I confess that I missed the judgment of the Court of Justice for the European Union (CJEU) in Hansson v. Jungpflanzen Grünewald GmbH, Case C-481/14, when it was handed down on June 9 of this year, though I had blogged about the referral from the Oberlandesgericht Düsseldorf in November 2014 (see here). The plaintiff, owner of Community Plant Variety Right EU 4282 in a variety of flower, sued the defendant for infringement; failed in his attempt to obtain interim relief; but ultimately prevailed in the main action. The district court awarded him €66,231.74 plus interest under article 94 of the Regulation on Community Plant Variety Rights, corresponding "to the amount he had claimed in respect of the licence fee which Jungpflanzen should have paid him for the" infringing plants it sold from 2002 through 2009, but not other requested damages. In relevant part, article 94 reads:
(a) effects one of the acts set out in Article 13(2) without being entitled to do so, in respect of a variety for which a Community plant variety right has been granted . . . may be sued by the holder to enjoin such infringement or to pay reasonable compensation or both.
2. Whosoever acts intentionally or negligently shall moreover be liable to compensate the holder for any further damage resulting from the act in question. In cases of slight negligence, such claims may be reduced according to the degree of such slight negligence, but not however to the extent that they are less than the advantage derived therefrom by the person who committed the infringement.
In addition, article 97 reads:
1. Where the party liable pursuant to Article 94 has, by virtue of the infringement, made any gain at the expense of the holder or of a person entitled to exploitation rights, the courts competent pursuant to Articles 101 or 102 shall apply their national law, including their private international law, as regards restitution.
Also of possible relevance are certain provisions from the 2004 EC Enforcement Directive.
On appeal, the Oberlandesgericht Düsseldorf referred eight questions (some of them with several sub-parts) to the CJEU, as set forth in para. 25 of the CJEU's judgment--though as the CJEU points out, the questions all go to the principles governing "the setting and calculation of the compensation payable under Article 94," with some of them concerning "the actual nature of the two forms of redress" and others "more specifically, the factors on the basis of which the reasonable compensation provided for in Article 94(1) is calculated as well as those that are the basis for calculating compensation under Article 94(2)" (paras. 26-27).
First, then, the CJEU addresses those questions that seek guidance on whether Article 94 must be interpreted as (1) requiring "the damages awarded as compensation . . . to be increased by an 'infringer supplement'", and (2) providing "a legal basis for requiring the infringer to make restitution of the profits that he has made from that infringement" (para. 29). The court's answer is no:
31 On the one hand, the purpose of Article 94(1) of the regulation is that financial compensation should be paid in respect of the benefit which has been gained by the person who committed the infringement, that benefit corresponding to the amount equivalent to the licence fee which that person has failed to pay . . . . Article 94(1) does not provide for reparation for damage other than damage connected to the failure to pay ‘reasonable compensation’ within the meaning of that provision (see judgment of 5 July 2012 in Geistbeck, C‑509/10, EU:C:2012:416, paragraph 50).
32 On the other hand, Article 94(2) of Regulation No 2100/94 concerns the ‘further damage’ for which an infringer must compensate the holder of a Community plant variety right where the infringer has acted ‘intentionally or negligently’.
33 It follows that Article 94 of that regulation establishes for the holder of a Community plant variety right an entitlement to compensation which not only is full but which also rests on an objective basis, that is to say, it covers solely the damage which he has sustained as a result of the infringement.
34 Article 94 of the regulation cannot therefore be interpreted as providing a legal basis, to the benefit of the rightholder, which permits an infringer to be required to pay punitive damages, established on a flat-rate basis.
35 Rather, the extent of the compensation payable under Article 94 of Regulation No 2100/94 must reflect, as accurately as possible, the actual and certain damage suffered by the holder of the plant variety right because of the infringement. . . .
40 In those circumstances, Article 94 . . . does not permit an infringer to be ordered to pay a flat-rate ‘infringer supplement’, as described by the referring court, since such a supplement does not necessarily reflect the damage suffered by the holder of the variety infringed, although Directive 2004/48 does not prevent the Member States from laying down measures that are more protective.
41 Similarly, Article 94 does not permit the holder of a Community plant variety right to claim restitution of the gains and profits made by an infringer. In fact, both the ‘reasonable compensation’ and the amount of compensation payable under Article 94(2) of Regulation No 2100/94 must be set on the basis of the damage suffered by the injured party and not on the basis of the profit made by the person who committed the infringement.
42 Although paragraph 2 of Article 94 refers to the ‘advantage derived … by the person who committed the infringement’, it does not provide that that advantage has to be taken into account, as such, in the amount of the financial compensation actually awarded to the holder. The point should also be made that, so far as concerns an action for restitution as regards the advantage derived by the infringer, Article 97 of Regulation No 2100/94 refers expressly to the national law of the Member States.
43 It follows from those considerations that the answer to Questions 1, 5(b) and 6 is that Article 94 of Regulation No 2100/94 must be interpreted as meaning that the right to compensation which it establishes for the holder of a plant variety right that has been infringed encompasses all the damage sustained by that holder, although that article cannot serve as a basis either for the imposition of a flat-rate ‘infringer supplement’ or, specifically, for the restitution of the profits and gains made by the infringer.
Second, the court addresses the factors to be taken into account in determining reasonable compensation under article 94(1):
51 In any event, the Court has stated that Article 94(1) of Regulation No 2100/94 must be interpreted as meaning that it does no more than provide for reasonable compensation in the event of unlawful use of a plant variety, but does not provide for reparation for damage other than damage connected to the failure to pay that compensation, thereby excluding from the amount of the compensation costs incurred for monitoring compliance with the rights of the plant variety holder (see judgment of 5 July 2012 in Geistbeck, C‑509/10, EU:C:2012:416, paragraphs 50 and 51).
52 It follows from that interpretation that reasonable compensation, within the meaning of that provision, includes loss or damage that is closely connected to failure to pay that compensation.
53 Default interest may fall within that loss because of the late payment of the fee payable in the normal course of events, particularly if the contractual term is one which reasonable, informed contracting parties would have included, provided that the licence fee used as a reference does not include such interest.
54 Consequently, the answer to Questions 2 and 3 is that the concept of ‘reasonable compensation’, provided for in Article 94(1) of Regulation No 2100/94, must be interpreted as meaning that it covers, in addition to the fee that would normally be payable for licensed production, all damage that is closely connected to the failure to pay that fee, which may include, inter alia, payment of default interest. It is for the referring court to determine the circumstances which require that fee to be increased, bearing in mind that each of them may be taken into account only once for the purpose of determining the amount of reasonable compensation. . . .
Third, as for the "further damage" referred to in article 94(2), the main issue is whether this may include "legal costs incurred in interlocutory proceedings as well as . . . out-of-court expenses" (para 55). According to the court, to obtain damages under article 94(2) the plaintiff "must produce evidence which establishes that his damage goes beyond the matters covered by the reasonable compensation provided for in Article 94(1)" (para. 56). The court concludes that "default interest at the usual rate may be applied to the amount of the compensation for damage if that appears justified" (para. 59), and that consistent with the Enforcement Directive "the costs incurred by the successful party are, in principle, to be borne by the unsuccessful party" (para. 60). Nevertheless, this plaintiff isn't going to recover these expenses:
64 The answer to questions 4, 5(a) and (c), 7 and 8 is that Article 94(2) of Regulation No 2100/94 must be interpreted as meaning that the amount of the damage referred to in that provision must be determined on the basis of the specific matters put forward in that regard by the holder of the variety infringed, if need be using a lump-sum method if those matters are not quantifiable. It is not contrary to that provision if the costs incurred in an unsuccessful interlocutory application are left out of account in the determination of that damage or if the out-of-court expenses incurred in connection with the main action are not taken into consideration. However, a condition for not taking those expenses into account is that the amount of the legal costs that are likely to be awarded to the victim of the infringement is not such, in view of the sums he has incurred in respect of out-of-court expenses and their utility in the main action for damages, as to deter him from bringing legal proceedings in order to enforce his rights.
As a matter of policy, I think it would make sense to award damages corresponding to some of the costs or risks that a licensee incurs, such as forfeiting any license fees already paid to the IP owner if the IP right is subsequently invalidated, but which the infringer avoids. My understanding is that in patent cases courts in France and Germany sometimes though not invariably do increase reasonable royalties to take such matters into account (see my book pp. 269-70; see also here). But perhaps the wording of Article 94 of the Community Plant Variety Rights Regulation precludes such awards in the present context. I also wonder whether litigants will cite the CJEU's statement that "compensation . . . must reflect, as accurately as possible, the actual and certain damage suffered" (para. 35; see also para. 59) in future cases. Surely the court doesn't literally mean "as accurately as possible." As I've written about elsewhere, including my paper on Patent Damages Heuristics, in my view there's often a tradeoff between accuracy and cost, and more accuracy isn't really always desirable. At some point the marginal benefit from investing in generating ever-more accurate awards doesn't justify the marginal cost.