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Date
26 February 2015

The importance of effective part 36 offers

A recent case heard in the Intellectual Property Enterprise Court (IPEC) has highlighted the importance of Part 36 Offers.  A successful claimant was ordered to pay costs to the losing defendant that were more than three times the damages awarded, as a consequence of having rejected a number of Part 36 offers (UWUG Limited & Anor v Ball [2015] EWHC 74 (IPEC)).

Background

The proceedings related to infringement of UK registered and unregistered design rights in relation to a metal frame.

The first claimant, UWUG had commissioned the Defendant, Mr Ball, to design the frame. A first batch of 45 frames were ordered, delivered and paid for. However, whilst a second order was placed by UWUG, it was never paid for and consequently never delivered by Mr Ball.

The parties were unable to reach agreement as to payment for the frames. As a result, Mr Ball began selling the frames himself to third parties. The claimants issued proceedings in IPEC claiming damages for infringement its UK registered design right in its frame design.

Note: the commissioner of a UK design (rather than the designer) is deemed to be the owner of the design, in contrast to the present position in relation to copyright or Community designs. A bill is currently before Parliament which would bring the ownership provisions for UK designs in line with Community designs.

The claimants succeeded at trial and the court ordered an inquiry as to damages, with £4,000 to be paid to the claimants immediately on account.

Inquiry as to damages

UWUG's claim for damages included:

  1. Loss of profit from sales of frames it would have made had Mr Ball not supplied third parties with infringing frames; and
  2. Damages on the 'user principle', i.e. a claim for a reasonable licence fee for Mr Ball's use of the registered design.

The Court held that for financial reasons or otherwise UWUG had not been prepared to buy frames from Mr Ball after the first batch had been delivered. As a result, its loss of profit from sales of such frames was not caused by Mr Ball.

In considering whether damages could be claimed on the user principle, the Court took into account a draft agreement prepared on behalf of UWUG which was never sent to Mr Ball but which proposed that UWUG would be paid a royalty of 10% of Mr Ball's sales price on all sales of frames by Mr Ball that were not related to any efforts by UWUG. The Court concluded that this was the best guide it had for calculating a reasonable licence fee to the Claimant and consequently ordered damages equivalent to 10% of Mr Ball's selling price on each infringing frame sold by Mr Ball to a third party. The parties calculated the sum due at £2,859.20 plus interest.

Costs

During the course of proceedings, Mr Ball had refused all requests to mediate, which would usually lead to some form of penalisation in costs.  However, Part 36 offers had been made on both sides. Mr Ball had made an initial Part 36 offer of £15,000 which was later withdrawn. The offer was later restated by Mr Ball.  He also made a Part 36 offer of £5,000.  At no time did Mr Ball explain how these sums were calculated.  UWUG rejected these offers, but made its own offers that it would accept £60,000 in settlement (excluding costs), later reduced to £28,000 (excluding costs). 

Since UWUG failed to beat Mr Ball's offers, UWUG was only granted its costs (subject to the IPEC costs cap) up to the expiry of Mr Ball's initial Part 36 offer (these costs were £2,500). Mr Ball obtained his costs (subject to the costs cap) from the date of expiry of the restated offer (these costs were £12,210). UWUG was therefore ordered to pay the net balance to Mr Ball (£9,710).  In addition UWUG also had to repay the overpayment of damages on account since the damages assessed were lower than the £4,000 damages paid on account immediately after trial. 

It should be noted that had Mr Ball not withdrawn his initial Part 36 offer, he would almost certainly have been able to recover his costs from the earlier date. 

Key points

The case highlights several important points that should be considered by every litigant, not just those with cases in the IPEC: 

  • Parties will always benefit from taking a realistic view as to the likely outcome at an early stage. Very often, parties could save considerable sums if they took a more realistic line in relation to offers made by an opposing party;
  • By the time of the CMC or conclusion of the pleadings, parties should be sufficiently informed to make a well-judged Part 36 offer or even to reach a settlement;
  • There is no obligation on a party to set out the reasons behind the offer. However, this may count against a party in relation to costs if it is not clear how the offer was calculated and why;
  • Where a Part 36 offer has been withdrawn, it does not follow that the offer must be treated by the Court as if it never happened;
  • Litigants in person, like all litigants, must live with the consequences of ill-advised procedural decisions;
  • A refusal to engage in mediation may not count against a party if it is unlikely any mediation would have been successful due to the parties' respective viewpoints.