Monday, February 12, 2018

Damages and Profits?

David Brodsky has posted an article on ssrn titled General Damages and an Account of Profits ‒ An Irish Innovation?, JIPLP (forthcoming 2018).  Here is a link, and here is the article:
This article considers the ‘orthodox’ rule requiring an election between damages or an account of profits in light of a recent Irish court decision that would appear to open the door for the granting of both remedies.
Following a brief review of the background and historical development of the ‘orthodox’ view, the specific judicial arguments underlying the decision are presented. The crux of the judge's reasoning centred on the distinction between special and general damages. Interpreting these terms in the manner set forth by the Irish Supreme Court for trade mark/passing off cases, the judge concluded that the ‘rule’ requiring a plaintiff to make an election between the two remedies refers to an election between special damages and an account of profits, so that nothing precludes a plaintiff from making a claim for general damages and an account of profits.
The article shows that the legal and economic logic underlying the judgment is not easily refuted. Moreover, at least in certain situations the ‘orthodox’ position can be seen to send a clear, albeit unintended, signal to potential infringers that they need not worry unduly about the quality of their workmanship, or tarnishing the victim's trade mark or reputation.  
The basic idea is that an award of the infringer's profit substitutes for "special" damages (lost profits, that is, profits actually lost on sales that would have been made but for the infringement) but not for "general" damages (injury to goodwill or reputation, which the author views as, in economic terms, encompassing more of a future harm yet to be suffered), and thus that there is no discrepancy between granting an award of infringer's profits and an award of general damages.  The author notes, however, that the infringer's profits could be greater or less than the plaintiff's lost profits, and that the plaintiff typically will seek whichever form of relief offers a higher payout.  So I would be concerned that an award of infringer's profits coupled with general damages for harm to reputation would result in overcompensation and, potentially, overdeterrence.  Of course, if there is reason to think that compensatory damages won't provide sufficient deterrence in a given type of case, there may be good economic reasons to award enhanced damages or, if that option isn't available in a particular country, an award of the infringer's profits instead.  But I'd still be wary about adding general damages on top of that; I don't see why an award of infringer's profits should be viewed as compensatory damages at all, though I recognize that courts in some countries (e.g., Japan) do continue to invoke that premise.

To be sure, the situation the author describes may not come up much in patent, as opposed to trademark, cases.  (He notes as well that in the case he's discussing, the judgment was later reversed on liability, so Justice Cregan's statements about damages are dicta.  Here's a link to Justice Cragen's opinion, by the way, in case you're interested.)  But there may be cases in which patent owners can make a reasonable case that the infringement has injured their reputation or caused some other less tangible harm.  See, e.g., Ronen Avraham's recent article arguing for pain-and-suffering damages in patent cases (a view I don't particularly share, however), which I mentioned here , and some of my previous posts on damages for "moral prejudice" in patent law (see, e.g., here and here).  So the issue Mr. Brodsky discusses could in theory come up in a patent case too, and if so it will be interesting to see if other courts find the Irish judge's reasoning persuasive.

For a discussion of a recent Canadian case holding (not surprisingly) that the defendant cannot elect between damages and an accounting of profits, see Norman Siebrasse's Friday post on Sufficient Description.

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