Oana Catalina Ionescu October 3 2022 Assessment of damages for infringement of IP rights SIMION & BACIU | Intellectual Property - Romania Oana Catalina Ionescu Intellectual Property IntroductionAnti-counterfeiting in RomaniaCriteria for assessing damagesCommentIntroductionTrade in counterfeit and pirated goods is a growing problem that affects the sustainability of businesses that hold protected IP rights as part of their assets, discourages innovation and works against economic growth. According to the Organisation for Economic Cooperation and Development, trade in counterfeit and pirated goods was estimated to represent up to:2.5% of global trade in 2013, equivalent to $461 billion; and3.3% of world trade in 2016, the equivalent of $509 billion.In the European Union, counterfeit and pirated products account for about 5% of imports, equivalent to $134 billion (the relative impact of counterfeiting is twice as high for the developed economies of the European Union as it is for the world as a whole). Rights holders are thus suffering huge losses each year, while the criminal networks that are behind the trade profit enormously.Any IP-protected product can be counterfeited, so counterfeit products range from high-end consumer luxury goods (eg, watches or perfumes), to business-to-business products such as machines, chemicals and other consumer goods. The enforcement of IP rights not only leads to improved sales by removing infringing goods from the marketplace, but it can provide a means to recover losses in revenue (ie, infringement damages).Anti-counterfeiting in RomaniaIn 2005, as a result of the obligations assumed by Romania through the Treaty of Accession to the European Union, the Romanian legislature adopted Emergency Ordinance (GEO) No. 100/2005 on ensuring compliance with IP rights. GEO No. 100/2005 represents the transposition into national law of the provisions of the Enforcement Directive.(1)The national normative act provides – in a slightly nuanced version compared with the general liability framework – that in case of non-compliance with IP rights (ie, inventions (patents), trademarks, industrial designs, designations of origin and geographical indications), specific conditions must be met for triggering tortious civil liability. Therefore, where a party commits a wrongful act causing damages, national law provides that this will consist of a counterfeiting activity.For this purpose, "counterfeiting" is defined as the manufacture, import, export, distribution and sale of consumer goods that are not genuine but are designed and branded to look identical to authentic products with the purpose of deceiving consumers into believing that they are authentic.Moving on to the damage condition, it should be noted that the national legislation provides that the owner of the infringed right can ask for the repair of "the damage that . . . they actually suffered", which implies that the author of the counterfeiting activity will be ordered to fully repair the damage, regardless of whether they foresaw it at the time of committing the act. The author of the counterfeiting activity is therefore liable for both foreseeable and unforeseeable damage.Regarding the condition of fault, Romanian law provides that it must exist in the form of intention. Contrary to the general provisions, the author of the counterfeiting activity will not be liable for damage caused by the "smallest fault", but only for damage caused by an act committed with intent.The provisions of GEO No. 100/2005 do not include references to causal link or causation, which means that these are analysed according to common law rules.Criteria for assessing damages Although Romanian law provides that the author of an act of infringement shall be ordered to repair the damage that they created, in practice this general formulation can create a series of problems. Thus, to eliminate any potential uncertainties, the Romanian legislature established in article 14 of GEO No. 100/2005 two criteria by which the damage can be assessed concretely, as follows:The first criterion includes all appropriate aspects, such as the negative economic consequences, including:lost profits the injured party has suffered;any unfair profits made by the infringer; andin appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rights holder by the infringement.The second criterion provides, as an alternative, when appropriate, a lump sum on the basis of elements such as at least the amount of royalties or fees that would have been due if the infringer had requested authorisation to use the IP right in question.First criterionAccording to the first criterion, in order to assess the damage, the courts will consider "all relevant aspects". As an example, the Romanian legislature showed that the courts can determine the damage in relation to aspects such as:the loss of profit suffered by the owner of the infringed right;the benefit achieved by the author of the illegal act; andthe moral damage suffered by the owner of the infringed right.Given that the factual situation usually also involves other aspects that influence the extent of the damage, the plaintiff must present before the court as much evidence as possible to outline the real extent of the damage suffered.In addition, in order to establish the extent of the "benefits obtained unfairly by the person who violated an industrial property right", the courts may request information on the origin and distribution networks of the goods or services that infringe IP rights from any person who was:found to be in possession of the infringing goods on a commercial scale;found to be using the infringing services on a commercial scale;found to be providing on a commercial scale a service used in infringing activities; orindicated by someone else as being involved in the production, manufacture or distribution of the goods or the provision of the services.The answer provided to the courts by such persons must contain information about:the names and addresses of the producers, manufacturers, distributors, suppliers and other previous holders of the goods or services, as well as the intended wholesalers and retailers;the quantities produced, manufactured, delivered, received or ordered; andthe price obtained for the goods or services in question.Such a request filed by the plaintiff will be granted by the courts only if it is well founded and proportional to the legal grounds and subject matter of the proceedings. Further, such a request must not prejudice other legal provisions that:grant the rights holder the right to receive fuller information;govern the use in civil or criminal proceedings of this type of information;govern responsibility for misuse of the right of information;afford an opportunity for refusing to provide information which would force the person who offers a response to admit to their own participation or that of their close relatives in an infringement of an IP right; orgovern the protection of confidentiality of information sources or the processing of personal data.Second criterionAccording to the second damage evaluation criterion, the courts may set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees that would have been due if the infringer had requested authorisation to use the IP right in question.This evaluation criteria must not be confused with the "statutory damages" that are available in other jurisdictions. The statutory regime implies that the courts are expressly permitted to consider the need to deter similar instances of infringement and that the amount awarded is stipulated within a "statute" rather than being calculated based on the degree of harm to the plaintiff or on other evaluation criteria.Alternative/subsidiary nature of flat-rate calculation method As concerns the method for calculating the amount of damages, the provisions of article 14 of GEO No. 100/2005 require clarification from the legislature. The grammatical interpretation of the legal text leads to the conclusion that the criteria listed in letters a) and b) are alternative. Furthermore, according to recital (26) in the preamble to the Enforcement Directive, the application of the method provided in letter b) seems to be limited only to situations where it would be difficult to establish the amount of the actual damage suffered, being accepted as an alternative "only where appropriate".The consequence of literal transposition into domestic law of the corresponding text of the Enforcement Directive, without considering the purpose and object of the regulation itself, resides in non-unitary judicial practice. Therefore, the evaluation method provided by article 14 of GEO No. 100/2005 is handled differently by the courts. Two legal interpretations are placed diametrically opposite one another, as follows:On one hand, it is considered that the granting of damages based on royalties could only be achieved in the absence of certain elements that allow the assessment of the damage suffered according to the criteria provided in letter a).(2)On the other hand, it is considered that the option for choosing one or the other method of calculation belongs to the IP rights holder, without it being necessary to justify the choice nor to prove, in the case of the option for the hypothesis in point b), the impossibility of resorting to the option from a).(3)Rules for the calculation of royaltiesThe main difficulty faced by the courts concerns how to assess the amount of royalties, as neither GEO No. 100/2005 nor the Enforcement Directive provide any criteria or calculation formulae in this regard.According to the practice of the national courts, as well as the solutions proposed by the International Association for the Protection of Intellectual Property, the following criteria can be used in determining the reasonable royalty, without limitation:other licence agreements of the same IP right as the IP right in suit (but taking due account of the circumstances in which any such other licence agreement was negotiated and, in particular, but not limited to, whether infringement and/or validity of the IP right in suit had been determined);other licence agreements of similar IP rights to the IP right in suit;the cost of non-infringing alternatives;the advantages of the IP right in suit when compared with alternatives (including any applicable licence fees for alternatives);the profitability of the products or services encompassing the IP right in suit;the development costs of the IP right in suit; andthe absence and/or circumstances of prior licensing discussions between the parties.The issue of assessing damages has also been raised in the Court of Justice of the European Union.(4) The Court has ruled that the amount of the hypothetical royalty shall be established based on equity in view of all the relevant circumstances, as it can neither be proven nor accurately calculated otherwise.Practical difficulties in quantifying damages based on the method referred to in article 13(1)(b) of the Enforcement Directive were also analysed by the European Commission, which expressly stated that damages established based on the flat-rate method must in no case be limited to the value of only one hypothetical royalty/tax and it may be necessary to impose a higher amount.(5)Despite all the evaluation criteria outlined in practice, ultimately, it is only the competent judicial authority that has the margin of discretion over the amount of damages on a case-by-case basis. However, this method of evaluation will always leave room for interpretation, with the possibility of permanent solutions that preface or address similar cases in a different manner.CommentThe assessment tools provided by GEO No. 100/2005 are likely to generate a series of uncertainties and difficulties of interpretation and application. The major risk arising from regulatory issues is mainly that these difficulties of interpretation and application can led in many cases to low damages and costs awards that are inconsistent with the scope of the infringement involved.The current provisions and practices on damages may appear to be even more harmful as the IP rights holder often has difficulties in obtaining and preserving the necessary evidence of counterfeiting. So, for the courts to be able to award substantial damages, prior to taking action, the interested party should ensure that, from an evidentiary point of view, the conditions for civil liability in tort are met and can be reasonably proved.To this effect, it is highly recommended that the infringement action brought before the courts be well documented beforehand so that it can be seen from the outset, beyond any reasonable doubt, that illegal acts of infringement have been committed, resulting in actual losses suffered by the rights holder.The matter of proof remains, therefore, one of the most sensitive issues that requires increased attention. It is not uncommon that some of the profit or other economic benefit of an infringement remain with the infringer even after the IP rights holder has brought a "successful" civil case. In such a situation, unfortunately, the regulatory gaps not only fail to compensate the rights holders and relieve infringers of their gains, but in fact may provide financial incentives for counterfeiting and piracy.By way of conclusion, it remains for those who invest creative effort and resources in the production of IP-protected goods and services to ensure their integrity in the market and prevent counterfeiting. The effective enforcement of the relevant legal provisions depends largely on the engagement of the rights holders who choose to place themselves against acts of counterfeiting and to fight such illegal practices with all the legal weapons available.For further information on this topic please contact Bogdan Cheran or Oana-Catalina Ionescu at Simion & Baciu by telephone (+40 31 419 04 88) or email ([email protected] or [email protected]). The Simion & Baciu website can be accessed at www.simionbaciu.ro. Endnotes(1) Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights.(2) Decision No. 337, 16 February 2021 and Decision No. 3904, 9 November 2018, rendered by the High Court of Cassation and Justice.(3) Decision No. 1059, 16 June 2017, rendered by the High Court of Cassation and Justice.(4) Case C-481/14, Jørn Hansson v Jungpflanzen Grünewald GmbH; Case C-367/15, Stowarzyszenie "Oławska Telewizja Kablowa" w Oławie / Stowarzyszenie Filmowców Polskich w Warszawie.(5) Guidance on certain aspects of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights.