Monday, October 24, 2016

A Recent French Case on Damages

The EPLaw Blog recently published a post about a recent French case on damages, Time Sport International v. Decathlon and D-H-G Knauer, No. 10/05487, Tribunal de la grande instance de Paris (June 1, 2016), with thanks to Pierre Véron of, Véron & Associés (who also provide copies of the original decision and an English-language translation).   I won't repeat more than is necessary of the facts--readers can refer to the EPLaw post and to the decision itself--but I will make a few comments on the damages award.

Plaintiff Time Sport owns a European patent on a “Device for retaining a helmet on the occiput.”  Defendant Knauer made bike helmets that were found to be infringing, and defendant Decathlon sold them in its stores.  Time Sport prevailed on liability, and in June 2016 the TGI Paris issued an opinion awarding Time Sport  €1,524,036.04.  The award consists of two components:  first, for acts of infringement occurring from April 2 to October 29, 2007; and second for acts occurring from October 29, 2007 to September 8, 2012.  This distinction arises because October 29, 2007, is the date on which a revised version of article 615-7 of the French IP Code went into effect.  (The amendment was made to conform to the EC Enforcement Directive.  Article 615-7 has been further amended since then, effective March 13, 2014, see here, but that most recent amendment is not relevant to this case.)  Prior to that date, French courts didn't take the defendant's profits into account in awarding damages.  Afterwards, they may, according to the version of article 615-7 applicable here, which in relevant part read "“To set damages, the court takes into account the negative economic consequences, including the loss of profit suffered by the injured party, the benefits made by the infringer and the moral prejudice caused to the right-holder because of the infringement."  

For the acts of infringement occurring during the earlier of the two periods, the court rejected Time Sport's request for lost profits on sales of helmets it might have sold during that time.  Time Sport actually hadn't made or sold any helmets for quite some time, and the court concluded that Time Sport hadn't established a sufficient relationship between the infringement and Time Sport's decision not to resume production.  Time Sport therefore was entitled only to a reasonable royalty, which the court calculated at 8% of Knauer's turnover from April 1-October 31, 2007.  The court rejected use of the defendants' proposed comparables, for which the royalty rates were lower, because it thought they weren't comparable enough (see p.13).  There's no explanation in the judgment itself, however, of why 8% is the correct royalty figure, other than the fact that it's a higher rate than the rates in the rejected comparables, and the court's statement that the invention was "relevant":
When it decided to sell its products to large stores specialised in sporting goods and obtained their listing from DECATHLON, TIME SPORT sold 3,250 helmets equipped with the patented device in France and exported 3,180 thereof, and became the victim of acts of infringement as of 1996. These elements are evidence of the relevance of the invention - elements to be considered to assess the royalty rate - which persisted in 2008 even if, as DECATHLON claims, other devices of occipital adjustment were used" (p.13).   
How that translates into an 8% rate, though, is not stated.

For the acts occurring during the later period, the court awarded 20% of both defendants' gross profit margin.  In reaching this result, the court concluded that the fact that plaintiff wasn't making any products didn't disqualify it from recovering a profit-based award.  On the other hand, the plaintiff wasn't entitled to more than 20%.  According to the court:
With regard to the provisions of the aforementioned Article L. 615-7 in its version then in force, the compensation of the damage suffered must therefore be determined by reference to the profits made by each of the defendants, but without, however, ignoring TIME SPORT's situation on the date of the acts at issue, namely its production capacity, its experience and technical know-how, the investments necessary to the direct exploitation of the patent and the results that it could have expected. . . .
Given TIME SPORT's particular situation at the time of the litigious acts, in that it had stopped exploiting its patent since 2000 after facing previous acts of infringement, and was experiencing great financial difficulties leading it at the end of 2008 to postpone its plan for resuming the helmet manufacturing activity, its damage can be estimated at 20% of the profits made by each of the infringers - this percentage also takes into account the method of calculation based on the gross margin - that is:
-€4,992,290 excluding taxes x 20% = €998,458 in respect of DECATHLON FRANCE's profits;
-€1,754,483 excluding taxes x 20% = €350,896.6 in respect of KNAUER GmbH's profits (pp. 14-16).
Maybe I'm just missing something, but I don't see where this 20% rate comes from either.  Is it just the rate the court thinks is fair, based on the totality of the circumstances?  It's also interesting, in my view, that the court refers to the award as "compensation" (in the original French, la réparation de l'atteinte subie), not as restitution or disgorgement, and yet I don't see what the basis is for concluding that the plaintiff's loss was 20% of the defendants' profit.  Finally, as indicated above, for the later period the plaintiff is awarded 20% of both the manufacturer's and the retailer's profit, but for the earlier period it's 8% of the manufacturer's profit only because Decathlon "would have . . . included in its purchase price the cost of the royalty paid to the right-holder" (p.13).

The court further awards €50,000 for moral prejudice (a type of award that is common in French patent infringement cases, see discussion here) and €60,000 in costs under article 700 of the Civil Procedure Code (for discussion, see here).

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