CJEU Holds that Courts Can Award Double Damages

Here is a link to Wednesday's judgment of the Court of Justice for the European Union (CJEU) in Stowarzyszenie ‘Oławska Telewizja Kablowa’ v. Stowarzyszenie Filmowców Polskich, Case C-367/15.  (Hat tip to Dr. Eleonora Rosati for her report on the case yesterday on IPKat.)  I had previously mentioned the case on this blog (here), along with two others also raising questions relating to damages under the Enforcement Directive.  (For my write-ups on these other two cases, Hansson and Liffers, both of which were decided some months ago, see here and here.)  The present case involves alleged violations of the Polish Law on Copyright and Related Rights.  At issue is article 79(1) of the law, which read (notice the past tense) as follows:

A rightholder whose economic rights of copyright have been infringed may request the person who infringed those rights to . . .

(3)      remedy the loss caused:

(a)      on the basis of general principles, or

(b)      by payment of a sum of money corresponding to twice, or, in the event of a culpable infringement, three times, the amount of the appropriate fee which would have been due at the time it was sought if the rightholder had given permission for the work to be used . . . .

The Polish Supreme Court referred the following question to the CJEU:

Is Article 13 of Directive 2004/48 to be interpreted as meaning that the rightholder whose economic rights of copyright have been infringed may seek redress for the damage which it has incurred on the basis of general principles, or, without having to prove loss and the causal relationship between the event which infringed its rights and the loss, may seek payment of a sum of money corresponding to twice the amount of the appropriate fee, or, in the event of a culpable infringement, three times the amount of the appropriate fee, whereas Article 13 of Directive 2004/48 states that it is a judicial authority which must decide on damages by taking into account the factors listed in Article 13(1)(a), and only as an alternative in certain cases may set the damages as a lump sum, taking into consideration the elements listed in Article 13(1)(b) of that directive? Is the award, made at the request of a party, of damages as a predetermined lump sum corresponding to twice or three times the amount of the appropriate fee permissible pursuant to Article 13 of the directive, regard being had to the fact that recital 26 thereof states that it is not the aim of the directive to introduce punitive damages?

While the referral was pending, however, the Polish Constitutional Court held article 79(1)(3)(b) unconstitutional to the extent that it "permitted a person whose economic rights of copyright were infringed to claim, in the event of a culpable infringement, payment of a sum corresponding to three times the amount of the appropriate fee."  Thus:

As the decision of the Trybunał Konstytucyjny (Constitutional Court) has retroactive effect, the question referred for a preliminary ruling has become hypothetical and, therefore, inadmissible in so far as it relates to legislation that has been declared unconstitutional.

Since the referring court has nevertheless maintained its question, the question referred is, accordingly, to be understood as designed to establish whether Article 13 of Directive 2004/48 must be interpreted as precluding national legislation which provides for the possibility of demanding payment of a sum corresponding to twice the appropriate fee which would have been due if permission had been given for the work concerned to be used (‘the hypothetical royalty’) (paras. 19-20; emphasis added).

Noting among other things that "as the Court has already held, Directive 2004/48 lays down a minimum standard concerning the  enforcement of intellectual property rights and does not prevent the Member States from laying down measures that are more protective," the Court concludes that "Article 13(1)(b) of Directive 2004/48 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the holder of economic rights of copyright that have been infringed may require the person who has infringed those rights to compensate for the loss caused by payment of a sum corresponding to twice the amount of a hypothetical royalty" (arts. 23, 25).  Further:

26      That interpretation cannot be called into question by the fact, first, that compensation calculated on the basis of twice the amount of the hypothetical royalty is not precisely proportional to the loss actually suffered by the injured party. That characteristic is inherent in any lump-sum compensation, like that expressly provided for in Article 13(1)(b) of Directive 2004/48.

27      Nor, secondly, is that interpretation called into question by the fact that Directive 2004/48, as is apparent from recital 26, does not have the aim of introducing an obligation to provide for punitive damages.

28      Contrary to the view that the referring court appears to take, the fact that Directive 2004/48 does not entail an obligation on the Member States to provide for ‘punitive’ damages cannot be interpreted as a prohibition on introducing such a measure.

29      In addition, without there being any need to rule on whether or not the introduction of ‘punitive’ damages would be contrary to Article 13 of Directive 2004/48, it is not evident that the provision applicable in the main proceedings entails an obligation to pay such damages.

30      Thus, it should be pointed out that, where an intellectual property right has been infringed, mere payment of the hypothetical royalty is not capable of guaranteeing compensation in respect of all the loss actually suffered, given that payment of that royalty would not, in itself, ensure reimbursement of any costs — referred to in recital 26 of Directive 2004/48 — that are linked to researching and identifying possible acts of infringement, compensation for possible moral prejudice (see, in this latter respect, judgment of 17 March 2016, Liffers, C‑99/15, EU:C:2016:173, paragraph 26) or payment of interest on the sums due. Indeed, [defendant] OTK confirmed at the hearing that payment of twice the amount of the hypothetical royalty is equivalent in practice to compensation of an amount remaining below what the holder would be able to claim on the basis of ‘general principles’, within the meaning of Article 79(1)(3)(a) of the UPAPP. 

31      It is admittedly possible that, in exceptional cases, payment for a loss calculated on the basis of twice the amount of the hypothetical royalty will exceed the loss actually suffered so clearly and substantially that a claim to that effect could constitute an abuse of rights, prohibited by Article 3(2) of Directive 2004/48. It is apparent, however, from the Polish Government’s observations at the hearing that, under the legislation applicable in the main proceedings, a Polish court would not be bound in such a situation by the claim of the holder of the infringed right.

32      Thirdly and finally, as regards the argument that, inasmuch as the injured party could calculate the damages on the basis of twice the amount of the hypothetical royalty, he would no longer have to prove the causal link between the event giving rise to the copyright infringement and the loss suffered, it must be stated that that argument is based on an excessively strict interpretation of the concept of ‘causality’, under which the holder of the infringed right should establish a causal link between that event and not only the loss suffered but also its precise amount. Such an interpretation is irreconcilable with the very idea of setting damages as a lump sum and, therefore, with Article 13(1)(b) of Directive 2004/48, which permits that type of compensation.

33      In the light of the foregoing, the answer to the question referred is that Article 13 of Directive 2004/48 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which the holder of an intellectual property right that has been infringed may demand from the person who has infringed that right either compensation for the damage that he has suffered, taking account of all the appropriate aspects of the particular case, or, without him having to prove the actual loss, payment of a sum corresponding to twice the appropriate fee which would have been due if permission had been given for the work concerned to be used. 

I'm not sure I would interpret article 28 of the judgment, as Dr. Rosati does, as affirmatively implying that EU law does not prevent punitive damages, since the Court goes on to state in para. 29 that "without there being any need to rule on whether or not the introduction of ‘punitive’ damages would be contrary to Article 13 of Directive 2004/48, it is not evident that the provision applicable in the main proceedings entails an obligation to pay such damages."  Still, it may well be that punitive damages are permissible under the Directive, assuming they are "effective, proportionate, and dissuasive" (para. 21, quoting Directive article 3(2)).  As discussed here, for example, they're available (in theory, at least) for IP infringement in the U.K. (though how long the U.K. will remain in the E.U. is a bit up in the air right now, as discussed in this other post on IPKat).  But at any rate, double damages appear to be okay generally, at least in copyright matters, where (for instance) Germany too authorizes them (see my book p.275 & n.207).  But would the CJEU's reasoning as quoted above allow for double damages or punitive damages in patent cases, on the grounds that "mere payment of the hypothetical royalty is not capable of guaranteeing compensation in respect of all the loss actually suffered, given that payment of that royalty would not, in itself, ensure reimbursement of any costs . . . that are linked to researching and identifying possible acts of infringement, compensation for possible moral prejudice . . . or payment of interest on the sums due"?  Note too that this rationale for double damages is quite different from the U.S. Supreme Court's take on enhanced damages in patent cases in Halo v. Pulse, pp. 3-4, where the Court rejected the theory that enhanced damages serve in part to compensate for otherwise uncompensable losses.