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Tuesday, 29 September 2015

Compensation or punishment: A lot of questions about Article 13 Enforcement Directive

"Punitive damages" is one of those topics that sharply divide the community of European lawyers. Some cannot fail to see the economic logic that when the rate of detection of IP infringement is below 100%, adequate deterrence of infringement requires that compensation exceed actual damages (and/or profits) of the infringer. Others insist that the function of private law is not to punish (and not to deter?), but only to compensate (for actual damages). In recital (26) to the Enforcement Directive, the European legislator tread very carefully, stating that

"where it would be difficult to determine the amount of the actual prejudice suffered, the amount of the damages might be derived from elements such as the royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question. The aim is not to introduce an obligation to provide for punitive damages but to allow for compensation based on an objective criterion while taking account of the expenses incurred by the rightholder, such as the costs of identification and research."

The CJEU will have the opportunity to be criticized for whatever views it expresses on this contentious topic in a number of pending referrals. They all concern (not all of them exclusively) the interpretation of Art. 13 Enforcement Directive, which reads:

1. Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement.
When the judicial authorities set the damages:
(a) they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement;
(b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.
2. Where the infringer did not knowingly, or with reasonable grounds know, engage in infringing activity, Member States may lay down that the judicial authorities may order the recovery of profits or the payment of damages, which may be pre-established.

Cape daisy of unknown variety
In C-509/10 - Geistbeck, the CJEU stated - without giving any reasons - that "In so far as Article 94 of Regulation No 2100/94 [Plant Variety Rights Regulation] is intended to make good the loss suffered by the holder of a plant variety [...] that loss amounts to at least the fee that a third party would have had to pay for a [...]‑Licence", or in other words the usual royalty rate. "At least" implies there can be more, but under which circumstances?

Case C-481/14, Jørn Hansson
In this case, which also arose under the Plant Variety Rights Regulation but has implications for the infringement of all intellectual property rights, the Oberlandesgericht Düsseldorf refers no less than eight questions on the interpretation of Art. 94 Plant Variety Regulation and Art. 13 Enforcement Directive to the CJEU. In its first question, the referring court raises the question whether in addition to the usual royalty rate, an "infringer supplement" may be added "on a flat-rate basis in every case" of non-consensual use of  plant variety right. The German doctrine is, like the court, rather sceptical that this is legally permissible. The rest of the questions concern the individual circumstances that may or must be taken into account when setting a "reasonable compensation", which permit - without blatantly introducing double or treble damages - increasing the compensation above actual damages. The court namely wonders whether when setting the applicable royalty rate, it may be taken into account that the infringer, unlike a licensee, does not bear the risk to pay for the use of an IP right that turns out to be invalid.

Unauthorized use of visual work, hopefully not morally prejudicial
Case C-99/15, Liffers
In this reference from Spain, the refering court wonders whether Art. 13 (1) Enforcement Directive precludes that an author demanding compensation for pecuniary loss based on the amount of royalties or fees that would be due if the infringer had requested authorisation may also claim damages for the moral prejudice suffered. The plaintiff Mr Liffers holds the rights in an audiovisual work portraying the lives of several Cubans living in Havana. Defendant used excerpts of the work in a documentary broadcast on Spanish television without Liffers' consent. To add insult, or shall I say moral prejudice, to pecuniary injury, the documentary was about child prostitution in Cuba, a subject Mr Liffers did not want to be associated with (although I would hope the documentary was rather critical of the practice).

Case C-367/15, Stowarzyszenie Oławska Telewizja Kablowa
Stowarzyszenie Oławska Telewizja Kablowa is a (the?) Polish collective rights society administering broadcasting rights in Poland. Defendant has been distributing television programmes containing  copyright-protected audiovisual works via cable TV in a region of Poland without the collecting society's consent. In the resulting litigation, the collecting society argued that Article 79 Polish Copyright Act entitled a copyright holder whose rights have been infringed to a compensation that is equivalent to two or three times that which the infringer would have had to have paid for a licence in the first place. Defendant challenges the legality of the relevant provisions in the Polish Copyright Act, and claims that Polish law does not comply with the Enforcement Directive. The Polish Supreme Court would like to know from the CJEU whether Art. 13(1) Enforcement Directive, namely in view of recital (26) of the Directive, allows for a lump-sum payment several times the "usual" license fee. The outcome of this case will have direct consequences for Germany, where the BGH's GEMA case law permits doubling of the usual license fee when an authorized collecting society demands the double fee (but not for others).


iPuffin said...

Obviously the UK has now moved beyond mere direct compensation to something closer to punishment.

Anonymous said...

While there may be a deterrence logic that the infringer should pay more than the actual damages, if the detection rate is less than 100% (though it's not clear how far such deterrence actually does work, in practice), there seems less logic that the punitive part of such damages should accrue to the plaintiff, rather than anyone else.

The Pigs said...

If there is no punishment factor, then you are inviting infringement, especially against smaller innovators.

Paul Mazel said...

A short e-mail conversation between the Kat and me:


Thanks for your interesting post. Concerning PBR’s however, there is more to say. What to think of article 18 of Regulation 1768/95:

Article 18 Special civil law claims

1. A person referred to in Article 17 may be sued by the holder to fulfil his obligations pursuant to Article 14 (3) of the basic Regulation as specified in this Regulation.

2. If such person has repeatedly and intentionally not complied with his obligation pursuant to Article 14 (3) 4th indent of the basic Regulation, in respect of one or more varieties of the same holder, the liability to compensate the holder for any further damage pursuant to Article 94 (2) of the basic Regulation shall cover at least a lump sum calculated on the basis of the quadruple average amount charged for the licensed production of a corresponding quantity of propagating material of protected varieties of the plant species concerned in the same area, without prejudice to the compensation of any higher damage.

This might or might not be an argument for ‘punitive damages’.

The Kat:

That's a very interesting point that escaped my attention. Whether this speaks in favour or against "punitive" damages in the context of art. 94 Plant Varieties Directive or other damage provisions in IP law depends on whether you would like to argue e contrario or per analogiam... Superficially, I would say the e contrario argument is more convincing - since the legislator sought it necessary to specifically stipulate quadruple damages, we cannot double damages unless there is an express provision for it (this concerns mostly the Polish referral, wich is probably the most interesting one of the three insofar as it gives the CJEU little room to provide one of its famous "non answers").

Why don't you pose the question in the comments section on IPKat, others may have insights on it?

ME Again to the reader of this comment:

Any thoughts?

Paul Mazel

Lukasz Czernicki said...

The Polish referral is also interesting in light of the recent decision of the Polish Constitutional Tribunal which found on 23 June 2015 that triple damages in case of wilful infringement (art. 79 of the Polish Copyright Act) are unconstitutional (SK 32/14).

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