The European Court of Justice (ECJ) has held that the Intellectual Property Enforcement Directive (2004/48/EC) (the Directive) does not preclude EU member states from enacting legislation which provides for punitive damages for intellectual property (IP) infringement.
The Directive requires member states to implement measures, procedures and remedies necessary to ensure the enforcement of IP rights. The measures must be fair and equitable, not unnecessarily complicated or costly, without unreasonable time limits or unwarranted delays, and must be effective, proportionate and dissuasive. They must also not be applied in a manner which creates barriers to legitimate trade and must provide for safeguards against their abuse.
The Directive requires member states to ensure that their courts order an infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rights holder damages appropriate to the actual prejudice suffered by him as a result of the infringement.
The court can take one of two alternative approaches to calculating damages:
- Taking 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 rights holder by the infringement.
- Setting the damages as a lump sum, where appropriate, 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 IP right in question (Article 13, the Directive) (Article 13).
Recital 26 of the Directive (Recital 26) states that its 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 rights holder, such as the costs of identification and research.
Section 97(2) of the Copyright, Designs and Patents Act 1988 (section 97(2)) gives the court the power to award additional damages for flagrant copyright infringement.
In Absolute Lofts South West London Limited v Artisan Home Improvements Limited and another, the Intellectual Property Enterprise Court held that an award of additional damages under section 97(2) provided an alternative route for the recovery of additional damages also available under Article 13 for unfair profits or moral prejudice (www.practicallaw.com/4-619-6999).
Under Polish copyright law, the rights holder can demand a sum of money corresponding to twice the amount of the appropriate fee which would have been due at the time it was sought if the rights holder had given permission for the work to be used.
A Polish copyright licensing body, SO, issued a claim against a cable TV broadcaster, SF, which had distributed television programmes containing copyright-protected works in Poland without the rights holder’s consent.
The Polish Court referred to the ECJ the question of whether the Directive precluded member states from enacting legislation which required, as an alternative to damages for actual loss suffered, the payment of a set amount of damages equivalent to double the hypothetical royalty rate.
The ECJ held that the Polish legislation was compliant with the Directive even if it imposed no obligation on the rights holder to prove their actual loss or any causal link between the infringement and that loss.
The Directive merely laid down a minimum standard, and applied without prejudice to national legislation that was more favourable for rights holders. It was also necessary to bear in mind the relevant international agreements such as the Paris Convention for the Protection of Industrial Property, several of which permitted signatories to grant wider protection than those agreements provided for.
Despite Recital 26, the Directive did not expressly rule out the payment of punitive damages. In rare cases where a double royalty would exceed the loss actually suffered so clearly and substantially that a claim to that effect could constitute an abuse of rights, the Polish court would have had discretion as to whether to award that sum. Also, the fact that Article 13 contemplated payment of lump sum damages did not make sense if one assumed that damages had to be assessed at the level of loss actually caused.
Interestingly, the ECJ did not follow the Advocate General's opinion that the Polish law ignored the principle that compensation should be appropriate to the actual prejudice suffered, instead opting for a measure that was primarily punitive rather than compensatory. As a result of this decision, member states are free to enact laws which provide for damages equivalent to a multiple of the cost of a licence fee to use the IP legitimately.
The ECJ assumed that the limitation in Recital 26 ruled out punitive damages, although it noted that the assessment could where appropriate include a restitutionary element, based on the unjust enrichment of the defendant, going beyond compensatory damages focusing on the damage to the claimant.
Case: Stowarzyszenie Olawska Telewizja Kablowa v Stowarzyszenie Filmowcow Polskich C-367/15.
First published in the March 2017 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.