The European Court of Justice (ECJ) has held that damages for moral prejudice can be awarded in addition to royalties under the Intellectual Property Enforcement Directive (2004/48/EC) (the Directive).
Article 13(1) of the Directive (Article 13(1)) requires EU Member States to ensure that infringers that knowingly, or with reasonable grounds to know, engage in an infringing activity, are ordered to pay the rights holder damages appropriate to the actual prejudice suffered as a result of the infringement. Courts setting the damages must either:
- Take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rights holder by the infringement.
- In appropriate cases, 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.
In Henderson v All Around the World Recordings Ltd, the Intellectual Property Enterprise Court (IPEC) considered that the moral prejudice contemplated by Article 13(1) is confined to prejudice arising in limited circumstances, where a claimant has suffered little or no financial loss and would otherwise either be left without compensation, or where the compensation would not be proportionate to the overall damage suffered ( EWHC 3087 (IPEC)).
L sued M in Spain for intellectual property rights infringement. The Spanish Supreme Court stayed the proceedings to ask the ECJ whether, under Article 13(1), L could claim damages for moral prejudice in addition to damages based on the amount of royalties or fees that would have been due to him.
The ECJ held that Article 13(1) permits a party that has been injured by an intellectual property rights infringement and that has claimed compensation for its material damage as calculated in accordance with Article 13(1)(b) on the basis of the amount of royalties or fees that would have been due to it if the infringer had requested authorisation to use the right, also to claim compensation under Article 13(1)(a) for the moral prejudice that it has suffered.
The reference in Article 13(1)(b) to “at least the amount of royalties or fees” allows other elements to be included in the amount, such as, where appropriate, compensation for any moral prejudice caused to the rights holder.
The general rule is that the infringer must pay the injured rights holder damages that are appropriate to the actual prejudice suffered by it as a result of the infringement. Moral prejudice, such as damage to the reputation of the author of a work, constitutes a component of the prejudice actually suffered by the rights holder. Therefore, where the rights holder has suffered moral prejudice, Article 13 precludes the calculation of the amount of damages from being based exclusively on the amount of hypothetical royalties.
Setting the amount of damages due as a lump sum on the basis of hypothetical royalties alone covers only the material damage suffered by the rights holder. For the purposes of providing compensation in full, the rights holder must also be able to seek compensation for any moral prejudice suffered.
The decision makes it clear that damages based on moral prejudice caused to rights holders by infringement is cumulative and so can be awarded to rights holders in addition to those based on royalties or fees. The ECJ’s interpretation is based on a purposive, rather than a literal, reading of Article 13(1).
UK courts, in particular the IPEC, have recently considered the question of damages based on moral prejudice under the Directive. In light of the ECJ’s ruling that damages based on moral prejudice can be claimed in addition to those based on royalties or fees, the view of the IPEC in Henderson appears to be questionable.
Following this decision, claimants in intellectual property rights infringement cases may wish to include specific claims for damages based on moral prejudice.
Case: Christian Liffers v Producciones Mandarina SL C-99/15.
First published in the May 2016 issue of PLC Magazine and reproduced with the kind permission of the publishers.