Punitive damages slipping into IP enforcement in Europe?

The U.S. is known to have a regime of punitive damages in many different areas of law. This concept has however not won any significant ground in Europe, where one usually is allowed to be awarded only the actual damages suffered.

On 25 January 2017, the CJEU handed down a quite remarkable judgment on damages in IP infringement cases (case C-367/15). The Polish Supreme Court had sought guidance from the CJEU on how to interpret the Enforcement Directive (2004/48/EC).

Poland had a national provision, which provided an alternative for an IP holder to seek damages corresponding to two or three times of a hypothetical license fee. The question was whether the Polish national provision could be seen to be compatible with EU law. The Advocate General (AG), in essence, answered in the negative (AG opinion). But the CJEU took a different approach. The CJEU concluded that the Enforcement Directive does not as such preclude a provision allowing for an IP holder to claim twice the amount of a hypothetical license fee. In its reasoning, the CJEU inter alia referred to international instruments (TRIPS, Berne, Rome) and also emphasized the fact that the Enforcement Directive is a minimum standard directive.

The CJEU did however not consider whether or not a triple hypothetical license fee would also have been in line with EU law, since the Polish Constitutional Court had, after the order for reference, declared such a rule to be unconstitutional (with retroactive effect).

The judgment of the CJEU means that including a national rule providing for the IP holder to seek damages higher than a hypothetical license fee may not be contrary to EU law. Theoretically, this could be viewed as a step into the realm of damages that could be considered “punitive” to a certain extent. Such a definition may be debated of course, given that the IP holder may have suffered other financial loss, such as indirect damages and costs for enforcement etc. But it can be perceived to be a step away from the requirement to prove actual damages suffered. Nevertheless, the court is careful in its wording, limiting its interpretation to a double hypothetical license fee and requires the national court to take into account “all the appropriate aspects of a particular case”. Also, since the CJEU did not address the question regarding a rule on a triple hypothetical license fee, one could ask whether in fact such damages or even a higher amount could in fact also be in accordance with EU law, given that the Enforcement Directive is, as earlier pointed out, a minimum standard directive? Would such a question have to be referred to the CJEU again for a new interpretation?

This development should be closely followed, since it addresses a very important part of IP enforcement in Europe, i.e. damages.

Vilhelm Schröder
Attorney-at-Law

This text has been published first time on the TRUSTinIP blog on 1 February 2017.

(Photo: istockphoto.com/vinnstock)