Here, the discussion will be limited essentially to the assessment of damages (d-i) according to civil liability (art. 1240 et seq. C.Civ.) to compensate the owner who does not exploit his title on the market, but who is injured by one or more infringements.
- It seems natural here to leave the concept of “punitive damages” to criminal liability, which its judges assess in the general interest of public order.
In sometimes clumsy wording, art. 45 and 13 of TRIPs and Directive 2004/48 have allowed some to say that d-i should be reduced, if the convicted infringer has nevertheless acted “unknowingly”, even if the harm caused to his victim exceeds his profits to be “recovered” or “pre-established damages” [sic].
But at least in France, where its legislator wanted to exclude this “attenuating circumstance of good faith infringement”, everyone agrees to try to put the victim back in the state he or she should have been in if the infringement had not existed.
- This note does not deal with the questions of the jurisdiction and powers of the judge, for example the French (FR) judge, to assess, according to one or more local laws, the d-i due for infringements committed on several EU territories, in particular those of an unique title such as the EU trademark or design.
- The FR texts [L 331-1-3, 521-7, 615-7, 716-4-10 and 722-6 IPC] are identical regardless of the right at issue; however, their purpose differs between them, in particular that of the trademark which does not confer a priori any protection on the product or service it designates.
All victims are considered here, even if it is essentially those of patent infringement.
As in the past, these texts do not exclude any d-i, provided that it is real, attributable to the infringement, and provided that the judge is convinced of this by the evidence submitted by the victim, who is often unable to bear such a burden.
But from now on, it is under the control of the Court of Cassation that our judges must in a motivated decision assess these directions given by these texts.
- No doubt it is also necessary here to bear in mind the essential attributes of the exclusive right enforceable against all:
– the right to be the only one to put onto the market,
– the right to prohibit and/or the right to reward.
- An important clarification must be made regarding the reality of the negative economic consequences of infringement: if the holder does not exploit his title, he may in fact have it exploited on an industrial or commercial market by a third party whom he has authorised under certain conditions.
It is therefore necessary to consider two distinct situations for this victim who does not exploit himself: no licensee exploits or, on the contrary, his licensee exploits the title in question.
In this case, the negative economic consequences of the infringement are certainly not the same and it should not be possible to accumulate them. (see below)
Compensations or lump sum?
- The first paragraphs of all these texts of the IPC (para.1) use the two criteria that have always been known for assessing the compensation due to the injured party: the missed earnings and the loss incurred.
A missed earning is a gain that has certainly been missed but has not been actually sustained.
This is the case, for example:
- the missed earnings that the operator could have made on the marketing of the infringing mass (when to meet those charged by the infringer, he also had to lower his prices thus losing on his own sales part of his profits),
- the missed royalty that the infringer on his turnover should have paid to the holder of the unexploited title, if he had fairly asked him for a licence (when the royalty lost by the holder would be the one that his licensee did not actually pay him on the additional turnover that this licensee would have made if he had been able to market the infringing mass). (see also below)
Our judges have always taken into consideration the profits (gross, semi gross and/or net) of the infringers, if only to evaluate the rate of this indemnifying royalty, at around a quarter (and sometimes a third) of the profits that a licensee can hope to make from his licence. This consideration could also reinforce the economic reality of the missed earnings that the injured operator claims before them.
In both cases, it is indeed an indemnifying royalty, to which should be added, as our Court of Cassation specified, all the other benefits that the licence may have brought to its licensor (development and launch efforts, quality of the objects, knowledge of the market and its needs, distribution and promotion efforts, brand image etc.).
- For the first time in 2007 and 2014, it is in their second paragraph (para.2) that these texts institute the lump sum at the request of this same injured party.
And these texts expressly refer to the alternative nature of this choice; in other words, choosing one of the branches of this alternative means of course renouncing its other branch (see also below).
But parodying this missed indemnifying royalty, the legislator characterises this lump sum as consisting of:
- the price of the licence, even if this licence is a posteriori,
- increased by a coefficient:
- this is certainly to compensate for the advantages that an infringer, even if licensed a posteriori, could not have given to the holder,
- which the CJEU recalls, however, that if the doubling clearly and considerably exceeds the d-i, it could then constitute an abuse of rights prohibited by art. 3 of our Directive [CJEU 25 January 2017, Oławska Telewizja Kablowa / Filmowców Polskich (§ 31) C:2017:36],
- but for which the victim nevertheless has the burden of proof (without, however, having to disclose especially to an illegitimate competitor, his own profits, or losses, and/or other ways of exploiting his protected subject matter), the FR judge for his part refraining from taking into consideration his personal knowledge (unless it is notorious).
It should be noted here that in principle the power to authorise or prohibit the exploitation of a title is within the hands of the owner alone. It is true that the exclusive licensee may, under certain conditions, sue for infringement and, in any event, may require his licensor to be the only one on his market.
On the other hand, the non-exclusive licensee has agreed not to be alone on his market; he therefore has no power to prohibit exploitation by a third party; he would not therefore be entitled to charge a price to lift this prohibition.
One might therefore wonder whether the price of the authorisation making up this lump sum is due to the victim, when it does not have this right to prohibit, especially if, apart from the infringer, it is not the only one occupying the market.
- Let us now consider the hypothesis of the holder who, for example, acknowledges having given a free licence to his subsidiaries.
In these conditions, the infringement does not seem to have caused him any financial damage, nor does it seem to have caused him to lose a royalty, which his licensees would not have paid him either if they had also been able to market the infringing mass.
However, nothing prevents these licensees from intervening in the proceedings brought by the holder to claim compensation for their own d-i.
In this respect, at least in patent matters, if a writing is required under art. L 613-8 IPC, a written confirmation, including for the past of these licences, even if they are not recorded at Inpi (see, since 2008 at least, art. L 613-9 § 3 IPC) and even during the course of proceedings (according to the latest Paris case law), allows them to intervene to claim their own d-i.
In this case, on the earnings missed by these licensees on the infringing mass, has the licensor not nevertheless lost some counterpart, notably by virtue of the agreed exploitation of their businesses?
- This is the regime in which our IPC now guides our judges in setting the d-i in all its para.1.
Moreover, is it not beyond legal theories that the economic reality must impose itself in this evaluation of the d-i really caused by counterfeiting?
Let us reason for a moment by the absurd, which, however, as we shall see, is not far from judicial reality.
Indeed, the Parisian judge thought he could on some occasions grant, if only as a provision:
- a royalty (estimated at around 20% of the infringing turnover) to be paid to the owner by the infringer
- and missed earnings (estimated at around 40% of the same infringing turnover) to be also paid to the licensee by the same infringer.
At 60%, this amounts to a real confiscation, in surplus of the turnover!
It is undoubtedly disproportionate and contrary to the opinion of our Court of Cassation, which has already recalled that the confiscation of incomes should be limited to the actual d-i suffered by the injured author.
Such an accumulation of para.1 and 2 seems illegitimate on the same turnover of the infringer. Professionals point out that the royalty to be paid to the licensor, should in that case come from this 40% of missed earnings.
And conversely if the infringer has paid the owner the lump sum under para.2, which, it should be remembered, consists of an overrun of the royalties or fees on his infringing turnover, he thus becomes a posteriori authorised by the owner. He would therefore no longer have to pay any further sums in respect of the d-i provided for in para.1.
- It should be deduced from these observations that the lump sum higher than the price of the authorisation (royalties or fees owed) that our legislator has instituted in all of its para.2 only as an “alternative”, should be requested by each of the injured parties, failing which the judge will remain obliged to only apply the regime of the d-i of its para.1.
This lump sum could only be granted if no other negative or economic consequence of para.1 had been requested, with the exception of course of the compensation for moral prejudice which the legislator wanted to add to this lump sum in para.2.
Such a solution seems to be accepted by all, when the owner exploiting the market alone has preferred not to disclose his lost profits and/or missed earnings, or his own intellectual, material, and promotional efforts under para.1, in order to request “as an alternative” this lump sum under para.2, subject of course to his moral prejudice.
- Thus, the owner whose title is not exploited by anyone, is entitled to obtain a missed indemnifying royalty from para.1 on the infringing turnover. It should be noted here that this will generally be assessed in much the same way as the price of the authorisation in para.2.
But if the title is exploited by its licensee, the owner should be able to claim, not a royalty on the infringer’s turnover, but all the benefits he should have received from his licensee if the latter had been able to market this infringement.
- Consequently, the owners and their licensees should agree on the way they are to be compensated by the infringers, before one of them requests from a judge the payment of the lump sum instituted in para.2.
attorney at Law – DTMV –
former president of Aippi and Afppi