The independent Gowers Review of Intellectual Property (commissioned by the Treasury and published in December 2006) (see article above for other issues raised by Gowers Review) noted that respondents had questioned whether the current UK system of damages acts as a sufficient disincentive to intellectual property infringement. The argument put forward by respondents is that unless an award of 'additional damages' is made, which is very uncommon, an infringer only has to pay what he would have paid had he lawfully secured a licence to the intellectual property in the first place. This arguably does not provide enough of an incentive to would-be infringers to act lawfully.
Gowers was aware that the Department for Constitutional Affairs (DCA) were working on a consultation paper on the Law of Damages and therefore asked the DCA to review the issue of damages for intellectual property infringement. The referral asked the DCA to ensure that an effective and dissuasive system of damages exists for civil intellectual property cases and to confirm that the system is operating effectively. Also sitting in the background to the Gowers Review is a European directive on the enforcement of intellectual property rights which requires 'effective, proportionate and dissuasive' civil remedies.
The DCA has now issued its paper proposing changes to the civil law on damages (comments are sought by 27 July 2007). Although it does address Gowers query, the DCA consultation does not show any appetite (or need) to change the status quo. The DCA points out that the evidence submitted to the Gowers Review preceded the making of the UK Intellectual Property Enforcement Regulations 2006 which implement the European directive. Under the UK Regulations, damages should be "appropriate to the actual prejudice he [the pursuer] suffered as a result of the infringement". This includes looking at any unfair profits made by the defendants and non-economic factors including the moral prejudice caused to the pursuer. The Regulations go on to say damages may be awarded on the basis of the royalties or fees which would have been due had the defendant obtained a licence. This doesn't appear to lead to any significant change in the law.
The DCA also recommended that the term 'additional damages' (referred to above) be replaced by 'aggravated and restitutionary damages'. The term 'additional damages' gives a judge the power to look at the flagrancy of the infringement and all the circumstances of the case and, if it is just to do so, to award additional damages. This terminology left open the possibility that a judge could award punitive damages to punish the infringer rather than damages which just compensate for the loss suffered.
Aggravated damages compensate the pursuer for mental distress, but cases have confirmed they are not punitive. Restitutionary damages are largely similar to an account of profit and strip away gains made by the defender as a result of the wrong committed. This subtle change in terminology probably removes the possibility of punitive damages being awarded, albeit the courts had not used this power in any event.
The DCA has therefore effectively answered Gowers query by saying that the current system is working effectively, especially in light of the new regulations, and simply recommends a subtle change in terminology. The DCA also suggest that the lack of additional damages granted may have more to do with the fact that most cases settle out of court. For now at least, the status quo largely remains.