Edwards Wildman Client Advisory - Considering the "hypothetical negotiation" in determining damages for trade mark infringement in the UK on a notional royalty basis

    A recent case concerning trade mark infringement in the world of online gaming provides some useful guidance on the English court's approach to awarding damages for trade mark infringement where no specific loss of profits can be shown. 
    The facts are as follows. The English Court of Appeal found that, between January and August 2009, the defendants, the William Hill group (William Hill) had infringed the claimant's "32Red" trade marks through use of a gaming website called www.32vegas.com. This case involved the determination of the level of damages to which the claimant was entitled.  
    32Red, a company operating an online casino under its "32Red" brand since 2002, accepted that it was not in a position to prove that it suffered a loss of profits as a result of the defendants' infringement, but rather claimed that it was entitled to a sum equal to a reasonable royalty on the basis of the "user principle". It claimed around £5 million, comprising 30% of the profit made by the "32Vegas" casino for the period of infringement and 6 months thereafter (when the website had re-branded as "21Nova"). William Hill argued that an award in the region of £25,000-£50,000 would be more appropriate.
    The "user principle" was established in case-law in 1988 and refers to the principle that a person who has wrongfully used another's property can be liable to pay, as damages, a reasonable sum for such use. However, quite what that "reasonable" sum is, is the subject of discussion in a number of recent decisions, most notably in the 2012 decision of Force India Formula One v 1 Malaysia Racing Team.  In that case, Arnold J stated that "the primary basis for assessment is to consider what sum would have [been] arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place". This hypothetical negotiation, and the resulting 'hypothetical licence' is key when determining the appropriate level of damages.
     In this case, the judge indicated that in considering the hypothetical negotiation:
    1. although personal characteristics and particular character traits of the parties, including financial position, should be disregarded, the Court should have regard to the circumstances in which the individual parties were placed at the time of the hypothetical negotiation. The 'willing licensor' and 'willing licensee' should be better characterised as the "actual licensor" and "actual licensee", who bargain "as they are, with their strengths and weaknesses"; and

    2. non-infringing alternatives, that would have been taken into account in a hypothetical negotiation, should similarly be taken into account in the calculation of a reasonable royalty.
    Newey J went on to state that the hypothetical licence should be for the period of infringement only (i.e. 7 months), and not for any extended period during which a defendant may continue to derive a benefit (i.e. the additional 6 months which 32Red were seeking). It should be assumed that 32Red would have been aware that William Hill could have continued to derive benefits from its use of the "32Vegas" name, and therefore accordingly any additional benefits would be borne in mind when negotiating the hypothetical licence. Other assumptions about the hypothetical licence are that it (i) grants the defendant exclusivity; and (ii) the defendant is free to use the terms and conditions it in fact used.
    Taking all these factors into consideration, Newey J awarded damages in the sum of £150,000. 
    The judgment is a useful reminder that damages are still available where loss of profit cannot be proven and that the Court will make every effort to take into account real world factors in its consideration of the hypothetical negotiation. Although this case concerns trade mark infringement, it is likely that such principles would equally apply to other types of intellectual property infringement where damages can be calculated on a licence basis, such as patents, copyright and registered designs.
    The case is 32Red Plc v WHG (International) Ltd& Ors [2013] EWHC 815 (Ch ) and can be read in full here.

    If you would like further information, please contact the Edwards Wildman lawyer responsible for your matters or one of the authors linked above.

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