Thursday, May 10, 2018

French Court of Appeals Reduces Damages for Infringement of Patented Bike Helmet Device

The decision is Time Sport International SAS v. D-H-G Knauer GmbH, Decathlon France SAS et Decathlon SA, Cour d'appel de Paris, Sept. 2, 2017, PIBD 1081, III-716.  In October 2016 I blogged the district court decision in this case, to wit:
The EPLaw Blog recently published a post about a recent French case on damages, Time Sport International v. Decathlon and D-H-G Knauer, No. 10/05487, Tribunal de la grande instance de Paris (June 1, 2016), with thanks to Pierre Véron of, Véron & Associés (who also provide copies of the original decision and an English-language translation).   I won't repeat more than is necessary of the facts--readers can refer to the EPLaw post and to the decision itself--but I will make a few comments on the damages award.
Plaintiff Time Sport owns a European patent on a “Device for retaining a helmet on the occiput.”  Defendant Knauer made bike helmets that were found to be infringing, and defendant Decathlon sold them in its stores.  Time Sport prevailed on liability, and in June 2016 the TGI Paris issued an opinion awarding Time Sport  €1,524,036.04.  The award consists of two components:  first, for acts of infringement occurring from April 2 to October 29, 2007; and second for acts occurring from October 29, 2007 to September 8, 2012.  This distinction arises because October 29, 2007, is the date on which a revised version of article 615-7 of the French IP Code went into effect.  (The amendment was made to conform to the EC Enforcement Directive.  Article 615-7 has been further amended since then, effective March 13, 2014, see here, but that most recent amendment is not relevant to this case.)  Prior to that date, French courts didn't take the defendant's profits into account in awarding damages.  Afterwards, they may, according to the version of article 615-7 applicable here, which in relevant part read "“To set damages, the court takes into account the negative economic consequences, including the loss of profit suffered by the injured party, the benefits made by the infringer and the moral prejudice caused to the right-holder because of the infringement."  
For the acts of infringement occurring during the earlier of the two periods, the court rejected Time Sport's request for lost profits on sales of helmets it might have sold during that time.  Time Sport actually hadn't made or sold any helmets for quite some time, and the court concluded that Time Sport hadn't established a sufficient relationship between the infringement and Time Sport's decision not to resume production.  Time Sport therefore was entitled only to a reasonable royalty, which the court calculated at 8% of Knauer's turnover from April 1-October 31, 2007.  The court rejected use of the defendants' proposed comparables, for which the royalty rates were lower, because it thought they weren't comparable enough (see p.13).  There's no explanation in the judgment itself, however, of why 8% is the correct royalty figure, other than the fact that it's a higher rate than the rates in the rejected comparables, and the court's statement that the invention was "relevant":
When it decided to sell its products to large stores specialised in sporting goods and obtained their listing from DECATHLON, TIME SPORT sold 3,250 helmets equipped with the patented device in France and exported 3,180 thereof, and became the victim of acts of infringement as of 1996. These elements are evidence of the relevance of the invention - elements to be considered to assess the royalty rate - which persisted in 2008 even if, as DECATHLON claims, other devices of occipital adjustment were used" (p.13).  
How that translates into an 8% rate, though, is not stated.
For the acts occurring during the later period, the court awarded 20% of both defendants' gross profit margin.  In reaching this result, the court concluded that the fact that plaintiff wasn't making any products didn't disqualify it from recovering a profit-based award.  On the other hand, the plaintiff wasn't entitled to more than 20%.  According to the court:
With regard to the provisions of the aforementioned Article L. 615-7 in its version then in force, the compensation of the damage suffered must therefore be determined by reference to the profits made by each of the defendants, but without, however, ignoring TIME SPORT's situation on the date of the acts at issue, namely its production capacity, its experience and technical know-how, the investments necessary to the direct exploitation of the patent and the results that it could have expected. . . .Given TIME SPORT's particular situation at the time of the litigious acts, in that it had stopped exploiting its patent since 2000 after facing previous acts of infringement, and was experiencing great financial difficulties leading it at the end of 2008 to postpone its plan for resuming the helmet manufacturing activity, its damage can be estimated at 20% of the profits made by each of the infringers - this percentage also takes into account the method of calculation based on the gross margin - that is:
-€4,992,290 excluding taxes x 20% = €998,458 in respect of DECATHLON FRANCE's profits;
-€1,754,483 excluding taxes x 20% = €350,896.6 in respect of KNAUER GmbH's profits (pp. 14-16).
Maybe I'm just missing something, but I don't see where this 20% rate comes from either.  Is it just the rate the court thinks is fair, based on the totality of the circumstances?  It's also interesting, in my view, that the court refers to the award as "compensation" (in the original French, la réparation de l'atteinte subie), not as restitution or disgorgement, and yet I don't see what the basis is for concluding that the plaintiff's loss was 20% of the defendants' profit.  Finally, as indicated above, for the later period the plaintiff is awarded 20% of both the manufacturer's and the retailer's profit, but for the earlier period it's 8% of the manufacturer's profit only because Decathlon "would have . . . included in its purchase price the cost of the royalty paid to the right-holder" (p.13).
The court further awards €50,000 for moral prejudice (a type of award that is common in French patent infringement cases, see discussion here) and €60,000 in costs under article 700 of the Civil Procedure Code (for discussion, see here). 
On appeal, the Cour d'appel concludes, first, that the correct royalty rate for the pre-2007 infringement is 6%, not 8%, reasoning that:
. . . the product at issue falls into the domain of recreation, and in part children's recreation; if such products have undergone an important development, then products relating to this field, including helmets, may find themselves subject to strong competition; as a result of all these considerations, the court fixes at 6% the amount of the royalty, taking into account eh increase in respect to a royalty that would have been freely negotiated between the parties (p.718, my translation).
Multiplying 6% by each defendant's turnover for the period April 2-October 31, 2007, the court arrives at a royalty of  €100,173.18 against the retailer Decathlon (based on turnover of €2,146,568 for all of 2007, reduced to  €1,669,553 for the period through November 1, multiplied by 6% =  €100,173.18), and €42,451.02 against the wholesaler Knauer (based on turnover of €1,039,523, reduced to €808,518 for the period in question, multiplied by 6 % . . . except that would give us €48,511.08, so I'm not sure why the figure awarded is €6,000 less).  Note, however, that while the rate is lower, the court awarded damages against both Knauer and Decathlon, whereas the previous award based on an 8% royalty was against both parties jointly, and amounted to only €64,681.44 , so with regard to the pre-November 1, 2007 damages, Time Sport actually winds up ahead with aggregate damages in the amount of €142,624.20.  The court reasons that both parties are infringers, even though the products at issue are exactly the same.

Second, as for the November 1, 2007-September 8, 2012 damages, the court recognizes that article 615-7 requires courts to consider the infringer's benefit in determining the damages to which the plaintiff is entitled.  Here, however, taking into account (1) the fact that Time's plans to re-enter the relevant market probably wouldn't have come to fruition, even if the defendants hadn't engaged in their acts of infringement, (2) the defendants' net profits after making adjustments for likely variable costs, (3) the fact that the infringing feature was only part of the entire end product, and (4) the defendants' differing roles with respect to the infringing products (wholesaler and retailer), the court reduces the award granted by the trial court (which, as noted above,was 20% of each defendant's gross profit margin).  The Cour d'appel instead awards, as against Decathlon, a reasonable royalty of 6% of its turnover (€11,639,925) which comes to €698,395.50 (which the court then rounds up to €700,000).  With regard to Knauer, however, if I am understanding this correctly the court takes Decathlon's turnover for the period of November 1-December 31, 2007 (€2,146,568 minus €1,669,553 = €477,015) and multiplies it by 6% to get  €28,620.90, apparently on the ground that this better reflects the benefit accruing to Knauer for its acts of infringement post-October 2007.  Maybe it's just a matter of French not being my native language, but I'm not understanding why the court uses this methodology to determine the award due from Knauer.  Anyway, for the post-October 2007 damages, the aggregate award goes down €1,349,354 to €728,621.  On balance, then, with the pre-November 2007 award going up from €64,681.44 to €142,624.20, Time Sport's total award for economic injury diminishes by €542,790.

Anyway, the important thing to note is that the court isn't awarding the entire, or even the apportionable, profit earned from the sales of the infringing product, but rather is only taking into account the benefit the defendants earned from the infringement in coming up with a compensatory damages award.  (The question of what, exactly, the relevant language of article 615-7 following its 2007 and 2014 amendments requires French courts to do in this regard--award the infringer's profits, or only consider those profits in crafting a compensatory award--is one that I've blogged about before, see, e.g., here.) 

The court also reverses the award for moral prejudice, reasoning that, despite Time Sport's argument that the infringement caused injury to its reputation as an innovator and to it image, and dashed its hopes for commercializing its patented invention, its entire injury was economic in nature (p.719).  Finally, the court reduces the award for costs from €60,000 to €10,000 (p.720).

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