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25-03-2016 » Enforcement of IP rights : lump-sum damages do not exclude compensation of moral prejudice

The European Directive 2004/48 of 29 April 2004 on the enforcement of intellectual property rights has given the injured party a choice, in relation to compensation of prejudice, between different methods for evaluating the prejudice itself and for compensating that prejudice. Judicial authorities applying article 13(1) of the Directive may calculate the amount in damages owed to the injured right holder, either having regard to all the negative consequences linked to infringement, or on the basis of virtual lump-sum royalties.

Indeed, the article states that :

« Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the right holder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement.

When the judicial authorities set the damages:

(a)  they shall 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 rightholder by the infringement;

(b)  or as an alternative to (a), they may, 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 authorization to use the intellectual property right in question. »

Subparagraph a) of this article proposes an analytical method enabling the judge to calculate damages taking into account different types of prejudice, mainly economic ones, while the calculation method provided by article 13(1), subparagraph b) allows compensation of prejudice to be evaluated on an inclusive basis without establishing the scope of the prejudice actually suffered.

Is it possible to add on to the lump sum compensation of the material prejudice, another compensatory amount for moral prejudice?

This question was the subject of a preliminary question directed at the Court of Justice of the European Union (EUCJ), filed by Spanish judicial authorities in view of the following facts: 

Claiming against a production company for the making of a documentary including some sequences from its audiovisual works, without any authorization to do so, the right holder sued the aforesaid company, as well as the television company which broadcast the documentary, before the courts, in order to stop the infringement of his IP rights and to request financial compensation for the infringement of his rights and for related moral prejudice.  The calculation method chosen by the right holder was a lump-sum payment for each of the types of prejudice he claimed to have suffered.

The Court of First Instance accepted the request and awarded the claimant an amount calculated on that basis to compensate for the material prejudice that had been suffered and for the moral prejudice as well. This calculation was contested by the losing companies and also by the Court of Appeal who denied the existence of a right, in such a case, to any compensation based on moral prejudice on the ground of article 140 of Spanish IP law, the terms of which differ a little from the European directive.  More particularly, the Court of Appeal considered that a party who chooses a royalty-based calculation method is no longer entitled to claim, in addition, compensation for moral prejudice.

Thus, the Spanish Supreme Court (Tribunal Supremo) requested the EUCJ to interpret article 13(1) of the 2004 European Directive. In its decision of 17 march 2016 (Aff. C-99/15 of 17 March 2016 – Christian Liffers against Producciones Mandarina SL, Mediaset Espana Comunicacion SA),  the EUCJ stated that:

  • By providing for the possibility of setting the damages as a lump sum on the basis of “at least” the elements referred to therein, that provision allows other elements to be included in the amount, such as, when appropriate, compensation for any moral prejudice caused to the right holder.
  • The first subparagraph of Article 13(1) of Directive 2004/48 sets out a general rule that the competent judicial authorities must order the infringer to pay the injured right holder damages that are “appropriate to the actual prejudice suffered by him as a result of the infringement”. As noted by the Advocate General, Sir Melchior, in point 28 of his Opinion, moral prejudice, such as damage to the reputation of the author of a work, constitutes, provided that it is proven, a component of the prejudice actually suffered by the rightholder.
  • In the light of the objectives of Directive 2004/48, the first subparagraph of Article 13(1) of that directive must be interpreted as establishing the principle that the calculation of the amount of damages to be paid to the holder of an intellectual property right must seek to ensure that the latter is compensated in full for the “actual prejudice suffered” by him, which also includes any moral prejudice.

On those grounds, the Court ruled, as follows:

Article 13(1) of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights must be interpreted as permitting a party injured by an intellectual property infringement, who claims compensation for his material damage as calculated, in accordance with heading (b) of the second subparagraph of Article 13(1) of that directive, on the basis of the amount of royalties or fees which would have been due to him if the infringer had requested his authorization to use that right, also to claim compensation for the moral prejudice that he has suffered, as provided for under heading (a) of the second subparagraph of Article 13(1) of that directive.

This decision is of interest for clarifying, in EU Member States, the different types of prejudice that shall be taken into account for compensating the damage caused by infringement, whatever the evaluation method used for calculating the payment to make amends for this infringement.

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