Damages under the IP Enforcement Directive a decade on - Germany

In contrast to the UK, the component of “moral prejudice” was already part of the German law on damages calculations before the implementation of the Enforcement Directive. However, apart from copyright infringement, where in German jurisprudence the personality right of the author plays an important role, the criterion of moral prejudice has little relevance to other IP rights. Cases where damages for intangible damage such as loss of goodwill or damage resulting from market confusion are awarded as distinct heads are extremely rare. This has not changed with the implementation of the Enforcement Directive into German law.

Further, and again in strong contrast to Judge Hacon’s interpretation in English law, German case law considers the infringer’s profits to be “unfair profits”. The claimant has long had the option to claim such profits in German case law. 

However, with respect to compensation for actual damages it can be noted that the Enforcement Directive is used to justify a more generous compensation for the claimant namely by granting higher royalties when calculating damages on the basis of the licence analogy: that the right-holder should receive in damages the amount they would have received under a licence negotiated in good faith between a willing licensor and a willing licensee. German doctrine inter alia applies the criteria of “moral prejudice” and “unfair profits” for justifying higher licence fees to be paid by the infringer than those which would in reality be negotiated in advance of any infringement.
The Enforcement Directive was implemented in Germany by the Law on the Improved Enforcement of Intellectual Property Rights Intellectual Property (the “German Enforcement Regulation”) which came into force on 1 September 2008. The Regulation was implemented in each of the German intellectual property acts. For instance, section 139 German Patent Act provides:. 

(2) Any person who intentionally or negligently undertakes such an act shall be liable to the injured party for compensation of the damages incurred thereby. When assessing the damages, the profit which the infringer has made by infringing the right may also be taken into account. The claim for compensation of damages may also be calculated on the basis of the amount the infringer would have had to pay as an adequate remuneration had he obtained the authorisation to use the invention. 

Article 13 of the Enforcement Directive was not transposed directly into German law as the above example demonstrates for the Patent Act. While the calculation of damages according to the infringer’s profits or the losses of the claimant did not cause major disputes, the effect of the Directive on the licence analogy has been particularly contested. Case law defines what German courts consider to be the correct interpretation of German law in conformity with the directive. 

Calculation of damages by way of licence analogy 

The patent chamber of the Munich Regional Court has ruled that the last sentence of section 139 of the German Patent Act must provide for a generally higher licence fee compared to the average licence on the free market, in order to conform with the Enforcement Directive. With reference to recital 23 of the Directive, the court concluded that the concrete situation – of infringement proceedings – must be taken into account and therefore differentiates the appropriate licence fee from the “normal” scenario in which the parties agree on the licence fee without prior litigation. It particularly relied on recital 23’s guidance that “the amount of damages awarded to the rightholder should take account of all appropriate aspects, such as loss of earnings incurred by the rightholder, or unfair profits made by the infringer and, where appropriate, any moral prejudice caused to the rightholder”. After determining the average licence fee on the market the court consequently awarded an extra 66 % on top of this (5% infringer royalty instead of 3% average royalty) (Judgment LG München I, docket 7 O 17716/09, GRUR-RR 2011, 291 – Gülleausbringungsvorrichtung. The judgment has become final after the withdrawal of the appeal). 

By contrast, the copyright chamber of the Berlin Regional Court ruled that Article 13 of the Enforcement Directive has not changed the previously applied doctrine on damages calculation. A provision stipulating a general “extra” on the infringer licence was rejected during the German implementation process of the directive. The licence fee calculated pursuant to section 97 of the German Copyright Act should therefore not reach a scale that would be perceived as “punitive damages”. However, the court found as well that the correct interpretation of section 97 of the Copyright Act allows for a higher licence fee taking into account that Article 13 provides for that “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.” (Judgment Berlin Regional Court, docket 15 S 9/07, GRUR-RR 2010, 422 – Kartenkacheln). 

Summary 

Under the German interpretation of the Enforcement Directive the claimant has three alternatives to calculate damages. If the infringer acted intentionally or negligently he will be liable for actual damages sustained by the claimant. The three different ways of calculating damages claims apply to all IP infringement claims. Consequently, the right holder may claim:

 • his lost profits due to the infringement;
• reasonable royalties in relation to the infringement (licence analogy); or 

• surrender of the actual profits generated by the infringer. 

It is important to note that although the claimant is free to choose the method applied he cannot combine the methods, e.g. to cumulatively claim both loss of his own profits and the profits of the infringer. When calculating in accordance with the licence analogy the claimant may be entitled to up to an extra 66% of the usual licence fee. 

Whether the courts are correct that the Enforcement Directive permits a different approach to calculating copyright damages from that for patent damages remains to be seen, when one or more cases are appealed.