Recently, the Regional Court Düsseldorf decided on the amount of damages a plaintiff can claim in the case of an infringement of design rights. The court ruled that the plaintiff can claim 40 % of the infringer‘s profit – a pretty hard blow for the infringer.
The plaintiff in this case is a manufacturer of strollers that owns a registered Community design for a special kind of stroller shown below:
Click here to view image.
Image source: OHIM DesignView
Prior to the present decision, the German Federal Court (BGH) had already found that two of the defendant’s models of strollers infringed the plaintiff’s registered Community design. The decision of the BGH is legally binding and thus the infringement itself is no longer in dispute between the parties, however,in a second step, the plaintiff sought damages for the infringement. According to the undisputed defendant’s information, the turnover gained by selling the infringing strollers during the relevant period of time was about 4.66 Million Euros. As damages, the plaintiff claimed a sum based on a profit margin of 41 % – very close to what they were actually awarded.
According to German IP law, the holder of an exclusive license is free […] to choose between three different methods of calculating damages: (1) He seeks compensation for the specific damage actually suffered, (2) he can claim the infringer’s profit or (3) he opts for the so-called license analogy. The plaintiff in this case primarily claimed the infringer’s profit or alternatively, damages based upon license analogy. As the infringer’s profit constituted the larger sum, this was the amount the plaintiff was awarded.
To understand how the judges determined the damages granted, one has to know that the infringer’s profit is calculated in two steps. In the first place, the gross turnover of the infringing company has to be reduced by the costs incurred in connection with the production of the infringing goods. Secondly, the court has to estimate the amount gained by the infringer solely through the infringement. This means the judges had to decide what percentage of the defendant’s profit could be traced back to the infringement of the plaintiff’s protected design. In this case, the court found this to be 40 %.
However, let’s take a closer look at the judge’s calculation first. In the current decision the court initially deducted discounts, credits and other benefits. Afterwards other costs – namely costs for the purchase of goods, for spare parts, premises, shipping, packaging, return freight and distribution fees – had to be subtracted as well. But costs for the development of the product as well as overhead costs like expenses for the administrative, marketing and warehouse staff are not deductible.
The remaining sum – constituting the overall profit of the defendant – was then the starting point of the court’s estimation. The Regional Court Düsseldorf assessed the profit attributed to the infringement to be 40 % of the overall profit. The court based its decision on the fact that the importance of the design of an item is continuously increasing, even in relation to everyday objects like strollers. In the court’s opinion, today, design plays a major role in a purchasing decision. Apart from functionality, price and other minor factors, it was deemed to influence the purchasing decision by 40 %.
According to the principles of license analogy, the plaintiff in this case would only have been awarded a royalty rate of 12, 5 %. The royalty rate of luxury items varies between 12, 5 % and 20 %. Given the fact that strollers do not constitute a luxury item, a rate of 12, 5 % was considered adequate by the court.
To sum up, this ruling emphasizes the importance of the design of everyday items. At the same time, it establishes that the infringement of design rights not only constitutes a petty crime but can be a costly affair for the infringer.
Hogan Lovells represented the plaintiff in this case through its Düsseldorf team led by Erhard Keller, Stephanie Wilcke and Janina Voogd.