would have been to offer the 4500 units available from the start of September to Alan Howard, in which case the TSV could not have happened until some time later. Exactly when is not clear. The evidence leaves uncertain when successive consignments from the 14,000 units deemed available in Denmark by the middle of January 2013 could have reached the UK. It is conceivable that by the very end of 2012 SDL could have satisfied orders from both QVC and Alan Howard. However, for reasons I will discuss below, I think it is likely that the demand from Alan Howard in the autumn of 2012 would have been low. As a result SDL's priority would have been to secure a TSV with QVC.
- I will therefore assume that a TSV would have been arranged for a date around October or November of 2012. I have no reason to doubt that it would have been a success similar to that of the TSV which did occur in August 2013.
- The next question is whether there would have been a second TSV, either in August 2013 as happened or possibly later in 2013. It appears that sometimes QVC will hold a second TSV provided the first goes well. Ms Havill said that if the first TSV in 2012 had gone ahead, the chances of the Ego Boost having a second TSV would have been between 20% and 50%.
The effect on sales to Alan Howard
- Mr Littler's evidence was that at the time of the Pro Hair Live exhibition at the beginning of April 2012 the Ego Boost generated a very great deal of enthusiasm among his colleagues at Alan Howard and their prospective customers for the product. He estimated to Mr Laing that Alan Howard would be able to sell 9000 units a year. I accept that was Mr Littler's estimate but I also bear in mind that Mr Littler's order at the time was for just 1000 units. Enthusiasm was one thing; business caution apparently was another.
- It is also significant that at Pro Hair Live Mr Laing told Mr Littler that the 1000 units could be delivered in May 2012. This was not accurate, there was no prospect of that happening. By the beginning of May the tool used to make the product in China may just have been completed but the design of packaging had not been agreed. It seems to me likely that, caught up in the enthusiasm surrounding the Ego Boost, Mr Laing made promises on which he knew he could not deliver. In his evidence he said that around May 2012 he was in fact working towards receiving the first substantial shipment in the UK by mid to late July.
- The unrealistic estimate of delivery times given by Mr Laing had unfortunate consequences. These would have happened even without the threats. Mr Littler took Mr Laing's estimate seriously. He had a team of 40 sales representatives. At least from early May they were encouraged to work at promoting the Ego Boost among their respective customers. Sales targets were set. Each of the 40 sales representatives was to sell 14 Ego Boost units in May, 14 in June, rising to 20 in July and 50 by November 2012. Mr Littler said this in his witness statement:
"… Alan Howard had tasked our sales representatives with heavily promoting the EGO BOOST. From Pro Hair Live, 1 April, to … 14 June, (a period of approximately ten weeks) each of our sales representatives had dedicated in the region of 50% of their time promoting the EGO BOOST to their customers."
In the period between 1 April and 14 June 2012 SDL's costs of promoting the EGO BOOST was in the region of £200,000.
- The main point I take from this is that each member of the sales force must have worked hard to pass on enthusiasm for the product to his or her contacts among the potential customers and would also have given the customers dates of delivery. I would expect that in order to be able to meet the sales targets above, during the course of 2012 each representative used a good deal of their goodwill with their regular customers to build up high expectations. I would also expect that when the sales force could not deliver on their promised dates of supply, their customers lost a good deal of faith in the Ego Boost and possibly, to some degree, in the relevant Alan Howard representative. That cannot have been easy for the sales force. Mr Littler said this in his witness statement:
"55. … In June 2012, we had not yet received our first order of EGO BOOST products. I had understood from my conversations with Stuart Laing that these had been due to arrive from China in May. Further, our representatives were becoming increasingly frustrated with EGO BOOST product. They found that their clients reported to them that Cloud Nine sales representatives had already told them that the EGO BOOST infringed the Cloud Nine product.
56. I felt the excitement for the EGO BOOST that we had managed to build up from Pro Hair Live at the beginning of April until around mid-May, had almost completely dissipated by mid-June. …
…
60. The orders received by Team A in June, and on this basis the total estimated orders set out in the table at paragraph 58 above, show a huge drop-off. I attribute the drop-off in orders in June (and to the failure to meet and/or exceed our target in May) to the combination of the Alan Howard Letter, verbal threats made to our customers, and our lack of stock (and therefore inability to supply products to clients who had ordered them) which created a lack of confidence in the EGO BOOST, both at Alan Howard, and among our sales representatives."
- Although Mr Littler attributes the dramatic fall in sales to three factors, in my view one of them was dominant. Despite misgivings regarding the Alan Howard Letter, Alan Howard was prepared to sell the Ego Boost and had been given an indemnity by SDL. I doubt the Alan Howard Letter had made much difference. The reference to alleged comments by representatives of Cloud Nine did not form any part of SDL's complaint regarding threats and were not explored. I do not take the allegations into account. In my view the real reason for Alan Howard's disillusionment, particularly that of its sales force, was the failure of SDL to supply the product.
- Mr Littler personally was prepared to put problems of delivery behind him and make the best of a bad job. In August he was willing to back a second promotion of the Ego Boost in the period up to Christmas. It was not a success. Why not? I think there are two possibilities. The first is that by August 2012 the product had lost its appeal due to competition from newer and better products or because of changing fashion. Mr Jory speculated informatively about the change in fashion at the time from a wish to have hair with volume, with which the Ego Boost assisted, to curled hair, which needed a different kind of hair curler. Even if that were right, I doubt this had much to do with the poor sales. In August 2013 the Ego Boost enjoyed a TSV with 90% sales on the day and significant sales thereafter. This suggests to me that there was still high consumer demand at least well into 2013. Mr Jory had an alternative explanation which was that viewers of QVC are somehow in a category of their own with tastes different from other consumers, including those to whom Alan Howard indirectly sells via salons. I doubt that too and there was no evidence at all to support any of this.
- I think the explanation for the failure of Alan Howard to sell more than 881 units in September to November 2012, despite having stock to sell, was that the sales force were not prepared to put any effort into a product on which, as they saw it, they had wasted their time and dissipated goodwill with their customers. Even Mr Littler had little remaining faith. He records that by September 2012 "…our concern and desire not to unduly expose the company meant that we started to step away from further promotion of the EGO BOOST."
- There is no sign that faith ever returned. Mr Littler said that he realised from a sales meeting with Alan Howard in October 2013 that SDL would be fighting an uphill battle to re-establish the EGO BOOST with that company.
- Returning the counterfactual history of events, Alan Howard would have received 174 undamaged units at the beginning of July and might have been offered the 1400 or so units available at the end of July. It would still have been required to wait until October at the earliest for further supplies. I do not think that would have made any material change to the disillusion which by then had set in.
First head of loss – the cancelled TSV
- SDL claims the loss of profits corresponding to lost sales of 3600 units from what would have been the TSV on 3 July 2012.
- Even if there had been no threats there would still not have been a TSV on 3 July 2012. But there might have been one in, say, November 2012. That does not by itself constitute a loss to SDL, only a delay in the benefit of the TSV. On the other hand there may have been two TSVs, one in around November 2012 and another in August 2013 or later that year.
- I think the real nature of SDL's claim under this head is to the loss of the chance of having two TSVs, that chance depending on the attitude taken by QVC. This makes it an Allied Maples sort of claim. There would have been no loss of that chance if SDL were still in the running for a second TSV for the Ego Boost but at the trial of the inquiry there was no suggestion of that from anyone.
- In my view SDL had a substantial chance, not merely a speculative one, of enjoying the benefit of two TSVs rather than one. That chance was lost because of the QVC Letter. The value of the chance depended on the likelihood that QVC would have agreed to two TSVs. Ms Havill said the probability was between 20 and 50%. I will split the difference and use the figure of 35%.
- Assuming there would have been two TSVs in the absence of the threat, the total loss to SDL caused by the threat is the loss of the profit it would have made at the first of the TSVs. The starting point for calculating that is to look at the figures advanced by SDL for the profit it would have made at the July 2012 TSV.
Cost to SDL per unit
- SDL calculates its cost per unit as £33.48, including import duty, the cost of local shipping and 5% on top of that charged by its parent for shipping from China, warehousing and related services. This amounts to $2.55 per unit or £1.60 at an exchange rate of $1.60 to £1. The defendants challenged this on two grounds.
- The first was that the 5% charged by IdHair was not a reasonable figure. No alternative figure was suggested. Klaus Lildholdt, an accountant at the Danish arm of BDO, gave evidence that the agreement between SDL and IdHair in which the 5% charge was agreed had to be negotiated at arm's length and made available to the Danish tax authorities. I am satisfied that the charge is reasonable.
- The second objection was that SDL had ignored the cost or repackaging items returned by unsatisfied customers. Mr Laing gave a very rough estimate of US$0.30 per unit repackaged, but there were no figures in the evidence as to what proportion of goods need repackaging. I think in the broad brush nature of the present calculation is such that this cost can be ignored. I will accept that the cost per item would have been (albeit to an excessively fine level of detail) as SDL claims: £33.48.
Price charged to QVC per unit
- The price negotiated with QVC for July 2012 was £56.62. In August 2013 it was negotiated down to £52.50. In cross-examination Ms Havill, quite reasonably, was not able to say whether she would have pushed for a lower price had the July 2012 TSV been delayed, but had gone ahead. I am prepared to assume that the price would have been the same.
Number of units that would have been sold
- QVC ordered 3000 units to be sold on the day in July 2012 and 600 for sale shortly thereafter. In August 2013 there was also an order of 3000 for the day of the TSV, of which 2700 were sold and sales of about 900 within the following month. It may be that if there had been a TSV in November 2012 the sales for a TSV in 2013 would have been lower. But there was no challenge to the claim by SDL that the loss of a TSV meant a loss of sales of 3600 units. I will accept that figure.
- The total loss would be £(56.62 – 33.48) x 3600. This is £83,304. I next have to take into account the likelihood that there would have been two TSVs, namely a 35% likelihood. So the loss under the first head comes to £29,156. I will round this up to £30,000.
- QVC pays 60 days after the receipt of an invoice. I will fairly arbitrarily take the hypothetical TSV to have occurred on 6 November 2012 and for simplicity assume that all 3600 sales occurred on that day. SDL is entitled to claim interest on the loss from missed sales of 3600 units from 60 days after that date.
Second head of loss – profits on lost sales to QVC from TSV to judgment
- Following the hypothetical TSV on 6 November 2012, it is likely there would have been further sales between then and judgment on 14 June 2013. This is therefore the relevant period for the second head of loss, rather than from August 2012 until judgment. I think that subject to certain limitations, in that period SDL would have traded successfully by way of sales of Ego Boosts to QVC. However it seems to be common ground that the market in the early part of the year is less than in the lead up towards Christmas. Also this head of loss depends on there being two TSVs, specifically an 'extra' one on 6 November 2012. This head is in effect an extension of the loss of chance under the first head and is therefore susceptible to the same 35% adjustment by way of quantification.
- Before going on I should mention Carflow Products (UK) Ltd v Linwood Securities (Birmingham) Ltd [1998] FSR 691 about which there was some argument. Carflow also concerned the assessment of loss caused by a threat, in that case an unjustified threat of proceedings for infringement of a registered design. The relevant loss claimed flowed from the withdrawal by Argos from it stores of a product alleged to infringe. Laddie J found on the facts that the cause of the withdrawal was the issue of the writ by the plaintiff, not the earlier threat.
- The claim form in these proceedings was issued in January 2013. To the extent it is argued that as a matter of law the effect of a threat cannot continue past the date of the claim form, I do not think Carflow establishes any such rule. On certain facts it might be possible to raise a point on causation. It may be in some instances that if there had been no threat, the issue of the claim form would have caused the loss complained of from that point on. So after the date of the claim form the threat cannot be said to have been the cause of the loss. This would require evidence. There was no such evidence in this case.
- I am prepared to assume some loss of sales in the period December 2012 to 14 June 2013 caused by the QVC Letter. SDL's claim starts from a hypothetical TSV in July 2012. It claims loss of sales at a rate of 1500 units per month up to Christmas 2012 and at a rate of 400 per month from January to 14 June 2013. Aside from adjusting the starting date, I think both figures are high and I must take into account the possibility that sales up to 14 June 2013 would have reduced the impact of a TSV later in 2013.
- I will assume sales at an average rate of 200 per month from December 2012 to 14 June 2013. That is 200 x 6½ = 1300 sales yielding a profit of £30,082. I will round that down to £30,000. To this has to be applied the 35% likelihood of two TSVs, so the award under the second head is £10,500. Interest on the whole of that sum will be taken to run from 7 April 2013.
Third head of loss – reduction in price charged to QVC
- SDL claims that if there had been no threats QVC would not have negotiated the price down to £52.50. Ms Havill said that she will always try to achieve a better price when she has the opportunity. Mr Laing's negotiations with Alan Howard show that he was willing to reduce the price, to £45 if needs be. On balance I think QVC would have obtained the lower price even in the absence of the threats.
Fourth to Ninth heads of loss – Alan Howard
- For the reasons I have given, on the balance of probabilities I do not accept that the claimed losses in relation to lost sales to, and price reductions obtained by Alan Howard were caused by the threats.
First Trade
- When QVC resumed negotiations with SDL after the judgment of Mr Meade, it insisted that dealings should be via a broker, which was First Trade Limited ("First Trade"). First Trade charged SDL a commission of 10%, essentially to ensure that QVC stayed free of loss. This 10% applied to sales from 10 July 2013 to 1 April 2014. I have made no award in relation to sales in that period. If I had, I am satisfied that QVC's doubts about SDL's financial wellbeing were derived from SDL's 2011 accounts and were not caused by the threats.
Joint liability
- An issue left over to the trial of the inquiry, as identified in the CMC before Arnold J on 8 November 2013, is whether the defendants are jointly liable for the groundless threats. Of particular relevance is whether Cloud Nine and Gavin Rae are jointly liable in relation to the SDL and QVC Letters.
- The Court of Appeal considered the principles of joint tortfeasance in Sabaf SpA v Meneghetti SpA [2002] EWCA Civ 976; [2003] RPC 14. Peter Gibson LJ, giving the judgment of the Court, said this at [59]:
"The underlying concept for joint tortfeasance must be that the joint tortfeasor has been so involved in the commission of the tort as to make himself liable for the tort. Unless he has made the infringing act his own, he has not himself committed the tort. That notion seems to us what underlies all the decisions to which we were referred. If there is a common design or concerted action or otherwise a combination to secure the doing of the infringing acts, then each of the combiners has made the act his own and will be liable."
- SDL points out that the fourth defendant, Gavin Rae, and his brother Martin Rae are both directors of Next Row along with David Ingleby-Oddy, the inventor of the Patent. The Rae brothers are the two directors of RMG. Cloud Nine has only one director: Martin Rae.
- The SDL Letter was written on behalf of Next Row. The QVC and Alan Howard Letters were written on behalf of Next Row and RMG. They all referred to "our client's Cloud Nine products and in particular TheO products which are manufactured under a licence provided by Next Row Limited". SDL argues that the reference to "our client's Cloud Nine products" implied a commonality of design between Cloud Nine, Next Row and RMG. Gavin Rae was responsible for writing the Alan Howard Email on behalf of Cloud Nine, so he is said to be part of the common design. This is supported by the following statement in the Alan Howard Email; "The cloud nine induction heated roller system has been granted a patent in the UK and we intend to defend our intellectual property vigorously". The reference to "our intellectual property" shows, SDL argues, that Gavin Rae treated the Patent as his own or at least there is a commonality of purpose with Next Row.
- While there was clearly a close relationship between the defendants, these matters are not sufficient in my view to draw the conclusion that either Next Row or RMG did enough to make the Alan Howard Email their own or that Cloud Nine and Gavin Rae made any of the Three Letters their own. Gavin Rae denied in his witness denied that he and Cloud Nine were involved in the writing of the Three Letters. I do not think there is evidence on which I can conclude that they did, such as to make them liable for those Letters.
Conclusion
- Next Row and RMG are liable for the losses caused by the SDL and QVC Letters. The total loss is £40,500. They must also pay interest on that sum. I will hear submissions on the interest due. No losses were caused by the Ideal Hair Letter, the Alan Howard Letter or the Alan Howard Email. Cloud Nine and Gavin Rae do not have joint liability in relation to the SDL and QVC Letters.
