Continuing my discussion from Wednesday of the Judgment of the Munich Regional Court of Apr. 16, 2026, 7 O8367/25, the second portion of the decision centers on issues relating to awards
of the infringer’s profits. The court
states that calculating the award involves three steps: determining the infringer’s revenue, deducting
the appropriately deductible costs, and determining the appropriate proportionality
factor (Anteilsfaktor) (para. 61).
As for the first of these, the patentee can rely on the amount the
infringer discloses pursuant to its disclosure obligation (Auskunftsverpflichtung)
(para. 63). In addition, the court says it
is fundamentally irrelevant whether the claim is for direct or (as here) indirect
infringement; in such a case, the revenues from all of the machines sold by the
defendant and assumed to have been used for the purpose of practicing the
patented technology are to be taken into account (para. 64). (More on this issue below.) Further, for sales made up to three months following
expiration of the patent (sometimes referred to in English as “springboard”
profits), the court believes that there should be a rebuttable presumption that
these sales were the product of infringing offers made during the patent term
(para. 65). Extrapolating from the BGH’s
decision in Polsterumarbeitungsmaschine (Judgment of Nov. 14, 2023, I ZR
30/21, discussed on this blog here), moreover, the patentee also is entitled to
recover profits earned from additional business (Zusatzgeschäften, a
term that in the context of patent law I would normally translate as “convoyed
goods,” but I hesitate to use that term here because this is a case involving
indirect rather than direct infringement), including goods that were sold after
patent expiration but which are traceable to infringing conduct during the patent
term (paras. 66-72). These effects presumably
dissipate over time, however, and so the court concludes that it is appropriate
to presumes that the portion of such sales decreases in a linear fashion over a
ten-year period—to wit, in the first year following patent expiration, the
monetary recovery can be assessed at 100%, in the second year 90%, and so on
(para. 72). The court next turns its
attention to deductible costs, which in general are the variable costs of
production only and not the fixed costs, in accordance with the BGH’s Gemeinkostenanteil
decision as I noted the other day (see paras. 73-88, going into some detail
about which costs typically should be classified as variable and which fixed). The court then turns its attention to causality
and the proportionality factor, stating that this inquiry involves two
steps: determining the appropriate base (Bezugsgröße)
and then the appropriate percentage of the profit to allocate to that base
(para. 89). Again it references the
brake pad example noted on Wednesday, stating that
To answer the question of the extent to which the
infringer’s profit is attributable to the infringement, the specific Bezugsgröße
of the infringing product must first be determined. For example, if the
infringed patent concerns a specific design of a brake pad for a motor vehicle,
the proportion factor will vary depending on whether the vehicle, the brake
system, or the brake pad is taken as the reference. The larger the Bezugsgröße
chosen, the lower the proportion factor to be applied. Another factor in
determining the Bezugsgröße is whether the patent protects a minor
improvement or a completely novel invention. It is also relevant whether
alternatives exist on the market and whether the product is emotionally charged
(e.g., a brand-name product), which is generally unlikely to be the case (para.
91).
Tying together the
proportionality factor and the presumption of springboard profits, the court
states that
. . . when determining the causality factor, it must
be noted that subsequent transactions concluded after the expiration of the
patent’s term are likely to be based less and less on the infringement of the
intellectual property right over the years (the “blurry factor”—derived from
the English term “blurry”: blurred). In
its Polsterumarbeitungsmaschine decision, the BGH does not postulate a
right of the patent holder to perpetual participation in the profits generated
by the patent infringer through subsequent transactions. Rather, the intention
is to achieve a fair balance of interests. Therefore, the Chamber assumes that
follow-on transactions are generally included for a period of 10 years after patent
expiration, and that the proportion of the infringer’s profits attributable to
the patent infringement decreases by 10% of the baseline value each year. This
means that, in the first step, the causation factor must be determined as the
base value, for example, 50%. This value is to be applied for the first year.
In the second year, only 45% is to be applied, in the third year 40%, and so on
(para. 92).
The decision concludes
with the application of this methodology to the facts of the case. The defendant sold 28 machines (25 during the
patent term, 3 within one month of expiration), which generated revenue of
€1,994.312, from which the court deducts €986,365.40 in variable costs; the
court then determines that the appropriate causality factor is 50%, reasoning
that, although “the machine is solely suited to carrying out the
patent-infringing process,” “particularly with such expensive machines, other
factors also play a role in the purchase decision, such as the defendant’s
reputation or the quality of the services it offers in connection with the
machines” (para. 118). The resulting sum is, according to the court, €503,972.80
(I get €503,973.30; not sure what accounts for the missing 50 cents). The revenue from the sales of 26 canisters of
solvent sold during the patent term amounts to €531,611.32, from which
€245,486.08 is deductible, leaving €286,125.24, to which the court applies a
causality factor of 70%, resulting in €200,287.67. The court then turns to solvents sold
post-expiration but before the court hearing (36 months), and comes up with a
figure of €397.26 in profit per machine per month (I’m not quite following the
math here), to which the “blurry factor” analysis leads to a reduction of 10%,
resulting in €360,394.27. So overall,
the award is €1,064.654.74, plus interest.
So, to summarize, in
a case in which the defendant was found to have engaged in indirect
infringement by selling machines and solvent used by third parties to perform
the patented process, the patentee is entitled to recover an allocable share of
the profits earned on the sale of those machines and solvent, including a
portion of the profits earned on sales made post-expiration. (Although the name of the solvent is redacted,
my sense is that it is a staple article of commerce. I should also mention, perhaps, that the
defendant is appealing the underlying liability determination.) Overall, I think this is pretty remarkable.
In and of themselves,
awards of damages (or, in countries where the law so permits, profits) for Zugeschäften
are not so remarkable, assuming that there is sufficient proof of a causal
connection between the infringement and those sales—although with respect to
convoyed goods as such, the law in the U.S., unlike in the U.K., France, and
Germany, imposes an additional limitation that the damages must “function
together with the patented component in some manner so as to produce a desired
end product or result.” See Rite-Hite Co. v. Kelley Corp., 56
F.3d 1538 (Fed. Cir. 1995) (en banc) (stating further that “[a]ll the
components together must be analogous to components of a single assembly or be
parts of a complete machine, or they must constitute a functional unit,” and
that “precedent has not extended liability to include items that have
essentially no functional relationship to the patented invention and that may
have been sold with an infringing device only as a matter of convenience or
business advantage”). Recovery of springboard
damages or profits also are not so remarkable either, again assuming proof of a
sufficient connection between the infringing conduct and sales made
post-expiration. German law, however, as
evidenced by the Posterumarbeitungsmaschine decision, already had gone
one step further, in permitting the recovery of profits on springboard
convoyed sales. And now this
decision applies that logic to the induced infringement of a process
patent.
Even if we put aside for
the moment the question of whether the court’s presumptions pertaining to
post-expiration profits are sound, something about awarding the profits earned
by an indirect infringer on its sales to the direct infringer of machines and solvent
used for carrying out the patented process seems odd to me. Suppose, for example, that a direct infringer benefits
from the use of a patented process because the process reduces its costs of
production by €150; but that to carry out the process, it must first buy equipment
that costs it €50, so its net benefit from using the process is €100. Suppose further that the seller of the
equipment (who, let’s assume, will be liable under applicable law for some form
of indirect infringement) incurs costs of €25 to produce that equipment, and
thus earns a €25 profit on sales of the equipment to the third party. Alternatively, suppose that the equipment
costs the direct infringer €100 but still only costs €25 for the indirect infringer
to manufacture. The direct infringer’s net
benefit is now €50 and the equipment manufacturer’s profit is €75. In either case, the optimal outcome ex ante
would have been for the direct infringer to agree to pay a royalty for the use
of the use of the process, in some amount up to €150 minus the cost of the
equipment used to carry out the process.
If the price of the equipment was €50, the direct infringer should have
paid a royalty of up to €100, but on these facts the patentee who sues the
indirect infringer can recover only €25 (assuming that profits are an available
measure of monetary recovery).
Conversely, if the price of the equipment was €100, the direct infringer
should have paid a royalty of up to €50, but the patentee who sues the indirect
infringer can recover €75. In neither
case is the award of profits really tethered to the value of the use to the
direct infringer, which would seem to me to be the more appropriate measure. Of course, this is just a stylized example,
and I suppose one could argue that a rule allowing for the recovery of either the
direct or indirect infringer’s profit encourages the parties to negotiate ex
ante rather than to infringe. Even so, it
seems like an odd result to me, though I need to give the matter some more
thought. (On the topic of damages for indirect infringement,
see this article by the late Professor Dmitri Karshtedt, which I noted here.)
Another thing that is
striking about the decision is the court’s summoning out of thin air its three-month,
ten-year, and “blurry factor” presumptions. Oddly enough, in a talk earlier this week to a
group in the Netherlands, I mentioned at one point how the conventional view is
that common-law judges have some measure of discretion to make law in response
to changing circumstances, whereas civil-law judges are constrained to follow
the code; but in fact, it’s not very difficult to come up with examples in
which civil law judges have sometimes crafted judge-made standards dehors the
text. The example I actually had in mind
when I made the comment was the development by French and German courts, over a
hundred years ago, of moral rights in copyright law, though later I thought
about the Huawei v. ZTE “dance” as articulated by the CJEU and further
refined by the UPC and domestic courts; and the above decision would seem to be
yet another example. Meanwhile in the
U.S., our (in my view, sometimes excessively) textualist-minded courts seem to be
moving in precisely the opposite direction, as witness, e.g., cases like Romag
Fasteners (discarding both precedent and common sense in adopting a literal reading of the Lanham Act's provision on disgorgement of profits, see discussion here), AMG Capital Management (in contrast, holding that the FTC cannot seek disgorgement of profits, see discussion here), or in a related vein Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund,
Inc., 527 U.S. 308 (1999) (holding that the Judiciary Act of 1789 precludes U.S. district courts from entering injunctions of a type that were unknown in 1789). Freaky Friday, anyone?
