Trade mark infringement – calculation of damages – lost profits – user principle – reputational damage – counterfeit goods
Fendi Italia Srl & Ors v Rolo Fashion Limited & Anor [2026] EWHC 1703 (IPEC)
Key takeaways
Damages for trade mark infringement are calculated based on evidence of:
- lost profits on sales which have been lost by the brand owner to the infringer;
- lost profits on sales where the claimant had to lower its price on those sales;
- a reasonable royalty for the sales made by the infringer, even where the proprietor would not in reality have licensed the mark (the “user principle”)
- dilution, tarnishment or other reputational harm; and
- unfair profits due to cynical infringement.
Once liability is established, a claimant must prove its loss as part of a damages inquiry. The claimant will file evidence and the defendant will have an opportunity to reply. The court will then make an assessment.
Economic loss must be proven and will not be assumed.
Summary
Fendi v Rolo Fashion is a useful reference point for assessing damages in cases of trade mark infringement. It follows guidelines developed by the courts as to the principles upon which financial loss must be established.
Firstly, there are lost profits which can be calculated based on the number of ‘substituted’ sales. But, counterfeit goods are typically sold at a much lower price than authentic items. This means they may not in fact displace the sales of the authentic items. They may nevertheless cause indirect damage caused from dilution, tarnishment or loss of control over the brand – but proving those economic consequences is challenging.
In the absence of real world examples indicating the value of a licence, the courts have developed the user principle.[1] This seeks to evaluate the damage on the basis of what royalty the claimant might reasonably have charged the defendant to use the trade mark under a notional licence. Strictly, it does not apply automatically to all trade mark cases[2] but is now generally accepted as a valid approach.[3]
Finally, in some circumstances, there may be justification for extra compensation under Regulation 3 of the Intellectual Property (Enforcement, etc.) Regulations 2006; for example, where the infringer would benefit from the infringement to a greater extent than the loss suffered by the claimant.[4]
Background
The first four claimants owned well-known fashion brands and the trade marks protecting them. The defendants sold counterfeit luxury goods bearing one or more of the trade marks.
The court entered judgment in default for the claimants. It held Rolo Fashion liable for selling counterfeit goods and held Ms Aldridge jointly liable, as well as personally liable for her earlier trading as a sole trader. The court ordered the defendants to disclose their suppliers, the quantities and prices of infringing goods received, and details of their onward sales.
Mr Justice Hacon found that the uncertainties in the approaches of the parties to the evidence were “many and wide” but that:
One point is not in dispute: the claimants have suffered loss under this head. I must therefore attempt to put a figure on it.[5]
The law
The general assessment of damages for infringement of IP rights has been considered in detail.[6]
In Ultraframe (UK) Limited v Eurocell Building Plastics Limited,[7]Mr Justice Kitchin (as he then was) summarised them as follows:
The general principles to be applied in assessing damages for infringement of a patent are now well established…
- Damages are compensatory. The general rule is that the measure of damages is to be, as far as possible, that sum of money that will put the claimant in the same position as he would have been in if he had not sustained the wrong.
- The claimant can recover loss which was (i) foreseeable, (ii) caused by the wrong, and (iii) not excluded from recovery by public or social policy. It is not enough 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.
- The burden of proof rests on the claimant. Damages are to be assessed liberally. But the object is to compensate the claimant and not to punish the defendant.
- It is irrelevant that the defendant could have competed lawfully.
- Where a claimant has exploited his patent by manufacture and sale he can claim (a) lost profit on sales by the defendant that he would have made otherwise; (b) lost profit on his own sales to the extent that he was forced by the infringement to reduce his own price; and (c) a reasonable royalty on sales by the defendant which he would not have made.
- As to lost sales, the court should form a general view as to what proportion of the defendant’s sales the claimant would have made.
- The assessment of damages for lost profits should take into account the fact that the lost sales are of “extra production” and that only certain specific extra costs (marginal costs) have been incurred in making the additional sales. Nevertheless, in practice costs go up and so it may be appropriate to temper the approach somewhat in making the assessment.
- The reasonable royalty is to be assessed as the royalty that a willing licensor and a willing licensee would have agreed. Where there are truly comparable licences in the relevant field these are the most useful guidance for the court as to the reasonable royalty. Another approach is the profits available approach. This involves an assessment of the profits that would be available to the licensee, absent a licence, and apportioning them between the licensor and the licensee.
- Where damages are difficult to assess with precision, the court should make the best estimate it can, having regard to all the circumstances of the case and dealing with the matter broadly, with common sense and fairness.
In the context of trade mark infringement, the user principle is qualified such that it does not apply automatically. It will instead be at the discretion of the judge.
Where there is evidence in the form of comparable licences, those offer compelling evidence as to what is a market rate for the infringed goods.[8] In many cases though, there will be no licence. Indeed, the brand owner may explicitly say that they are unwilling to license the trade mark. Should that decision deprive the trade mark proprietor of a financial remedy for the damage caused?
The reasonable royalty and the user principle
To identify the reasonable royalty under the user principle, Mr Justice Arnold said in Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd:[9]
- The overriding principle is that the damages are compensatory…
- The primary basis for the 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…
- The fact that one or both parties would not in practice have agreed to make a deal is irrelevant…
- As a general rule, the assessment is to be made as at the date of the breach…
- Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain…
- The court can take into account other relevant factors, and in particular delay on the part of the claimant in asserting its rights.
Judgment
In Fendi, the court had to identify what, if any, damages to award based on i) loss of profits, ii) the user principle, iii) damage to reputation and iv) extra compensation under the Intellectual Property (Enforcement, etc.) Regulations 2006.
Loss of profits
After evaluating the incomplete evidence, Hacon J identified that there were a total of 4,752 infringing sales. Of those, the court found that 15% were lost sales which would otherwise have been made to the claimant.
User principle
This left 4,039 sales which did not deprive the claimants of a sale. There was no evidence of how those sales had an economic effect on the reputation of the claimant’s trade marks. Hacon J observed:
…The question therefore is whether, in respect of sales made by the defendants which neither deprived the claimants of a sale nor harmed the reputation of any of the trade marks, the claimants are entitled to be compensated or alternatively whether the defendants had the right to free use of the infringing signs. The latter is not instinctively the more attractive result.[10]
Damages were therefore calculated based on the user principle. However, since there was no evidence on which an appropriate royalty can be based, Hacon J assumed that the licence royalty which the claimants would have charged was a “bare minimum” of 3% of the defendants’ selling price.
Damage to reputation
The court rejected the reputational damage claim. The evidence suggested that buyers understood they were purchasing counterfeit luxury goods at prices far below those of genuine products. It did not show that buyers attributed the goods’ quality or the sellers’ conduct to the claimants.
Extra compensation
The claimant also sought a further award under Regulation 3 of the Intellectual Property (Enforcement, etc.) Regulations 2006, which the court regarded as a plea of cynical infringement. The court found there was insufficient detail to make an award under this head.
The damages calculation was therefore as follows:
| Calculation | Damages | |
| (i) Damages for lost profits | ||
| Lost sales | 4,752 @ 15% = 713 | |
| Claimants’ profit per item | £280 | |
| Subtotal of lost sales | £713 x 280 | £200,000 |
| (ii) Damages based on the user principle | ||
| Sales not displaced | 4,752 – 713 = 4,039 | |
| Notional royalty rate | 3% | |
| Defendants’ average selling price | £110 | |
| Subtotal of notional royalty | 4,039 x £110 @ 3% | £13,000 |
| (iii) Damages for tarnishment and reputational harm | £0 | |
| (iv) Unfair profits under Regulation 3 | £0 | |
| Total damages | £213,000 |
Conclusion
- Brand owners seeking damages for trade mark infringement should compile evidence of:
- the average sales price of their own product
- the average profit per sale
- the substitution rate
- To support a claim based on the user principle, brand owners should prepare evidence of the typical royalty rate used in the marketplace. In the absence of evidence the court may apply the bare minimum of 3%. For luxury goods the royalty rate ought to be much higher.
- Proving damages for dilution, tarnishment or other reputational harm requires evidence of a change in consumer behaviour. The deliberate nature of counterfeiting does not by itself establish an additional compensable loss.
- Extra damages under Regulation 3 may be awarded where the defendant has benefitted in some additional way which is not compensated under the other heads.
[1] Coined by Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406
[2] Reed Executive plc v Reed Business Information Ltd [2004] EWCA Civ 159 at [165]
[3] 32Red plc v WHG (International) Limited [2013] EWHC 815 (Ch) at [27]
[4] Henderson v All Around the World Recordings Ltd [2014] EWHC 3087 (IPEC) at [79 to 82]
[5] Fendi Italia Srl & Ors v Rolo Fashion Limited & Anor [2026] EWHC 1703 (IPEC) at [44]
[6] See Lord Wilberforce in General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 at [824-825] and Jacob J in Gerber Garment Technology v Lectra Systems [1995] RPC 383 and by the Court of Appeal at [1997] RPC 443
[7] Ultraframe (UK) Limited v Eurocell Building Plastics Limited [2006] EWHC 1344 (Pat) at [47]
[8] See, for example, The National Guild of Removers and Storers Ltd v Statham & Ors [2014] EWHC 3572 (IPEC)
[9] Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch), [2012] RPC 29 at [386]
[10] Fendi Italia Srl & Ors v Rolo Fashion Limited & Anor [2026] EWHC 1703 (IPEC) at Paragraph 51
