Thursday, April 12, 2018

French Court of Appeals Awards Triple the Contractual Royalty Rate as Damages

The case is Vorwerk & Co. Interholding GmbH v. Electrodomesticos Taurus SL, Cour d'appel de Paris, June 27, 2017, PIBD 1080, 679 (so yes, I am a little late to be blogging about it, but so go it goes).  In 2015 I blogged about the decision of the court of first instance here, and as I explained at the time:
The patent in suit is EP 0757530, titled Robot ménager comportant un bac á agitation et un mécanisme d'entrainement de l'agitateur du bac (a food processor comprising an agitator vessel and a mechanism for operating the agitator).  If I am understanding this correctly, the inventive feature in suit appears to be something called a chapeau de cuisson á la vapeur, which I would translate as "steaming cap."  Plaintiff Vorwerk sued defendant Taurus for selling allegedly infringing food processors.  In earlier proceedings the court held that the patent was infringed, and this judgment was affirmed. . . .
Vorwerk itself did not practice the patent but rather licensed some affiliated firms to do so.  Vorwerk asserted as its damages its lost profit (manque á gagner), based on the royalties it would have earned from Taurus and Taurus's distributors if they had concluded a license.  Again if I am understanding correctly, Taurus argued that Vorwerk's failure to work the patent meant that Vorwerk was not entitled to recover any damages, but the court disagreed and concluded that the injury suffered by the patent owner would be, at a minimum, equal to the royalties it would have received but for the infringement.
As for the amount, the court appointed an expert who first determined the infringing turnover (la masse contrefaisante).  The expert determined that this should include (1) sales of a model called Mycook that included the steaming cap, and (2) sales of a model called Mycook Pro that did not include the cap, but for which the cap was separately purchased as an accessory.  Altogether this equaled €4,245,557.  The court accepted the expert's analysis.
Next, to calculate the royalty rate the expert first calculated the infringer’s profit margin as 9.6%. Vorwerk argued that the expert deducted some fixed costs that were not tied to the manufacture of the infringing goods, and that the profit margin was actually 22%, but again the court affirmed the expert’s calculation.  Next, the expert multiplied 9.6% by 25%, a step the court refers to in the opinion as “une clé de repartition couramment admise en matière de license de brevet” (a sharing method commonly used in patent licenses)--basically, what sounds like a "rule of thumb" to me.  Next, the expert cut this figure in half based on his conclusion that the patented invention did not play a key role in the sale of the defendant's products, and then rounded this up to 1.5%.  Finally, the expert suggested that the court could multiply the 1.5% rate by 1, 2, or 3.  Taurus for its part argued that the royalty base should be reduced to the average price of the steaming cap times the number of infringing devices, and that any enhancement would be punitive in nature.  The court disagreed, specifically stating as to the latter issue the following (in my translation):
It is appropriate to apply the principle of enhancing the contractual royalty rate, because doing so takes into account the damaging situation in which the rightholder finds itself, who suffers the exploitation of the invention without any decision on its part.  It would be, in such a case, unjust to apply purely and simply a royalty rate equal to that which the parties would have consented to had they negotiated a license.
(For further discussion of royalty multipliers in France, see my book p.270 & n.187). Multiplying the masse contrefaisante as calculated by the expert (€4,245,557) by 3%, the court therefore awarded €127,367 in lost royalties.
On appeal, the Cour d'appel multiplies the "contractual rate" (1.5%) by 3 rather than 2, resulting in a royalty rate of 4.5% and an award of €191,051, reasoning that the lower court did not adequately evaluate the prejudice suffered by the plaintiff:
Considering that the act of awarding a higher compensatory royalty rate does not constitute a punitive award, contrary to the principal according to which compensation should only restore the harm suffered by the injured party,
and that in effect the principle of increasing the contractual  rate  takes into account the disadvantageous circumstance in which the patent holder, who suffered the exploitation of its invention, the subject matter of its patent, without any decision on its part, indeed unwillingly, finds itself, which has allowed, among other consequences, the possibility of a competitor penetrating what was at the time a rather narrow market for multifunction food processors;
Considering however that the first judges made an insufficient evaluation of the harm suffered by VORWERK in choosing only to double the rate, among the three proposals put forward by the expert;
That in effect having regard for the economic importance of this market and, in view of the consequences, to the harm suffered by VORWERK as a result of the infringing acts, it is fitting to impose a multiple of 3, such as proposed by the expert . . . .
I wonder how common it is for French appellate courts simply to substitute their own view of the appropriate royalty rate for that of the court of first instance?

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