Wednesday, December 11, 2013

Article by Meier-Beck on Infringement Damages Under German Law

Dr. Peter Meier-Beck is the presiding judge of the Xth Senate of the German Federal Supreme Court (Bundesgerichtshof, or BGH).  He also has authored several articles on patent law and remedies, including a few that I cite in my book.  A couple of days ago I came across a translation in French of a 2012 article he published in the German law journal Wettbewerb in Recht und Praxis (WRP), pages 503-08, titled Schadenskompensation bei der Verletzung gewerblicher Schutzrechte nach dem Durchsetzungsgesetz ("Damages for the Infringement of Industrial Property Rights after the Enforcement Directive").  The French translation is by the esteemed French patent litigation firm Véron et Associés and appears in the November 2013 issue of the French IP journal Propriété Industrielle, under the title Allemagne:  les dommages-intérêts pour contrefaçon des droits de propriétê industrielle après la loi sur l’amélioration du respect des droits de propriété intellectuelle.  (This morning my research assistant in Munich sent me a copy of the original German version; so far, however, I've read the French translation and only had time to take a quick look at the German original.  If I decide that anything herein needs to be further clarified or amplified after I'd read the German original more carefully, I'll add an update.)  Dr. Meier-Beck's thesis is that the traditional three methods for awarding damages under German law--lost profits, a reasonable royalty, and an accounting of the infringer's profits--should, at least after the 2004 E.C. Enforcement Directive, all be interpreted as intended to provide just compensation to the IP owner.  For this reason, all three should in principle converge.  The BGH's 2000 opinion in Gemeinkostenanteil, which held that in awarding the infringer's profits the court should deduct only variable costs and not a portion of fixed costs, is in Dr. Meier-Beck's view, consistent with this principle.

In September I blogged on article by Adrian Kleinheyer and Henning Hartwig, titled titled Kausalitätsabschlag und Kontrollüberlegung beim Verletzergewinn:  Zugleich Besprechung von BGH, Urt. v. 24.7.2012-X ZR 51/11-Flaschenträger, published in issue 7 of the 2013 volume of GRUR.  I noted there that these two authors took issue with the BGH's statement in the Flaschenträger case that "Since the various methods of estimating the damages payable serve to compensate one and the same damage sustained by the patent proprietor owing to the infringements committed, as a rule, based on their underlying principle, these methods should essentially have similar results even where divergences are inevitable owing to the different parameters underlying each individual calculation" (citing Klaus-J. Melullis, Zur Ermittlung und zum Ausgleich des Schadens bei Patentverletzungen, GRUR 2008, 679 (684)).  I side with Kleinmeyer and Hartwig; at least as an economic matter, the convergence principle doesn't make sense to me.  To be sure, if I understand him correctly, Dr. Meier-Beck recognizes that it is a fallacy to assume that the infringer's profit is the same as the amount the IP owner would have earned, but for the infringement.  He argues instead that economic considerations are not always paramount, and that damages are a matter of providing "just reparation"; it would be unjust, in his view, to allow the infringer to retain any of the benefits of infringement.  (He draws a distinction between the harm suffered by the rightholder, and the amount due for the reparation of this harm.)  Correctly applied, the three methods essentially should lead to consistent results.  (The French translation states that "Correctement appliquées, les différentes méthodes doivent donc également mener à des résultats concordants (pour l'essentiel)."  The German original reads "Sachgerecht angewandt müssen daher die unterschiedlichen Methoden auch zu (im Wesentlichen) übereinstimmenden Ergebnissen führen.")  With this perspective in mind, courts should restrain themselves from awarding excessive judgments based on the infringer's profits, but at the same time should recognize that an award of reasonable royalties may be twice the amount that would commonly be agreed upon in an arm's-length transaction.

I'm still not convinced that it is a good idea to depart from economic substance and award damages based on more nebulous concerns about "just reparation."  Moreover, I think that reasonable royalties, lost profits, and infringers' profits all serve somewhat different purposes that depend on the economic facts of a given case, as I explain in my book.   Lost profits are appropriate when the IP owner's interest lies in exclusion, rather than licensing; reasonable royalties make the most sense when the infringer is a more efficient user of the invention, such that exclusion wasn't in the IP owner's interest, but licensing would have been; and awards of profits, if justified at all, are best rationalized as a means for deterring infringement.  On the other hand, I recognize that parties who in theory might seem to deserve a lost profits award might not be able to satisfy proof standards, or might prefer to keep their financial information secret (as Dr. Meier-Beck notes); and that royalties can be thought of as either restitutionary or compensatory.  Finally, there is always going to be an element of uncertainty in awarding damages, particularly in systems in which discovery is more limited than in the U.S.  Nonetheless, I think that conceiving the three methods as converging is not the right perspective on what, in my view, should be principally an economic matter.

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