The appeal case however was used for analytical

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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 [1995] N S W L E C 147 (12 September 1995) (unreported) N e w South Wales Land and Environment Court. 80 [1995] N S W L E C 147 at p. 8. 81 [1999] F C A 584 (7 M ay 1999) (unreported) Federal Court of Australia. 82 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. [1999] 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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