Once in a while, a complex and long-lasting patent case gives rise to a simple and straightforward ruling.
Only longtime readers having an exceptional memory will remember that, a few years ago, I reported on a first cassation ruling in a Time Sport International v. Décathlon France et al. case. This ruling dealt with a priority issue.
It turns out that another cassation ruling has recently been issued in the same litigation. So this is one of these few never-ending cases in which the judiciary pingpong seems to go on eternally. Is it a bug or a feature of the French legal system? We may never know for sure.
Anyway, there is probably no need to go over the entire case in detail: as I said, the point made in this new ruling is quite simple and straightforward.
Suffice it to say that Time Sport International owns European patent No. EP 0682885 on a device for the adjustable occipital fixing of a helmet, and that Décathlon France and DHG Knauer were found to have infringed the French part of this patent. The only outstanding question is the computation of damages.
Damages were awarded to Time Sport by the Paris Cour d’appel in a judgment dated September 22, 2017 (corrected on May 4, 2018). Several amounts were awarded in consideration of different periods of time and defendants. The total amounted to more than 800,000 euros for Décathlon France, but (only) approximately 71,000 euros for Knauer.
The Cour de cassation, which only rules on points of law and does not reassess the facts, let the 2017 ruling stand for the most part, but took issue with one amount in particular, namely the one supposed to address Knauer’s infringement for the period running from November 1, 2007 to September 8, 2012.
Time Sport’s claim amounted to 1,754,483 euros. But the 2017 appeal ruling only granted them 28,620.90 euros. If the staff mathematicians are correct, this means that the court granted Time Sport 1.6% of what they asked for – obviously quite a disappointment for them.
The amount claimed by Time Sport was based on an expert’s report and was said to correspond to the profit made by Knauer. It seems that Knauer refused to communicate its sales figures relating to the infringing helmets to the expert, so that he made an estimate based on a minimum number of helmets sold by Knauer to Décathlon, on Décathlon’s average unit price and on Décathlon’s gross margin (not Knauer’s gross margin).
But the appeal judges noted that Knauer and Décathlon have different activities. Knauer is a manufacturer and wholesaler while Décathlon is a retailer. Therefore, the expert’s estimate based on Décathlon’s gross margin did not correctly reflect Knauer’s profits. As a result, the court decided that the damages should rather be computed by applying a 6% royalty rate to a certain turnover – how exactly this turnover figure was obtained is unfortunately not very clear to me when reading the judgment.
Time Sport argued in front of the Cour de cassation that this approach was incorrect.
The key provision here is article L. 615-7 Code de la propriété intellectuelle.
In the relevant version which was in force between October 30, 2007 and March 13, 2014, the article read:
To set the damages, the court takes into consideration the negative economic consequences suffered by the harmed party, including lost profits, the profits made by the infringer, and the moral prejudice caused to the right owner due to the infringement.
However, the court may, as an alternative and upon request of the harmed party, award a lump sum as damages, which cannot be lower than the amount of royalties or rights which would have been due if the infringer had asked for a permission to use the right which was infringed.
The amended version of the article currently in force is not much different from this one.
In summary there are at least three modes of computation laid out in the statute (leaving aside the moral prejudice aspect, which rarely gives rise to significant indemnification): the first one based on negative economic consequences for the IP right owner, the second one based on the infringer’s profits and the third one which is royalty-based.
The Cour d’appel applied the third one.
But these different modes of computation are not equally available to the court. In particular, the phrase underlined above shows that the third modality has to be requested by the plaintiff.
The Cour de cassation confirmed that there is no getting around the underlined phrase, and that the plaintiff indeed has the right to choose whether or not to be indemnified by way of a royalty:
The Cour d’appel, by ruling thusly, by refusing to take into account the indemnification claim based on one of the evaluation criteria set in article L. 615-7, first paragraph […] and by awarding the amount of royalties which would have been due to Time Sport if there had been a permission to work the patent, although a claim for enhanced royalties had not been filed, violated this provision by refusing to apply the first paragraph and by wrongly applying the second paragraph.
The case is therefore again remitted to the (regular) appeal level to have this portion of the damages award reassessed.
This cassation ruling can be viewed as a useful clarification – although, frankly, I would say the provision at stake in the Code de la propriété intellectuelle was in fact clear enough.
What remains fuzzy to me is how the court should “take into account” both the first and second modes of computation (negative economic consequences and infringer’s profits). I am not sure the case law is crystal-clear in this respect (see also this previous post on the same topic).
What is also somewhat fuzzy is what happens if the defendant refuses to open its account books, as seems to have been the case here. Wouldn’t it be logical in such a situation for the court to simply follow the plaintiff’s estimate?
CASE REFERENCE: Cour de cassation, chambre commerciale, March 17, 2021, Time Sport International v. DHG Knauer GmbH et al., appeal numbers 17-28.221 & 18-19.206.