BREAKING: CJEU rules that EU law does NOT prevent punitive damages in IP cases

Does the Enforcement Directive (Directive 2004/28) prevent Member States from providing in their legislations the possibility to award punitive damages in IP cases? 

This was - in a nutshell - the issue on which the Polish Supreme Court had sought guidance from the Court of Justice of the European Union (CJEU) in OTK v SFP, C-367/15.

This morning, contrary to the earlier Opinion of Advocate General Sharpston, the CJEU answered in the negative, holding that [para 28] "the fact that Directive 2004/48 does not entail an obligation on the Member States to provide for ‘punitive’ damages cannot be interpreted as a prohibition on introducing such a measure."

More specifically, the Polish court had referred the following question:

"Is Article 13 of [the Enforcement Directive] to be interpreted as meaning that the rightholder whose economic rights of copyright have been infringed may seek redress for the damage which it has incurred on the basis of general principles, or, without having to prove loss and the causal relationship between the event which infringed its rights and the loss, may seek payment of a sum of money corresponding to twice the amount of the appropriate fee, or, in the event of a culpable infringement, three times the amount of the appropriate fee, whereas Article 13 of [the Enforcement Directive] states that it is a judicial authority which must decide on damages by taking into account the factors listed in Article 13(1)(a), and only as an alternative in certain cases may set the damages as a lump sum, taking into consideration the elements listed in Article 13(1)(b) of that directive? Is the award, made at the request of a party, of damages as a predetermined lump sum corresponding to twice or three times the amount of the appropriate fee permissible pursuant to Article 13 of the directive, regard being had to the fact that recital 26 thereof states that it is not the aim of the directive to introduce punitive damages?"

Crime ...

Background

Following the termination of a licensing agreement between Polish collective management organisation SFP and cable network broadcaster OTK and the continued use by the latter of copyright works managed by the former, OTK filed an application with the Polish Copyright Commission seeking, in essence, that the fee payable for use of the copyright managed by SFP be set. That commission eventually decided that the fee should be set at 1.6% of the net income, exclusive of value added tax, earned by OTK from its retransmission of SFP's works by cable.

In 2009 SFP brought proceedings against OTK before the Wrocław Regional Court, seeking an order prohibiting OTK from retransmitting the protected audiovisual works until a new licensing agreement had been entered into and requiring OTK to pay damages. The Regional Court awarded damages for a much lower sum, and dismissed SFP's action as to the remainder.

Following an appeal to the Wrocław Court of Appeal, and some ping-pong between between this and the Polish Supreme Court, the latter eventually stayed the proceedings and asked whether the provision in Polish law of a penalty/punitive element when it comes to setting damages which does not take account the actual loss suffered by the claimant is compatible with Article 13 of the Enforcement Directive [note that the Polish law provision in question was declared partially unconstitutional in 2015 by the Polish Constitutional Court]. 

The CJEU judgment

The CJEU noted at the outset that the question referred by the Polish court should be understood as asking whether Article 13 of the Enforcement Directive must be interpreted as precluding national legislation which provides for the possibility of demanding payment of a sum corresponding to twice the appropriate fee which would have been due if permission had been given for the work concerned to be used.

Having recalled both Recitals 3 and 10 in the preamble to the Enforcement Directive, the Court referred to its earlier decision in Hansson and stated that the Enforcement Directive "lays down a minimum standard concerning the enforcement of intellectual property rights and does not prevent the Member States from laying down measures that are more protective" [para 23].

Having said so, the CJEU turned to relevant international instruments [para 24], and concluded that the Enforcement Directive does not preclude "national legislation, such as that at issue in the main proceedings, which provides that the holder of economic rights of copyright that have been infringed may require the person who has infringed those rights to compensate for the loss caused by payment of a sum corresponding to twice the amount of a hypothetical royalty." [para 25]

Among other things, the CJEU observed that "the fact that Directive 2004/48 does not entail an obligation on the Member States to provide for ‘punitive’ damages cannot be interpreted as a prohibition on introducing such a measure." [para 28]

... and punishment

Comment

Today's judgment is another piece of goods news for rightholders [see here for a recent, but for the moment only provisional, treat]. 

However, it is also another demonstration of how weak the actual harmonising force of the Enforcement Directive is [this is in particular apparent from para 23 of the decision].

At the time of adopting the Enforcement Directive, EU legislature stressed how disparities between the systems of the Member States as regards the means of enforcing IP rights are prejudicial to the proper functioning of the internal market, make it impossible to ensure that IP rights enjoy an equivalent level of protection throughout the EU [Recital 8], and also lead to a weakening of substantive IP law [Recital 9].

Overall, if the rationale underlying the Enforcement Directive still holds valid today, then the current legislative framework has significant shortcomings that courts – whether at the EU or UK levels – have been called to overcome. 

Lack of legislative guidance at the EU level on certain key issues, together with different national implementations of EU law provisions, makes one wonder whether what is needed is just a review [the Commission should put forward proposals in the first half of 2017] of the existing enforcement framework, or rather a deeper and broader harmonizing action on the side of EU legislature. In light of previous EU harmonization efforts, but also difficulties lamented by relevant stakeholders [see here], the latter appears to be the preferable answer [for those interested, I discussed the shortcomings of the Enforcement Directive, especially in relation to the issue of costs, more at length here].