Although patent infringement disputes are common, it is rare for the courts to have to calculate precisely what damages should be paid following a finding of infringement. This is because the parties usually manage to settle once the question of liability has been decided.
However, a recent dispute in the Singapore High Court provides a useful illustration of the sorts of issues that a court might have to grapple with to decide exactly what damages should be awarded. The case therefore provides useful guidance for companies using technology, particularly in Singapore, that could be the subject of a patent claim.
Main-Line (ML) owns a patent for an invention which enables point-of-sale payment systems automatically to offer the customer the option of paying either in the local currency where the transaction is taking place, or in the currency of the country where the payment card was issued. It had offered to supply United Overseas Bank (UOB) with a system which provided this option, but discussions had petered out. UOB subsequently entered into a multicurrency exchange agreement (MEA) with an alternative supplier, First Currency Choice (FCC), which offered a competing system.
ML sued UOB and FCC for infringement of its patent, and won on liability. The Court then had to assess the quantum of the claim. ML sought different remedies from the two defendants: an account of profits from UOB and damages against FCC – an approach which was contested, but upheld by the Court. The Court then had to decide what principles to apply to both accounting for profits and fixing appropriate damages.
Account of profits
Accounting for profits looks, on its face, deceptively simple. The court will account for profits either by deducting costs and expenses from receipts, or alternatively, if the profits are generated by a chain of activities and the infringing acts subsist within the chain, by apportioning profits. In examining the profits, the court will only examine the profits made in fact and will not examine counterfactuals.
In practice, the devil is in the detail. This claim raised three difficult issues.
- whether the account of profits from UOB should include a 3% Uplift charged to a cardholder for using a card overseas, along with profits made from currency arbitrage converted transactions;
- what UOB owed to ML from the commissions that UOB received under the MEA; and
- what the quantum of profits made by UOB from acquiring new merchants or retaining existing merchants arising from the infringement of the patent was.
The parties also disagreed as to whether UOB is entitled to cost deductions.
3% uplift and commission
ML claimed that this revenue formed part of UOB’s profits, despite the fact that under the MEA, UOB only received a monthly commission, while FCC received the 3% Uplift.
ML argued that the MEA was merely a currency exchange agreement, separable from UOB’s use of the infringing system, and that in assessing each party’s profits and losses relating to the infringement, the Court could not take other contractual arrangements between the two parties into account.
The court disagreed. It took the view that, on the factual evidence, the MEA governed the whole use of the FCC system and there was a flow of funds that included the Uplift to FCC. The transfer of the Uplift could, similarly, not be separated from the commission UOB received. In calculating UOB’s profits, the Court therefore took into account the commission it received from FCC, but not the uplift or arbitrage opportunities.
ML argued that UOB should not be allowed to deduct costs and expenses incurred from its profits that related to the setting up of the FCC system, but the Court disagreed. Deduction of costs is normally permitted under accounting for profits since, by definition, a cost legitimately attributable to a particular activity diminishes the profit attributable to that activity.
Acquiring new merchants or retaining existing merchants
ML argued that UOB acquired or retained 100 merchants by virtue of offering the FCC system, based on UOB’s statistics in its sample Merchant Agreement. Consequently, the profits gained from these merchants should be accounted for.
The Court disagreed, holding that ML could only claim profits if it could prove causation. The FCC system would not be the only reason a merchant would sign up with a bank, and even if such were the case, said merchant could have been attracted by the benefits FCC provided that were not dependent on UOB. ML had not submitted any evidence to corroborate its claim, and thus causation between the patent infringement and the attraction or retention of merchants was not established.
Damages from FCC
The questions here were:
- the extent of damages payable by FCC to ML; and
- whether exemplary damages could be granted in patent infringement cases under Singaporean law.
Basis of calculation
The difficulty in assessing damages in this case was that the traditional approach would seek to classify the patentee as belonging to one of two categories:
- those which receive payment for their patents by manufacturing products that are sold at a profit. In such a case, the damages would be the lost profits on sales which the patentee would otherwise have made, or the lost profit on sales to the extent the patentee was forced to reduce its price as a result of the infringement; or
- those which receive payment for their patents by granting licences for the use of their invention in exchange for royalty payments. In this case, the measure of damages is the fee the defendant would have charged for the granting of a licence based on the accepted royalty rate.
ML, as a service provider, did not fall into either of these categories on their face. It argued that it was in the position of the patentee who manufactured products sold at a profit. It argued that there was a substantial chance that it would have entered into a contract with UOB as a DCC service provider and FCC’s actions caused the loss of that contract. The Court accepted this, and that on the balance of probabilities, ML would have secured a deal with UOB, if not for FCC’s intervention.
The remaining issue with the assessment of damages was whether these should be assessed from the perspective of ML’s abortive negotiations with UOB for a 1.8% share of the net turnover to accrue to ML, or whether ML should be allowed to step into FCC’s shoes in the MEA and obtain the 3% Uplift. The Court concluded that given the lower uncertainty in relation to the MEA actually agreed, it would proceed on that basis.
However, that was only a reference point and did not mean that ML was entitled to the entirety of FCC’s revenue stream under the MEA. Instead, the Court examined FCC’s revenue and costs during the infringing period and deducted the costs that were most linked to its DCC system. ML’s proposed “reasonable royalty” method was not accepted despite being widely used in, for example, UK and US damages methodologies, due to the lack of an established royalty rate in the DCC market and the unique nature of the patent.
ML’s request for exemplary (punitive) damages as a result of FCC’s conscious decision to infringe the patent with full knowledge of that infringement was rejected. There is no provision in the Singaporean Patents Act for a discretion for the Court to award punitive damages to the patentee even though such discretion applies in respect of infringement of other intellectual property rights such as copyright.
Where does this lead?
Technology now underpins a vast number of transactions which once would have taken place on paper, or by transmission of physical goods. As a result, technical systems are integral to many businesses which therefore risk infringing patents of which they may have no knowledge. If an allegation of patent infringement arises, it is essential to approach the assessment of value in dispute as realistically as possible in order to identify the most appropriate strategy for handling the dispute. The outcome will depend entirely on the specific facts of the particular case. Accordingly, patentees should not put too much confidence in the highest figure they can come up with. Likewise, a party facing an allegation of infringement should not assume that it will be easy to persuade the patentee, and any court, that the technology can easily be dissociated from their profit-making activities.