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December 2014

Do the EC Enforcement Directive and the EC Regulation on plant variety rights provide for punitive damages? – German Appeals Court asks the CJEU

The CJEU has been given the opportunity to comment on the calculation of damages in IP cases, in particular on the question whether the Directive 2004/48/EC (the "Enforcement Directive") and the Council Regulation (EC) No. 2100/94 on plant variety rights (the "PVR Regulation") provide for punitive damages.

In proceedings only relating to damages, the newly established second Patent Senate of the Düsseldorf Appeals Court (the 15th Senate) has referred a total of 8 questions to the CJEU concerning the factors relevant in the calculation of damages. Although the case concerns damages regarding the infringement of a plant variety right, the CJEU's answers will also be relevant for other IP rights, including patents, as the questions do not only refer to the PVR Regulation but also to the interpretation of the Enforcement Directive.

Key issue: punitive damages?

The key issue of the referral is whether, when calculating damages according to the licence analogy method, a lump sum for further supplemental damages – a so-called "infringer surcharge" – has to be added pursuant to the PVR Regulation or the Enforcement Directive.

The Düsseldorf Appeals Court suggests that the CJEU should answer this question in the negative. A synopsis of the relevant provisions of the PVR Regulation (in particular Art. 94 (1) & (2)) results in the conclusion that punitive damages are only limited to exceptional cases (compare Art. 18 (2) Regulation EC No. 1768/95).

Furthermore, according to the Düsseldorf Appeals Court the Enforcement Directive does not provide for punitive damages either. The Court first discusses Art. 13 (1) (b) according to which Member States may "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". It argues that the term "lump sum" in this context only reflects the fact that the calculation of damages according to the licence analogy method results in a notional amount, which is determined by means of circumstantial evidence. Thus, Art. 13 (1) (b) only allows for an increase in the usual licence fee in view of the specific circumstances of the particular case.

Pursuant to the Court, a different conclusion cannot be inferred from Art. 3 Enforcement Directive either, as Recital 26 of the Enforcement Directive expressly clarifies that "the aim is not to introduce an obligation to provide for punitive damages, but to allow for compensation based on an objective criterion (…)".

Finally, the Court points out that the laws of almost all EU Member States, with the exception of Austria, Poland and Lithuania, do not provide for punitive damages.

Further questions: other factors relevant for the calculation of damages

Moreover, the Court asks the CJEU whether certain factors should lead to an increase in the amount of damages calculated according to the licence analogy method, in particular (inter alia):

• a monopoly position of the plant variety right on the relevant market;
• great marketing success of the right holder (and the fact that the infringer saves the costs of a market launch);
• an above-average extent of  infringement (with respect to time and quantity);
• risks of litigation and enforcement by the right holder;
• the fact that the infringer does not have to fear paying royalties for an invalid IP right; and
• the fact that the right holder bears the inflation risk in cases where litigation lasts for a considerable period of time.

The Düsseldorf Appeals Court considers most of these factors to be irrelevant for the calculation of damages because most of them are already reflected in the usual licence fee which is used as the basis for the calculation. However, the Court argues that the last two factors (as mentioned above) should justify an increase in the amount of damages, because:

• the infringer does not have to fear paying royalties for an invalid IP right; in fact the infringer is in a better position than an ordinary licensee; and
• the losses arising from the inflation risk are not compensated (even if the infringer is obliged to pay interest).

Furthermore, the Düsseldorf Appeals Court considers that the infringer has an obligation to pay interest on past royalties in the amount of 5 % above the appropriate base interest rate.

In its referral, the Düsseldorf Appeals Court provides extensive guidance on how its questions should be answered. It remains to be seen whether the CJEU will agree with the German Court on the interpretation of the PVR Regulation and the Enforcement Directive.

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