Disgorgement of Infringer's Profits in Germany

As I mentioned last week, an article by Tobias Wuttke titled Aktuelles aus dem Bereich der „Patent Litigation‟: Überblick über aktuelle instanzgerichtliche Rechtsprechung ("News in the Area of Patent Litigation:  Overview of Recent Lower Court Decisions”) and published in the February 2017 issue of Mitteilungen der deutschen Patentanwälten discusses, among other topics, a decision of the Düsseldorf Court of Appeals (Case No. I-15 U 34/14, June 3, 2015) that elaborates on the disgorgement remedy under German law.   As Dr. Wuttke observes, the formula for awarding the infringer's profits can be summarized as ((Turnover - Costs) x Causal Portion).  The burden of production and proof lies with the defendant.  As for costs, under German law the defendant generally is entitled to subtract only the variable costs of production, and not an allocable portion of its fixed costs.  (See discussion in my book at pp. 271-73.)  A good portion of the judgment  in the above case therefore is devoted to determining which of the defendant's costs were properly deductible.  Another major portion of the opinion, which Dr. Wuttke focuses on, discusses the factors that are relevant to determining the portion of the profits that are properly attributable to the infringed patent.   With regard to this issue, the court holds, it is irrelevant whether the infringement was negligent, grossly negligent, or intentional (para. 457).  Instead, the fundamental factor is the difference between the protected invention and the market-relevant state of the art (para. 286).  Thus, where alternatives to the patent were on the market, or the defendant could have designed around the patent, the portion of the profit attributable to the infringed patent is likely to be comparatively smaller.  (I thought this was an interesting point, since as I discuss in my book German courts, like those in the U.K., often "haven't warmed to the objection that the infringer could have earned the same profit from selling a non-infringing alternative" (p.273 & n.202). Nevertheless, if I'm understanding matters correctly, they are open to the possibility that the existence of noninfringing alternatives may show that the patented feature didn't play a big role in attracting customers to buy the defendant's product, where such alternatives were actually available on the market.)  Also relevant is whether the defendant's lower price was attributable more to the patented technology or to its own efforts, and the extent to which other patented features, whether they are in suit or not, may have influenced consumer demand.   

On the facts of the case, the appellate court concluded that the plaintiff was entitled to 15% of the defendant's profit on sales of infringing products over the relevant time period, amounting to €344,866.57.  In addition, the court affirmed the lower court's award of €52,591.59 in royalties for the time period in between publication of the patent application and grant, applying the same general methodology that would be used for calculating a postgrant royalty.