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Unformatted text preview: fs to convince the court that the opportunity
cost was sufficiently real to be awarded. The same cannot be said for the plaintiffs in LED Builders Pty. Ltd. v Eagle Homes Pty.
Q1 Ltd. ( 1999) w here the court examined in minute detail the lost opportunity costs (lost profits in this case) which were generated from the defendant's wrongful use of the
plaintiffs copyrighted building plans. The defendant had built and sold 89 infringing
homes based on the plaintiffs registered copyright between 1991 and 1996. The court
concluded that the evidential hurdle had been surmounted by the plaintiff and awarded
damages with compound interest. Lindgren J. relied extensively throughout the judgment
on Dart v Decor and Kettle Chip Co. Pty. Ltd. v Apand Pty. Ltd.,*2 both of which are
examined above, to determine the amount which the defendant was required to disgorge
in an account of profits. The court recognized that a defendant: 79  N S W L E C 147 (12 September 1995) (unreported) N e w South Wales Land and Environment
 N S W L E C 147 at p. 8.
 F C A 584 (7 M ay 1999) (unreported) Federal Court of Australia.
Between the time when the last hearing in LED Builders was concluded and the judgment handed down,
the appeal the Kettle Chip v Apand was handed down, but Lindgren J noted that there were no matters of
law which influenced him to change anything in the principal judgment. The appeal case, however, was
used for analytical purposes in the text above. 338 m a y not deduct the opportunity cost, that is, the profit foregone on the alternative products. But
there would be real inequity if a defendant were denied a deduction for the opportunity cost as
well as being denied a deduction for the cost of the overheads which sustained the capacity that
would have been utilized by an alternative product and that was in fact utilized by the infringing
product. If both were denied, the defendant would be in a worse position than if it had made no
use of the patented invention. The purpose of an account of profits is not to punish the defendant
but to prevent its unjust enrichment. Where the defendant has foregone the opportunity to manufacture and sell alternative products it will ordinarily be appropriate to attribute to the
infringing product a proportion of those general overheads which would have sustained the
opportunity. O n the other h and, if n o opportunity was foregone, and the overheads involved were
costs which would have been incurred in any event, then it w ould not be appropriate to attribute
the overheads to the infringing product.83 This approach indicates that increasingly economically sophisticated arguments are
originating from members of the bench, especially in commercial litigation. Quoting
Dart v. Decor, the court in LED Homes v Eagle Homes attempted to incorporate into the decision matrix a consideration of the opportunity cost of the defendant's overhead fixed
costs and relevant accounting methods (absorption and marginal/incremental). Lindgren J
allowed a deduction to the defendants in accounting for profits for general overheads in
running the business on an absorption cost basis.84 In addition, the court accepted the
assumption of the Canadian Federal Court of Appeal where "in normal circumstances an
award of only simple interest requires some explanation". This comment and curial method is far removed from the cases examined in earlier chapters which refused to
accept evidence of opportunity costs, reflected an entrenched refusal to accept changes in
commercial practice, and refused to award interest on sums due, let alone compound
interest. W h a t a long and tortuous path the c o m m o n law has taken to recognise what was 83 [ 1 9 9 9 [ F C A 5 8 4 at p. 4 1.
 F C A 584 at p. 4 4. Absorption costing in accounting terms is w here fixed and overhead costs are
allocated to saleable inventory using criteria of assignment such as percent of sales. U nder this method, all
overhead is "absorbed" into the inventory. The cases indicate that the courts prefer this method of
accounting for overheads in determining profits for intellectual property violations as examined above in
Dart v Decor, Apand v Kettle Chip Co. a nd LED Builders v Eagle Homes.
84 339 essentially happening in the surrounding society the entire time! Perhaps the question
might be asked, "At what price was the centuries-old refusal to recognise commercial
reality maintained?" Summary
The ruling by the High Court in Hungerfords has resolved to a great degree the conflict
generated by the classification dilemma. The common law judgments, in recognizing
opportunity cost more consistent with financial theory, have neither produced the
catastrophic results, nor been faced with insurmountable difficulties prophesied by curial
officers of the bench in times past. On the contrary, the ability of the common law to be
flexible enough to incorporate novel facts into a consistent and...
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