The CJEU’s ruling on calculation of damages in IP infringement proceedings limits itself on the Plant Variety Rights Regulation only – no clarity on punitive damages nor on damages calculation in general

On 9 June 2016, the CJEU handed down its decision in the litigation Jørn Hansson vs. Jungpflanzen Grünewald GmbH (C-481/14). Having commented on the referral questions, of the Düsseldorf Appeals Court and the Advocate General’s opinion, the decision was eagerly awaited to clarify the calculation of damages in IP cases and especially whether Directive 2004/48/EC (the “Enforcement Directive”) and Council Regulation (EC) No. 2100/94 on plant variety rights (the “PVR Regulation”) provide for punitive damages.

Unfortunately, despite the differentiated questions referred and the detailed opinion handed down by the Advocate General, the CJEU only briefly commented on the interpretation of the provision of the PVR Regulation granting the right holder reasonable compensation and damages in case of infringement (Article 94 PVR Regulation), but it did not give any guidance on the interpretation of the Enforcement Directive at all.

I. Compensation under PVR Regulation and Enforcement Directive

In fact, the compensation system of the PVR Regulation and the provision for damages provided in the Enforcement Directive differ. According to Article 13 of the Enforcement Directive, which is applicable to the enforcement of all IP rights including plant variety rights, when calculating damages the courts shall take into account all appropriate aspects including lost profits of the injured party and any unfair profits made by the infringer or, as an alternative, 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. The PVR Regulation allows the right holder to claim for reasonable compensation (Art. 94(1) PVR Regulation) and, in case of intentional or negligent infringement, for compensation for any further damages (Article 94(2) PVR Regulation).

II. The Ruling

The CJEU ruled that:
1. Article 94 of the PVR Regulation must be interpreted as meaning that the right to compensation which it establishes for the holder of a plant variety right that has been infringed encompasses all the damage sustained by that holder, although that article cannot serve as a basis either for the imposition of a flat-rate ‘infringer supplement’ or, specifically, for the restitution of the profits and gains made by the infringer.
2. The concept of ‘reasonable compensation’, provided for in Article 94(1) of the PVR Regulation, must be interpreted as meaning that it covers, in addition to the fee that would normally be payable for licensed production, all damages that is closely connected to the failure to pay that fee, which may include, inter alia, payment of default interest. It is for the referring court to determine the circumstances which require that fee to be increased, bearing in mind that each of them may be taken into account only once for the purpose of determining the amount of reasonable compensation
3. Article 94(2) of the PVR Regulation must be interpreted as meaning that the amount of the damage referred to in that provision must be determined on the basis of the specific matters put forward in that regard by the holder of the variety infringed, if need be using a lump-sum method if those matters are not quantifiable. It is not contrary to that provision if the costs incurred in an unsuccessful interlocutory application are left out of account in the determination of that damage or if the out-of-court expenses incurred in connection with the main action are not taken into consideration. However, a condition for not taking those expenses into account is that the amount of the legal costs that are likely to be awarded to the victim of the infringement is not such, in view of the sums he has incurred in respect of out-of-court expenses and their utility in the main action for damages, as to deter him from bringing legal proceedings in order to enforce his rights.

Only as a passing reference the CJEU refers to recital 26 of the Enforcement Directive that states that the aim of any compensation is not to introduce an obligation to provide for punitive damages. Still, the Directive does not prevent the Member States from laying down measures that are more protective.

III. Consequences of the CJEU ruling

1. No punitive damages under Enforcement Directive – but under national law?

The CJEU’s referral to recital 26 of the Enforcement Directive makes it clear that compensation shall not have punitive character under that Directive. With the Enforcement Directive laying down only a minimum standard concerning the enforcement of IP rights in general and the CJEU’s note that the Enforcement Directive does not prevent Member States from laying down more protective measures, the CJEU indicates no basic concerns against national provisions providing possibilities to claim for punitive damages. However, at least in Germany, there are currently no intentions to implement provisions allowing punitive damages in IP laws.

2. No infringer’s profit under PVR Regulation – but under national IP law?

The CJEU’s ruling that under the PVR Regulation, infringer’s profit per se cannot be claimed for damages cannot be criticised. If the damages objectively suffered by the right holder do not exceed the reasonable compensation, there is no need to claim for further damages in form of the infringer’s profit. In cases where the objective damage of the right holder exceeds the reasonable compensation, the right holder shall be reimbursed all damages and therefore can claim for further damages irrespective of the infringer’s profit. That is in line with Article 13 of the Enforcement Directive. As already mentioned above, this provision states that the courts shall take into account all appropriate aspects including lost profits of the injured party and any unfair profits made by the infringer when calculating damages. However, the provision does not state that this constitutes the damages the right holder is allowed to claim.

The national practise is not affected by this CJEU ruling. For example in Germany, the injured party (i.e. normally the right holder) has the right to choose between one of the three calculation methods: license analogy, right holder’s lost profit or infringer’s profit. As already stated under III.1 above, the Enforcement Directive only provides a minimum standard for the enforcement of IP rights. Consequently, the Member States are free to establish more protective measures, e.g. allow the right holder to claim for the infringer’s profit as damages.

3. Costs of unsuccessful preliminary proceedings as damages in case of successful proceedings on the merits

The third guiding principle of the CJEU’s judgement gives rise to more questions than answers. Costs incurred in an unsuccessful interlocutory application and out-of-court expenses incurred in connection with the main action do not have to be taken into account when calculating further damages according to Art. 94(2) PVR Regulation as long as this exclusion does not deter the right holder from bringing legal proceedings in order to enforce his rights.

Unfortunately, no criteria are provided when the out-of-court costs and costs incurred in unsuccessful preliminary proceedings are so high to keep the right holder from bringing legal proceedings to enforce his rights. It remains to be seen how the Düsseldorf Appeals Court and other national courts will apply this principle in proceedings on the PVR Regulation and on other IP rights.

IV. Taylor Wessing comments – a missed chance

The detailed catalogue of referral questions by the Düsseldorf Appeals Court and the opinion of the Advocate General had raised hope that there will be a clear guidance by the CJEU on the calculation of damages under the Enforcement Directive. This would also have been a first opportunity to step forward to a more harmonised substantial law in particular with regard to the calculation of damages in the future UPC system. Unfortunately, the CJEU preferred to limit its decision on interpreting the PVR Regulation only so that most of the more general questions raised by the Düsseldorf Appeals Court still remain open.