Thursday, May 3, 2018

Damages for Extraterritorial Harms in Germany and the U.S.

This past semester I taught my International Intellectual Property course, using Paul Goldstein & Martina Trimble's casebook.  The way I teach the course, most of the semester is devoted to comparative IP law, the major international IP treaties, and their implementation in the U.S. and elsewhere.  During the last week of the semester, however, we cover some topics relating to the litigation of international IP disputes, and although I've used the Goldstein/Trimble casebook for a while now this was the first time my attention fixed on a case they cite in a note early in the book, Schmid Bros. v. Genossenschaft der Franziskanerinnen von Siessen e.V. (Hummel Christmas 1971 Plate), I ZR 110/74, Dec. 19, 1975, English language translation published in 8 IIC 276 (1977).  The case addresses the question of whether a German court can grant, for an act of copyright infringement occurring in Germany, a monetary award for conduct that is causally linked to the domestic infringement but which is realized in another country.  More specifically, Schmid filed an action in Germany for a declaratory judgment that it was authorized to make "Hummel" plates in Germany and export them to the U.S.  The defendant association counterclaimed for infringement, arguing that it, not Schmid, owned the exclusive right to the copyrighted pictorial work; that it had licensed that right to a third party, Goebel; and that, but for the unlawful competition resulting from the infringement, Goebel would have earned additional revenue and paid additional royalties to the association.  The Court of Appeals held that the defendant association was indeed the holder of the German copyright, and this conclusion was no longer in dispute by the time the matter made its way to the Federal Supreme Court.  On the issue of extraterritoriality and monetary relief, however, the Federal Supreme Court held as follows (pp. 277, 280):
. . . From this territorial limitation of the copyright (and consequently also of the exploitation rights derived from this basic right) it follows that the alleged infringing acts in the Federal Republic of Germany - i.e. the manufacture of reproductions of the work by Berta Hummel "Angel with Candle" in the form of wall plates showing this motif - can only infringe upon the copyright granted by  German law. Respondent's counterclaim is based exclusively on such violation of the German
copyright. . . . 
Nor could any objections be raised as a matter of law against the decision of the Court of Appeals that plaintiff's accounting on the distribution of wall plates manufactured in the Federal Republic of Germany is to be without any territorial limitations since defendants's royalty receipts payable by Goebel have been reduced through plaintiff's distribution abroad (reference omitted). There was thus no error of law when the Court of Appeals extended plaintiff's obligation to account to such information on distribution activities abroad, which will enable defendant to calculate the damage it suffered. Such data include amounts shipped and sales proceeds (BGH, 1974 GRUR 53, 54 - Nebelscheinwerfer) as well as - in order to permit the accounts to be checked - shipment dates and customers' names and addresses (BGH, 1963 GRUR 640, 642 - Plastikkorb; 1958 GRUR 346, 348 - Spitzenmuster; 1958 GRUR 288, 290- Dia-Riihmchen I).
If I (and Goldstein and Trimble) are reading this right, then, under German copyright law the loss of royalties suffered by a German copyright owner as a result of a domestic act of copyright infringement may include royalties that would have accrued to it from sales made by the licensee outside Germany.  As Goldstein and Trimble point out, this would put Germany in the same camp as the U.S. as far as copyright damages are concerned.  One might, therefore, also expect Germany to follow the same rule with regard to patents, as some Canadian decisions have done and as the U.S. may be poised to do following the oral argument a couple of weeks ago in WesternGeco (see discussion here)--though I don't know of any cases on point (though if any of my readers do, I'd be eager to see them).

A couple of sidenotes:  First, the Hummel decision mentions a parallel lawsuit asserted by Goebel against Schmid in the U.S., involving infringement of the U.S. copyright interest in the same pictorial work.  It would be interesting to know, if and when damages were assessed in the U.S. and Germany, the courts took into account the damages awarded or recoverable in the other (as I believe they should to avoid duplicative judgments, see here).  

Second, the material preceding the casebook note referred to above is an excerpt from an article by Professor Curtis Bradley titled Territorial Intellectual Property Rights in an Age of Globalism, 37 Va. J. Int'l L. 505 (1997), which states that "The Federal Circuit has indicated (without much explanation) that, so long as the defendant infringes the patent in the Untied States (for example by making the patented invention here), then the recoverable damages may include the profits received by the defendant from foreign sales of the invention" (emphasis in original, and citing Schneider (Europe) AG v. SciMed Life Sys., 39 U.S.P.Q.2d (BNA) 1596, 1598 (Fed. Cir. 1995) (per curiam), and Datascope Corp. v. SMEC, Inc., 879 F.2d 820, 826-27 (Fed. Cir. 1989)).  If I had ever read these cases in the past, I had forgotten about them, but I see now that at least one amicus in the WesternGeco litigation (the New York Intellectual Property Law Association) cites both of these cases in its brief (as well as a couple of others, Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649 (Fed. Cir. 1985), and R.R. Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed. Cir. 1984)) as support for its argument that "A per se bar to recovery of foreign lost profits proximately caused by domestic patent infringement is a departure from this Court's and the Federal Circuit's own precedent."  Judge Wallach also cited Stucki in his dissenting opinions in WesternGeco, though judge Taranto partially distinguished Stucki in Carnegie-Mellon Univ. v. Marvell Tech. Group, 807 F.3d 1283, 1306 (Fed. Cir. 2015):
For the present context, we think that § 271(a) provides the basis for drawing the needed line. It states a clear definition of what conduct Congress intended to reach—making or using or selling in the United States or importing into the United States, even if one or more of those activities also occur abroad. . . . Where a physical product is being employed to measure damages for the infringing use of patented methods, we conclude, territoriality is satisfied when and only when any one of those domestic actions for that unit (e.g., sale) is proved to be present, even if others of the listed activities for that unit (e.g., making, using) take place abroad. Significantly, once one extends the extraterritoriality principle to confining how damages are calculated, it makes no sense to insist that the action respecting the product being used for measurement itself be an infringing action. Thus, here the claim is a method claim, but the damages-measuring product practices the method in its normal intended use, cf. Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 128 S.Ct. 2109, 170 L.Ed.2d 996 (2008) (applying exhaustion to sale of unit that sufficiently embodies a method claim); and the hypothetical negotiation would have employed the number of units sold to measure the value of the method's domestic use (before production and after), as discussed above. In these circumstances, the inquiry is whether any of the § 271(a)-listed activities with respect to that product occur domestically.
This approach accords with precedent. In Goulds' Manufacturing Co. v. Cowing, 105 U.S. 253, 26 L.Ed. 987 (1881), the Supreme Court approved an award, based on an accounting of the defendant's profits, reaching units made in the United States though some were to be used only abroad. Id. at 256. In Railroad Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed.Cir.1984), this court held that a royalty award could reach units made in the United States—valued at their sale price—regardless of whether they were sold abroad. Id. at 1519. On the other hand, in Power Integrations, we rejected a claim to lost-profits damages based on the defendant's “entirely extraterritorial production, use, or sale of an invention patented in the United States,” pointing to § 271(a). 711 F.3d at 1371–72; see also WesternGeco, 791 F.3d at 1348–52 (rejecting foreign use as basis for lost-profits damages).
As I stated a few weeks back, my view is that the court should award all damages proximately caused by an act of domestic infringement, subject to a duty to avoid duplicative recoveries.  I think the Supreme Court will adopt such a rule, but we'll see what happens.

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