Wednesday, April 9, 2014

A recent German case on reasonable royalties: Foliendruckverfahren

A couple of weeks ago in my post on reasonable royalties in the U.K. I also mentioned a German case, OLG Karlsruhe, Judgment of Aug. 5, 2013, 6 U 114/12--Foliendruckverfahren, that was reported in a recent issue of GRUR-RR and is also available from, here.  I thought it would be worthwhile to say a few words about the Karlsruhe Court of Appeals' analysis of reasonable royalties under German law.

The patent in suit is the German portion of EP 0578706 B1 for a film printing process and film transfer machine.  The patentee had granted an exclusive license to a company identified as "M." (German cases do not publish the names of the parties).  M. sued the defendant for infringement, based on the defendant's distribution of two printing machines that were alleged to infringe.  In an earlier proceeding, the trial court concluded that the machines infringed, which then set the stage for a trial on damages.  The exclusive licensee thereafter transferred its right to recover damages for the infringement back to the patentee, who pursued the claim for damages accruing to the licensee and to itself (based on the licensee's contractual obligation to pay the patentee 25% of any damages awarded).  The patentee could then sue for the entire damage accruing to both parties.  The patentee claimed that the amount of damages was at least 50,000 euros per device, because this was the price the exclusive licensee agreed to pay for any machines it made pursuant to the license.  The trial court agreed, and the defendant appealed.

In its opinion, the Court of Appeals recited the various factors and considerations that go into determining the amount of a reasonable royalty.  The goal is to award the amount that reasonable parties would have agreed to at the conclusion of a licensing agreement, if they had foreseen the future development and scope of the infringement (para. 68).  The court should consider the economic meaning of the protected right, which expresses itself in a profit opportunity and by which is determined the remuneration to be attained in the market.  Relevant factors include the technical advantages of the invention in comparison with the same or similar articles, the possible monopoly position of the IP owner, the possibility that purchasers would be able conveniently and efficiently to substitute for the infringing device, and whether or to what extent suitable and (from the perspective of the license taker) economically reasonable alternatives were available (para. 76).     

Here, one of the most important pieces of evidence was a 2010 sublicense agreement between the exclusive licensee and a company identified as KBA.  This agreement had been entered into in settlement of infringement litigation against one of KBA's customers, and allowed the continued use of the infringing machine.  The defendant argued that the settlement was not good evidence of what reasonable parties would have agreed to ex ante--an issue that also frequently comes up in U.S. litigation--but the Court of Appeals disagreed, stating that KBA is one of the major competitors of the licensee and the defendant, and that it is not plausible that it would have bound itself to pay an unreasonable royalty for the future use of the technology (para. 73).  Under this agreement, the royalty was 90,000 euros, which was ultimately the amount awarded for each of the defendant's infringing machines.  The court rejected the defendant's argument that this price, was allegedly amounted to somewhere between 25 and 50% of the value of the infringing component, was excessive, noting that the component is usually sold as a part of a complete machine; that buyers and sellers often use the value of the complete machine as a royalty base; and that, using the value of a complete machine as the royalty base, the rate was somewhere between 2 and 5% (para. 114). 

The court also awarded interest of 20,000 euros, based on the fact that an actual licensee who failed to pay its royalty on a timely basis would have been required, under the contract, to pay interest in at least this amount (paras. 115-17).

Towards the end of the opinion the court noted the general principle that the infringer ought not to be made either better off or worse off than a bona fide licensee (para. 118).  As I discuss in my book (pp. 269-70), however, courts in Germany sometimes do award modest royalty enhancements on the ground that an infringer enjoys certain benefits that an actual licensee does not; and some commentators argue that courts should do so more frequently and/or generously.  The Court of Appeals reviewed the case law and the arguments for and against enhancements before concluding that, first, in this case there was no particular reason to think the defendant enjoyed any benefits over and above what an infringer usually enjoys, and that these benefits also come with some corresponding detriments; and second, that it didn't really matter, because (if I'm reading this correctly) an award of 90,000 euros per infringing device was all that the plaintiff requested in its complaint; recall the plaintiff had requested "at least 50,000 euros" per infringing device (paras. 118-20). 

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