Infringement proceedings are a thing of many possible metaphors, and one of them may be an assault course. Invalidity defenses, non-infringement arguments, burden of proof issues, procedural traps are some of the hurdles that a plaintiff has to go over along the way.
So, after climbing up so many walls, nets and ropes, it is really too bad when the plaintiff falls into a muddy pit just before the finish line. In the case at hand, the muddy pit was the assessment of damages.
On March 20, 2014, the Paris Tribunal de grande instance (TGI) held that the two companies Carrera and Texas de France had committed acts of infringement of European patent EP 1067822 directed to a heating element for a heating or cooking apparatus, owned by Muller & Cie.
The court pronounced a permanent injunction against the defendants and ordered that they should provide accounting information regarding the infringing devices in order to make it possible to compute damages.
This judgment was confirmed by the Paris Cour d’appel on September 6, 2016. In the meantime, in view of the accounting information filed by the defendants, the TGI issued a second judgment dated January 14, 2016, in which Carrera and Texas de France were condemned to pay Muller damages of respectively 327,733 euros and 280,130 euros for Muller’s commercial prejudice, plus 100,000 euros for its moral prejudice.
The defendants appealed, which leads us to today’s judgment, issued on December 9, 2016.
In short, the appeal judges set aside the decision of January 14, 2016 and set the total amount of damages to… zero euro. How is this even possible, since acts of infringement were indeed committed?
The answer is that the legal basis for Muller’s computation of damages was held to be incorrect, and no alternative, legally correct computation seems to have been proposed by the plaintiff.
The method for the computation of damages is set in article L. 615-7 Code de la propriété intellectuelle:
In order to set damages, the court separately takes into account:
1° Negative economic consequences of the infringement, including lost profits and losses suffered by the harmed party;
2° Moral prejudice inflicted to said party;
3° And profits made by the infringer, including savings on intellectual, material and promotional investments made owing to the infringement.
However, the court may, alternatively and upon request of the harmed party, grant a lump sum in terms of damages. This lump sum is higher than the amount of royalties or rights which would have been due if the infringer had asked for the authorization to use the right that it infringed. This sum does not exclude the further indemnification of the moral prejudice of the harmed party.
The current wording of the article derives from the implementation of the enforcement directive 2004/48/EC, with a later modification in 2014. And it is not really crystal clear.
Computation of damages based on the “negative economic consequences” of the infringement is a conventional and well-delineated exercise.
On the other hand, how “profits made by the infringer” are to be “taken into account” by the court is not self-evident. It is also not so clear whether the plaintiff has full discretion to rely on the alternative lump sum calculation, or whether, in some circumstances, it is mandatory to rely on one assessment method or the other.
If we focus first on the issue of how infringer’s profits are to be “taken into account“, one way to interpret this provision would be to consider that the infringer’s profits may be awarded to the claimant as an alternative to loss profits damages. Another way would be to consider that the infringer’s profits are merely a modulating factor in the assessment of loss profits.
In the present case, Muller put forward a radical theory – successfully so in first instance, i.e. that the entire infringer’s profits should be awarded to the patent proprietor. However, this method was fully discarded at the appeal stage.
The Cour d’appel noted that Muller did not personally exploit the patent. The patent was exploited through six licensed subsidiaries, which tried to intervene in the infringement proceedings. However, the respective license agreements were not registered with the French patent register, so that they were not enforceable against third parties. Accordingly, the claims brought by the six licensees were previously held inadmissible in the initial 2014 judgment – and the unregistered licensees did not appeal.
In this particular context, the Cour d’appel deemed that the sole proper methodology for assessing damages was the so-called indemnifying royalty provided in the last paragraph of article L.615-7:
[Muller] does not claim the payment of the indemnifying royalty which was however rightly mentioned by the appellant, but this mode of compensation should be applied in this case. This royalty indeed corresponds to the percentage of the turnover that Muller could have claimed from the two companies sued for infringement, if the authorization to exploit the patent that it owns had been requested, with an additional penalty to take into account the existence of the wrongful acts committed against it.
But again, Muller did specifically not claim an indemnifying royalty. Muller argued that the words “upon request of the harmed party” in article L. 615-7 meant that this mode of calculation was not mandatory. The court concurred and stated that it “could not validly impose such a mode of compensation of its economical prejudice” on Muller. But this turned out to be a self-inflicted wound, as the sole mode of compensation put forward by Muller was not acceptable according to the court, for the two following reasons:
- first, Muller did not personally suffer any lost profits;
- second, the infringer’s profits may not be claimed by the plaintiff in the absence of lost profits.
As to the first reason, Muller argued that, although it had not directly suffered lost profits, there were lost profits for the overall Muller group. The court replied that Muller could not possibly claim lost profits suffered by other companies, namely the six licensees, which are distinct legal entities (in fact, it seems that it was not even properly demonstrated that they were part of the same group as Muller). The licensees’ claims were held inadmissible by the TGI, and they did not appeal. Thus, only Muller’s personal lost profits could possibly be compensated.
Yet, no lost royalties were claimed by Muller. On the one hand, the six licenses were apparently royalty-less, so that Muller did not personally lose money due to the licensees’ possible lost sales. On the other hand, Muller could have relied on a depreciation of the invention’s value due to the infringement, but did not do so. Here, the court cruelly noted: “again, it is not the court’s task to compensate an item of prejudice in the absence of a claim from the owner of the right in this respect“.
Then comes the second point on the infringer’s profits. Says the court:
In addition, it is true that the law of October 29, 2007, transposing the 2004/48 directive, provides that the judge should take into account the “profits made by the infringer”. But it did not introduce a possibility to confiscate them into the statute. Said taking into account is limited to the part which may remain, once the losses related to the exploitation have been assessed, in order to achieve a full compensation of the prejudice.
In other words, according to this court, the infringer’s profits can only be taken into account in the context of the assessment of a commercial prejudice. The confiscation of the infringer’s profits is not an alternative option which would be available to the plaintiff instead of claiming the compensation of a commercial prejudice.
Consequently, Muller’s claim for damages was simply rejected. The court noted in passing that the permanent injunction, which remains in place, is a proper sanction in this case anyway.
The last nail in the coffin was the rejection of Muller’s claim based on the moral prejudice which was said to be insufficiently substantiated.
All in all, this is a tough decision for the patentee, although we can have a feeling that the court was irritated by its behavior. For instance, there is a remark that the patentee obtained evidence of the infringement as soon as July 2009 owing to a bailiff’s report but waited until May 2011 to file its complaint.
It remains to be seen whether the Cour de cassation will have to rule on the Cour d’appel’s interpretation of the legal provision on the apportionment of the infringer’s profits.
In the meantime, one take-away message can be that the best practice for a patent proprietor is certainly to claim an indemnifying royalty, if only as an auxiliary request. Indeed, this should always be a possible option. Better safe than sorry.
CASE REFERENCE: Cour d’appel de Paris, pôle 5 chambre 2, December 9, 2016, SARL Carrera & SAS Texas de France v. SA Muller et Cie, RG No. 16/02891.