The Court of Appeal recently considered a case involving issues about calculating material damages for trademark infringement. The Court of Appeal held that if a plaintiff chooses to calculate damages as if a licensing contract existed between the parties (under Article 66(c) of Decree Law number 556 Pertaining to Protection of Trademarks; “Decree Law”), the relevant court must consider the plaintiff’s activities, as well as the defendant’s revenue and production capacity.

In the dispute at hand, the plaintiff is the registered owner of a trademark and had used it for over ten years. The defendant made a trademark application for the same word and the application was rejected. The defendant continued to use the word in his commercial name, businesses, and signboards. The plaintiff asked the court to determine that the defendant’s actions constitute an infringement and unfair competition against his trademark rights, as well as to prevent further violations. The plaintiff also sought compensation for material and immaterial damages.

The plaintiff based his request for material damages on Article 66(c) of the Decree Law. Under this basis, a trademark’s owner is entitled to choose a range of methods to calculate loss of profit:

  • Possible income that the trademark owner would have generated if the infringing competition had not occurred.
  • Income generated by the infringing party from use of the trademark.
  • According to a license fee that would have been paid if the infringing party had legally used the trademark under a licensing contract.

No license agreement existed between the parties or between the plaintiff and third parties. Regardless, the plaintiff asked for loss of profit to be calculated in these circumstances on the basis of a license fee, as if the parties had signed a license agreement.

The parties both operated in similar commercial fields. Therefore, the court of first instance ruled that the defendant’s actions constitute infringement and should be prevented. The lower court also held that the defendant should pay immaterial compensation (based on Article 62(1)(b) of the Decree Law).

The lower court also held that the defendant should pay material compensation (under Article 62(c) of the Decree Law) based on a hypothetical license fee, determined via examination of the plaintiff’s turnover. Accordingly, the first instance court ruled for material compensation amounting to the lower limit of the estimated license fee for one year, determined by the expert body, taking into account the plaintiff’s turnover, scope of business and profit share.

Both parties appealed the first instance court’s decision. The Court of Appeal partially reversed the judgment in favor of the plaintiff, changing the method for calculating compensation.

The Court of Appeal held that when calculating compensation under Article 66(c) of the Decree Law, it is inaccurate and unjust to only consider the plaintiff’s activities. Rather, the court stated that the license fee must be calculated by also taking into consideration the defendant’s revenue, production and sale capacity, saleable product amounts.

(Case reference: Yarg. 11. HD. 2.12.2013, 2013/6117 E., 2013/21847 K.)