DAMAGES IN
INTELLECTUAL PROPERTY
LITIGATION IN
CHINA AND EUROPE
September 2009
Introduction
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In this presentation, we will address the following topics:
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What can be claimed as “damages”?
Some practical aspects of calculating damages
Specific aspects of claiming damages in:
– China
– Spain
– Germany
– France
DAMAGES IN CHINA AND EUROPE · September 2009
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WHAT CAN BE CLAIMED AS
“DAMAGES”?
DAMAGES IN CHINA AND EUROPE · September 2009
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What can be claimed as “damages”?
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The failed attempt at introducing “punitive” damages in
Europe?
Criteria for calculating damages in Europe. Article 13.1:
(a) Negative economic consequences, including:
 lost profits
 any unfair profits made by the infringer, and
 elements other than economic factors, such as “moral damage”
or
(b) Lump sum based on a notional royalty
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What can be claimed as “damages”?

“Subjective” element (Art. 13):
• “Who knowingly, or with reasonable grounds to know” (par. 1)
Member states must establish that the infringer must pay damages
• “Where the infringer did not knowingly, or with reasonable grounds
know” (par. 2)
Member states may establish that the infringer must pay damages
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What can be claimed as “damages”?
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All “negative economic consequences” (extremely broad
concept):
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Patentee’s lost sales
Patentee’s lost associated sales
Price erosion:
– Income lost due to regulatory measures
– Income lost due to “price reference system”
– Income lost due to parallel imports?
– Income lost due to trans-national reimbursement baskets?
Income from licensees
Decrease of the value of the patent (e.g. due to loss of exclusivity)
Damage to the “prestige” of the patent
Opportunity costs lost (e.g. time devoted to case “management”)
“Moral” damages
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PRACTICAL ASPECTS OF
CALCULATING DAMAGES
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Practical aspects of calculating damages
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Damages are normally calculated by an expert:
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Appointed by the patentee
Appointed by the arbitral tribunal
Practical difficulties of each criteria:
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Profits lost (Do I have to disclose my margin? Can I get around
this? Can I apply for a confidentiality order, i.e. “confidentiality
clubs”?)
Surrender of defendant’s profits (they claim not to make any
money)
Notional royalty:
– easy when licences have been granted
– otherwise, difficult
– “compulsory” licence effect (in the absence of “punitive”
increase)
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Practical aspects of calculating damages
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“Net” profits or “gross” profits?
What period may be covered?
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SPECIFIC ASPECTS OF CLAIMING
DAMAGES IN:
CHINA
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China
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Actual losses suffered by the patent owner or the profit
made by the infringer
Royalty payable (and application of an appropriate
multiplier)
Statutory damages of between RMB10,000 and 1Million
Costs incurred
– Local counsel reasonable fee
– Courts fee
Lack of discovery
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SPECIFIC ASPECTS OF CLAIMING
DAMAGES IN:
SPAIN
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Spain
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Directive 2004/48 was implemented by Law 19/2006
Article 66 of the Patent Act, as amended, states that:
1) Compensation for damage due to the owner of the patent shall not
only include the amount of the loss that he has suffered, but also the
profits lost through the infringement of his rights. The amount of
compensation may include, where applicable, any research costs
incurred in order to obtain reasonable proof of the commission of the
infringement which is the object of the legal proceedings.
2) The profits lost shall be calculated in accordance with one of the
following criteria, at the choice of the injured party:
(a) negative financial consequences, including the profits the owner
could foreseeably have earned from working the patented invention, if
there had been no competition from the party infringing his rights, and
the profits earned by the latter party from working the patented
invention;
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Spain
In the case of moral damage, this will be subject to compensation
even if the existence of financial damage has not been proven.
(b) the amount the person infringing the patent would have paid the
owner for granting a licence that would have allowed him to work the
patent legally.
In fixing the amount, special consideration shall be given, inter alia, to
the economic importance of the patented invention, the term of the
patent at the time infringement commenced and the number and
class of the licences granted at that time.
3) Where the judge considers that the owner does not fulfil the
obligation to work the patent established in Article 83 of this Act, the
amount of the unearned profits shall be fixed in accordance with the
provisions of subparagraph (c), above.
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Spain
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Article 67:
(1) Where the injured party has chosen one of the criteria laid down in
subparagraphs (a) or (b) of paragraph (2), above, for fixing the amount
of unearned profits, the calculation of those profits may also take into
account, to the extent deemed reasonable by the judge, the profits
obtained from working other objects of which the patented invention
constitutes an essential part from the commercial point of view.
(2) The invention shall be deemed to be an essential part of goods
from the commercial point of view when its incorporation constitutes a
determining factor in the demand for the said goods.
 Article 68:
The owner of the patent may also require compensation for the
damage suffered as a result of the loss of reputation of the patented
invention caused by the person infringing his rights through defective
manufacture or unsatisfactory presentation of the invention on the
market.
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Spain
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Period covered: 5 years prior to infringement action and
until judgment is finally enforced
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Spain: Some practical examples
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Judgment of 31-07-2008 from Commercial Court Num. 3
of Barcelona:
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Profits lost = number of units sold by each defendant x patentee’s
margin
A = €3,144,825
B = €1,510,088
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Expenses
€2,389
Opportunity cost lost (hours devoted to case management)
€24,216
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Spain
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Judgment of 26 Sept. 2008 of the Madrid Court of
Appeal:
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Notional royalty
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Expenses
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€1,711,136
€6,434
Loss of prestige of the trademark
€112,398 (5% of the
investment made in promoting the trademark in Spain)
The defendant criticised the Court-appointed expert for not having
attached “working papers”
The Court’s reply was that when an architect writes an expert
opinion he does not attach the building to his expert opinion!
Teachings of this case: the Court’s somewhat “relaxed” criteria may
help patentees not to have to disclose sensitive internal documents
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Spain
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Judgment of 20 June 2006 of the Barcelona Court of
Appeal
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Takes into account the defendant’s “gross” profits
Highlights that “fixed” costs would have been incurred anyway
Rejects “market opportunity” lost in the United States on the
grounds that the opportunity was “uncertain”
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SPECIFIC ASPECTS OF CLAIMING
DAMAGES IN:
GERMANY
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Germany
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Section 139, paragraph 2, of the Patent Act was
amended by the law that implemented Directive 2004/48
(1 September 2008)
Germany’s legislator made it clear that the 3 traditional
methods of calculating damages (profits lost, surrender
of defendant’s profit and notional royalty) will not be
altered
The patentee can switch between different methods until
a final judgment in rendered
According to Judge Klaus Grabinski, “defendant’s profits”
was chosen in 3/4 of the cases in 2008
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Germany
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Most recent cases are Steckverbindergehäuse (BGH,
GRUR, 2007, 431) and Rohrschweissverfahren (BGH,
GRUR, 2007, 773)
The choice of “defendant’s profits” was fostered by the
Supreme Court in the Gemeinkostenanteil judgment
(145 BGHZ 366, 2001 GRUR 329, 33 IIC 900(2002)),
where the Court held that fixed costs can only be
deduced if and only to the extent that such fixed costs
can be allocated directly to the production of the
infringing product (40% of turnover went to the
patentee)
The burden of proving deductible costs falls to the
defendant
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Germany
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Deductible costs can include:
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Variable costs for the production and distribution of the infringing
product, such as:
– Production costs (raw material, energy, etc.)
– Purchase price
– Distribution costs
– Salaries of employees exclusively involved in the
production/marketing of infringing product
Fixed costs
– Leasing costs of machines exclusively used to produce the
infringing product
– Leasing costs of premises exclusively used to produce the
infringing product
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Germany
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Owner of the infringed patent and his licensee can claim
damages in separate proceedings and choose between
profits lost, defendant’s profit and notional royalty, but
infringer only has to pay total damages according to one
of the methods of calculating damages once. See, e.g.,
BGH, GRUR, 2008, 896, Tintenpatrone
The non-exclusive licensee has no rights to damages
(unless the licensor assigns its claim for damages)
Damage claims are usually brought in separate
proceedings after liability for damages has been
declared and after accounting.
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SPECIFIC ASPECTS OF CLAIMING
DAMAGES IN:
FRANCE
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France – general principles
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Law 2007-1544 of 29 October 2007 implemented
Directive 2004/48, amended the “Code de la Propriété
Intellectuelle” - Article L615-7:
"To set the damages, the courts must take into account the
negative economic consequences suffered by the injured party,
including loss of profits, the profits made by the infringer, and the
moral damage caused to the right holder. The Courts may
alternatively and at the request of the claimant, grant as damages
a fixed sum that cannot be less than the amount of royalties that
would have been paid by the infringer, had he requested
authorisation to use the infringed right"
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France – general principles
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Exclusive and non-exclusive licensees may claim
compensation for the damages they suffered
Punitive damages are not officially admitted –
damages must only make up for the harm suffered
Usually taken into account: lost profits (lost margin
and/or notional royalty), losses suffered and pain
and suffering
In trademark infringement matters, a lump sum is
quite often awarded
Period covered: 3 years prior to infringement action
and until judgment is finally enforced
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France – lost profits
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One must first determine (i) the “infringing mass”, i.e.
number of infringing products sold, and (ii) related sales, e.g.
China Corp sells a patented process and maintenance
services: China Corp. May seek lost profits on both the
patented process and the maintenance services
One will then determine whether the plaintiff works the
patent and would have made the sales in the absence of the
infringing products:
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If the plaintiff does not work the patent, he is entitled to a notional
royalty on the infringing mass
If plaintiff works the patent, he is entitled to recover his lost margin for
the sales he would have made in the absence of the infringer, and a
notional royalty for other sales – the Courts generally consider that
the plaintiff would have made the sales up to his market share
(calculated as if the infringer were not on the market)
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France – lost profits
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e.g. 100 infringing products sold, plaintiff’s market
share after deduction of these illegal sales is 60%:
 the plaintiff would be entitled to his margin on
60 “lost sales”, and a notional royalty on 40
infringing products sold by the infringer
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France – notional royalty
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The rate depends on market standards, if any
Otherwise the parties and the appointed expert (if any)
usually propose some rates  up to the tribunal to
decide, taking into account the part of the invention in
the product (is it substantial or not)
The notional royalty is increased to take into account
the theoretical fact that the infringer is not in a position
to negotiate the rate
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L’Air Liquide vs. Yara France, market standards were around
10%, but the Court doubled this rate, i.e. to 20% (TGI Paris, 29
October 2008)
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France – lost margin
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The tribunal will determine whether the plaintiff would
have incurred additional costs to manufacture products
in replacement of the infringing ones and sell them:
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Usually, only variable costs directly linked to the manufacturing
(e.g. raw material, energy, etc.) and sale (e.g. transportation costs,
bonuses paid to employees on sales, etc.) of the product will be
deducted from turnover
- e.g. in Trèves vs Visteon, the Court considered that the
plaintiff would have been in a position to manufacture and sell
the infringing products with its existing equipment and
workforce, and thus awarded the patentee’s usual gross
margin (20%), i.e. turnover less variable costs incurred for
producing the products (raw material, energy, transportation
costs) (TGI Paris, 29 January 2009)
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France – lost margin
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- e.g. in Kaufler vs Armor Inox, the patentee was awarded
an amount of € 1,037,000 equal to its gross margin, i.e.
sales price less production costs (mainly raw material and
energy) and subcontractors costs (Paris Court of Appeal,
14 May 2008)
If additional costs were required, said costs will also be
deducted (e.g. purchase of additional machinery and
recruitment of workforce)
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CONCLUSIONS
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Conclusions
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“Patentee’s lost profits” appears to be best option
provided patentee is prepared to prove margin
“Surrender of defendants’ profits” is better than it used
to be, since Courts would only deduct direct costs
(plus burden of proof on the defendant)
Although the “double-royalty” rule did not go through
when Directive 2004/48 was negotiated, Courts of
some EC member states seem prepared to apply it
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DAMAGES IN
CHINA AND
EUROPE
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