INTA Special Report: Damages in Europe

After a gruelling 12-hour day at INTA yesterday, the AmeriKat was refreshed this morning with a delicious breakfast frittata in the fabulous company of friends from Reed Smith and one of her partners. The scrumptious egg, latte and sourdough feast fuelled her next two hours in one of the concurrent sessions entitled "Damages in Europe"- a subject dear to any IP litigator's heart. Now standing up at one of INTA's e-access computers (see if you can spy her), she has this report from the latest in the UK, Germany, Netherlands and France. (picture, right: the AmeriKat in the empty egg carton used in her morning's frittata).

Non-EU lawyers may be aware that the Harmonization Directive (originally 89/104 -- now 2008/95) attempted to harmonize trade mark law across the EU and to get rid of the negative effects of a non-uniform system. However the Harmonization Directive did not deal with damages or how damages were to be calculated. By Council Regulation 207/2009 there were still no provisions dealing with trade mark sanctions; the Regulation dealt only with what courts had competency, appeal rules to the now Court of Justice and provisions for injunctions. Although these Directives and Regulations may have harmonized more than was originally expected to be harmonized by the EU system, it was still lacking in dealing with calculations of damages. The Enforcement Directive (2004/48) was introduced to harmonize the means of and remedies in trade mark infringement actions. The recent December 2010 Report from the EU on the application of the Enforcement Directive stated that although solid grounds had been established for damages in trade mark actions, much more could be done (no kidding, says the AmeriKat!). The report also recognized that damages awarded in IP cases were and are still comparatively low and that rightsowners have felt that the low level of damages have not had the desired deterrent effect.

By way of background, Article 13 of the Enforcement Directive states that when the judicial authorities set the damages that appropriate to the harm suffered:

(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; or
(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.

Claus Eckhartt, leader of the session, of Bardehle PagenBerg in Germany gave an overview of the European legislation and stated that proving the losses under Article 13, as with any IP case, can be incredibly difficult for a claimant. The factual basis of proving lost sales and/or unfair profits requires factual evidence and proof of causal links which can be problematic to prove. Claus stated this was especially so in countries like Germany where the standard of proof is high. The term "moral prejudice", i.e tarnishment to goodwill, and as Claus defined it the "abstract loss of consumer confidence" can actually be more detrimental to the brands than any assessment of loss profits. However, he said that "moral prejudice" damages are rarely awarded by European Courts.

Nick Bolter of the London office of Edwards Angell Palmer & Dodge explained that in the UK there are bifurcated proceedings, i.e. two trials - one for liability and one for damages. Nick stated that in the UK damages trials are very rare as often the defendant, having already lost on liability, will come to its senses and sit down to negotiate a damages settlement with the claimant as this would be the most cost effective route. Nick explained that a claimant can be awarded compensatory damages or an account of profits, but that the UK Courts have not awarded punitive damages in trade mark infringement claims (in line with the European courts and the Directive Guidelines). Nick explained that the choice for how a claimant wishes their damages to be assessed is made at an early stage of the damages proceedings. He also noted that claimants can sometimes be faced with clever accounting on the defendants side which make any profits made as a result of the infringement seemingly disappear, and thus the choice for an election can be difficult. Nick referred to the recent Patents County Court cases of the National Guild of Removers dealing with damages (National Guild of Removers v Christopher Silveria [2010] and Simon Jones, 9 February 2011). These were cases of IPKat favorite His Honour Judge Colin Birss QC who was described by Nick as being "extremely experienced IP lawyer and sensitive to IP issues" (the AmeriKat agrees). The judge stated in the former case that the "user principle" (lost royalties) is available in trade mark infringement and passing off cases, whereas previously the "user principle" was only available in patent cases. In the Simon Jones case, the judge increased the royalty rate by two-times the rate that the claimant would have been paid had the defendant approached the claimant before the infringement, because to make it 1:1 to would be unfair and would not recognize the harm caused. (The AmeriKat has to admit that she has not seen this opinion yet, so any comments on this are welcome!). Nick also referred to the Cipriani case which repeated the maximum of all cases - damages are to be determined on a case by case basis because they are so dependent on the facts of the case (yawn!).

Gregor Vos of Klos Morel Vos & Schaap in the Netherlands said that the damages provisions were based on the Benelux Treaty on IP (BTIP) and the Dutch Civil Code (DCC) and were dealt with in full court proceedings. Liability proceedings were usually dealt with by ex parte or summary judgments or additional full court proceedings where necessary. Gregor stated that the BTIP has two methods of assessment - any damage, including lost profit and account of profits - and a fixed amount on royalty (echoing Article 13). Damages under the DCC look at lossess, lost profits and all "reasonable" losses and account of profits. Gregor stated that the BTIP assessment requires bad faith and therefore the DCC assessment is a lower threshold and thus easier to prove. He also questioned whether with the implementation of the Enforcement Directive and TRIPS, if Dutch law under BTIP and DCC is compliant. Gregor stated that the assessment of damages for unlawful profit also includes "immaterial damage" which is an added percentage of the damages that are difficult to calculate. This will usually be between 10-30% extra. Gregor stated that it is impossible to predict whether the court will award 10% or 30% on any given day. In relation to an account of profits, Gregor stated that there is "no accumulation of lost profit and account of profits" since a 2000 copyright decision. He stated that although this was a copyright decision and arguably not relevant to trade mark law, the lower courts have upheld this decision in relation to trade mark cases. Echoing Nick, Gregor also commented on the circumstance when defendants can say that they have made "no profit" and Gregor questioned why defendants would ever infringe if it is so unprofitable. Gregor stated that the meaning of "profit" means the net profit with only direct costs being deducted (BCJ 24 October 2005 Dior/Delhaize).

Rebecca Delorey of Gilbey Delorey in France (picture, right - the AmeriKat adorned in her French tribute dress) stated that the judges in France do not really award damages based on precise calculations. Damages are awarded in the liability trial so there is only one trial, not two. Therefore, along with proving infringement a claimant must also prove damages. Rebecca stated that the judges have full discretion on awards, so although there are no awards for punitive damages, damages awards can seem to be increased to reflect something akin to a recognition for punitive damages. Commercial loss in France can include loss resulting from sales of infringing goods, loss based on the volume of sales by infringer or profits which the IP holder would have realized had they themselves made the sale. Expert evidence can be requested by a judge to assist in determining the damages calculations but it is rare (4 March 2011, Pirelli decision). Commercial damages includes damages as a result of inferior product quality and tarnishment of brand image (DivX case - 12 January 2011). Loss calculated in relation to the profit made by the infringer is seldom refered to in decisions. Lump sums are awarded where they are expressly requested and documented, but they are not frequently requested (23 March 2011 - Danet case). Like in many jurisdictions, Rebecca stated that the damages awarded by courts may not enough to cover legal costs of the claimant.

The speakers then quickly touched on the costs in their respective jurisdictions. In Germany the legal fees (court fees and attorneys fees) are paid by the losing party and are calculated and reimbursed on the basis of a Fee Chart. The specific amount of reimbursement is dependent on the value of the litigation which is in turn calculated based on the annual turnover made of the mark, the reputation of the infringed mark and the extent of infringement. Claus stated that a case of average complexity and duration at first instance could cost around 20,000 to 25,000 Euros and thus the fees to be reimbursed would be about 50-60%. Costs in France are awarded at the discretion of the judge under the loser-pays principle and costs are usually awarded. Where they are not it is usually because the there is a counterclaim. Rebecca stated that the costs for a first instance simple trade mark claim is about 5,000-10,000 Euros, but it is not unusual to see a standard award of 2,500 Euros. The costs are dealt with, as in the Netherlands, by submitting an invoice to the judge but lawyers are reluctant to make their fees and invoices public. Gregor, in explaining the award of costs in the Netherlands referred to a case where a pizza delivery had been included on a lawyer's invoice submitted to the court. In the Netherlands, Gregor stated that there is a fixed costs recoverability system where a complete full trial has a cost cap of 25,000 Euros. Nick explained that costs in the UK are usually agreed by a party, but if not they are assessed by a court who usually awards the winning side between 65-75% of their costs. If a party has behaved particularly bad, an award of indemnity costs can be made which can be up to 100% of the winning-side's costs.

Rebecca closed with touching on the recent decision of the Webshipping case - DHL v Chronopost, 12 April 2011, Case-C-235/09 dealing with the referral from the Cour de Cassation dealing with the territorial scope of injunctions and coercive measures.

The AmeriKat was surprised by how few people were in the audience and even more so how few people had questions in a very uncertain area of the law in Europe. Why is this? Are people too cautious to share horror stories or is there just little to say because damages cases, at least in the UK, are few and far between in IP? Thoughts?
INTA Special Report: Damages in Europe INTA Special Report: Damages in Europe Reviewed by Annsley Merelle Ward on Monday, May 16, 2011 Rating: 5

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