Which kind of damages are available in IP disputes?
In most legal systems, a right holder is entitled to recover compensation for the infringement of his IP rights. The TRIPS Agreement provides that Member States must endow their judicial authorities with the respective power to order payment of adequate damages to compensate the right holder for infringing activities undertaken knowingly, or with reasonable grounds to know (Art. 45 (1)).
The question how damages can be assessed is of great practical importance. There are various concepts how to determine damages :
In most legal systems, the statutory avenues for recovery set out at least two measures of calculation: the actual loss, and the defendant's profits, also called account of profits in common law countries. The plaintiff has the option between the two and cannot combine one method with the other.
In determining actual loss, the goal of the court is to put the infringed upon party in the position it would have been if the infringement had not occurred. To establish legal grounds for recovery, the plaintiff has to show that he has suffered a loss, for instance through a decline in sales figures, because of the infringement.
In the alternative, many countries allow successful claimants to recover net profits that the infringer has made from the infringement. This remedy aims at preventing the defendant from enriching himself at the plaintiff's expense. The infringer therefore must account for the profits he has made and disgorge these profits. Under the TRIPS Agreement, this remedy is optional (Art. 45 (2)) and may be made available even if the infringer did not know, nor had no reasonable grounds to know that he was engaged in infringing activity. This is significantly different from the requirements for the general order of payment for adequate damages (Art. 45 (1)) which requires damages payment based on the notion that the infringer knew or should have known of the infringing character of his actions.
In practice, different approaches exist as to the calculation of the net profits of the infringer or, in other words, in quantifying the value that the defendant himself may have given to the plaintiff's work, and which he therefore should be entitled to deduct from his net profits. In England, for example, a key judgment in this respect, the "Celanese" decision (1998), allows the defendant to deduct an adequate percentage of costs generally related to his business, such as fixed costs, or corporation taxes. A recent judgment of the German Federal Court of Justice (2000), on the other hand, refuses such a deduction and allows only the deduction of costs that were necessary to produce or distribute the infringing product.
In addition to these traditional ways of assessing damages, some countries offer a third option, compensation based on a license analogy. The rationale behind this assessment is that the infringer must not be in a better position than he would have found himself if he entered a license agreement with the right holder. Hence, the plaintiff is entitled to reasonable royalties for an infringement. This is permitted even if the plaintiff had no intention, or the capability, to grant the respective license. The most important - and typically most controversial - aspect of the license analogy assessment concerns the calculation of this fictitious license. The court generally determines the value of the license based on rates, which are customary in license agreements for a similar product and a similar use.
Given the wide range of possible reasonable license agreements, many economic factors have to be taken into account for this determination. For instance, if tariffs exist, the calculation can be based on these figures. In practice, courts often have tended to base their calculations on rates on the upper end of the scale of commonly concluded agreements. This practice, however, has to be justified in every case since a general "surcharge for infringements" is not considered permissible in that context.
Some countries also provide for immaterial damages for IP infringements. This remedy is frequently utilized where the violation of rights is considered particularly serious, or where the infringement has been undertaken intentionally. In practice, such damages are typically ordered in cases where the plaintiff's reputation has been undermined by the infringement.
An example of this remedy can be found in Art. 13 (1 (a)) of the EU Directive 2004/48/EC on the Enforcement of Intellectual Property Rights which sets forth that the judicial authorities, when they set the damages, shall take into account, in appropriate cases, also elements other than economic factors, such as the moral prejudice caused to the right holder by the infringement.
The provision of evidence for the calculation of actual damages may be very difficult or even impossible for the right holder to establish. In copyright piracy cases, for example, it is notoriously difficult for right owners to meet the burden of proof in establishing the true volume of the infringement. Such a burden is magnified when the infringement happens in an online environment and the right holder has to show the number of illegal downloads from the Internet.
In order to address the difficulties of a high burden of proof, as well as to provide for harsher damage awards, some countries have set forth pre-established, or statutory, damages. These would, in the aforementioned situations, lessen the burden of the right holder to quantify the actual impact of the infringement in addition to offering the court an alternative means of granting fixed-rate damages. The concept of statutory damages as a remedy is subject to some debate because a number of legal systems see them as too close conceptually to punitive damages. Many countries do not recognize punitive damages, based on the principle that any punishment requires pre-established criminal provisions (nulla poena sine lege principle).
In many countries, though, statutory damages are not considered predominantly punitive, but rather as a remedy that aims to provide full compensation for the harm suffered by the right holder. Statutory damages accomplish this goal by taking into account additional expenses of the right holder (i.e., administrative expenses in identifying the infringement and its origin, etc.) while having also a deterrent effect.
A typical model for the establishment of statutory damages is a calculation on the basis of twice, or three times, the full price payable for the respective use of the infringed right. Some countries also fix a precise amount, or a margin, for the pre-established damages to be paid.
In the United States of America, for example, a plaintiff in trademark and copyright cases may opt for statutory damages. These damages can range, in copyright cases from $750 and $30,000 per infringement, and in cases of willful copyright infringement up to a maximum of $150,000 (Digital Theft Deterrence and Copyright Damages Act of 1999). In Trademark counterfeit cases statutory damages can range from $500 to $1000 per counterfeit mark per type of good or service sold, offered for sale, or distributed (Anti-counterfeiting Consumer Protection Act of 1996). Another set of statutory damages was introduced in the Digital Millennium Copyright Act (1998). The Act sets out statutory damages for acts of circumvention of copyright protection technologies such as encryption technologies, and for acts of alteration of copyright management information.
The recent EU Directive 2004/48/EC on the Enforcement of Intellectual Property Rights includes a provision which allows the judicial authorities to set the damages as a "lump sum on the basis of elements such as at least the amount of royalties which would have been due if the infringer has requested authorisation to use the intellectual property right in question" (Art. 13 (1 (b)).