Damages for Patent Infringement in The Netherlands

Munich, October 27, 2008

Mr. Otto Swens, Vondst Advocaten

Van Leijenberghlaan 199

1082 GG Amsterdam

The Netherlands

t: + 31 20 504 20 00f: + 31 20 504 20 10

e: otto.swens@vondst-law.com

Topics

• Dutch patent proceedings• General rules on Damages in Dutch civil law• Specific rules on Damages in Dutch Patent Act 1995• Implementation of IP Enforcement Directive • Practical example: BOM vs Alcoa

Dutch patent proceedings

• Exclusive jurisdiction courts in The Hague• (Accelerated) proceedings on the merits

• Court establishes infringement and liability for damages (damages exist), but not the amount (except for surrender of profits)

• Amount decided in separate proceedings on the merits• Often settlement on damages after judgment on

infringement instead of starting separate damages proceedings

• Consequence: little case law available in damages proceedings (only two cases in the last 10 years!)

Dutch patent proceedings (2)

• Summary proceedings (‘Kort Geding’)Advance payment of damages onlyUrgent interest Only if the chances of success for the patentee in

proceedings on the merits are high Immediate decisionGenerally no motivation

• Ex parte relief (compare ‘Einstweilige Verfügung’)No (advance) payment of damages, only injunction

General rules on Damages in Civil Law

• Articles 6:95-98 and 104-106 Dutch Civil Code

• Article 6:95 Dutch Civil Code• ‘Damages’ = financial loss and other loss

Financial loss: the difference between the hypothetical financial position without and with the infringement.

Other loss: immaterial loss (uncommon)

What is ‘financial loss’?

• Article 6:96 Dutch Civil Code• Financial loss =

lost profitsother suffered financial loss reasonable costs to prevent or limit damage reasonable costs to determine damage and liability reasonable costs to obtain settlement out of court

Liability for damages

• Article 6:98 Dutch Civil Code• Causality: compensation is awarded only for damages

that are in such a connection to the act on which the liability of the infringing party rests, that this party can be assumed accountable for these damages

• Step 1: Is there a liability? • Step 2: What is the scope of the liability?

Calculation of damages

• Article 6:97 Dutch Civil Code• The Court shall calculate the damages in the way that

best fits the nature of the damages• If no accurate calculation can be made, the (full) damages

are estimated• Calculation methods: abstract, concrete or mix

Surrender of profits

• Article 6:104 Dutch Civil Code• Surrender of profits• If a party is liable against another party for an unlawful act

and if that party has gained profits with this act, the court can set the damages on the amount of these profits or a part thereof

Future damages and immaterial loss

• Article 6:105 Dutch Civil Code• Assessment of damages that will, but have not yet

occurredCourt can make assessment beforehandCourt can wait until damages occur

• Article 6:106 Dutch Civil Code• Other loss (immaterial damages): strict conditions

Specific rules in Patent Act 1995

• Article 70: damages as a result of direct infringement:

• Article 70 sub 3: Compensation for damages • Article 70 sub 4: Surrender of profits

• No provision in Patent Act 1995 for damages as a result of indirect infringement

Liability starts when?

• Article 70(3) Dutch Patent Act 1995• Compensation for damages can be claimed, but only

against an infringer as per the date that he acts ‘knowingly’

• ‘Knowingly’ = in any event 30 days after a bailiff has served a formal notice of infringement on the infringing party

• Negligence or guilt is no requirement

Liability starts when? (2)

• Tension with article 45 TRIPs and article 31 IP Enforcement Directive: “knowingly, or with reasonable grounds to know”

• Dutch Supreme Court in Roche / Primus [2003]:TRIPS (and Enforcement Directive) supersede article 70(3) Dutch Patent Act

• Formal notice by bailiff no longer required. Warning letter is sufficient

Damages: calculation methods

• Damages in patent infringement cases: financial loss (common) and immaterial loss (uncommon)

• How to determine the amount of financial loss?• 6:97 (1) Dutch Civil Code: ‘what best fits nature of

damages’• DC The Hague: lost profits

Calculation of lost profits

Difficult! How to deal with…

• Irrevocable price decline• Causality: smaller sales induced by infringement or by

changes in market (trends), policy, economy etc?• Drop of patent value, reputation or exclusivity?• Missed parallel sales?• Advantage for patentee as a result of infringement?

Calculation of ‘reasonable royalties’

• DC The Hague: lost profits = lost license fees• Principle of ‘reasonability and fairness’ applies• What is likely that parties would have agreed upon• Notion: ‘a willing licensor and a willing licensee’

• In practice:Sales priceOther conditions (exclusive / scope / sublicenses)What are the usual conditions applied by the licensee?

Estimation

• 6:97 (2) Dutch Civil Code• No calculation, but broad estimation: “At aequo et bono’• Only applied when other methods are decided to be

unsuitable • Often used for financial loss other than lost profits, such

as erosion of patent, loss of brand or market reputation etc.

Surrender of profits

• The infringer can be ordered to compensate for damages, but also to surrender the profits gained

• Patentee is free to make a choiceDutch Supreme Court Dupont / Globe [1990]: Patentee

can claim infringer to give up information of profits and decide after that if he chooses to claim damages or surrender of profits

• Advantages of surrender of profits• Eases burden of proof for patentee• Infringer will have to open his ‘books’• Undoes actual enrichment of the infringer

Surrender of profits (2)

• If the patentee opts for surrender of profits, the court can only decide to award damages instead, if reasons of reasonability that lie in the circumstance of the matter lead the court to decide that surrender of profits should not take place.

• Dutch Supreme Court in Roche/Immunomedics [2003]: Such a decision can not be made lightly and must be well motivated!

Calculation of surrender of profits

• Patentee in main proceedings requests an order against the infringer to provide accountant declaration on:• Price• Number of sales

• Appeal Court The Hague Cordis / Schneider [2006]:‘Profits’ = net profits” costs and taxes deductible

• What are ‘costs’?• direct costs fully deductible• Indirect costs (overhead, rent etc.) partly deductible

Damages and surrender of profits?• Damages and surrender of profits can be claimed

cumulative• BUT: Supreme Court HBS Spendax / Danestyle [2000]

If, apart from compensation for damages in the form of financial loss, also the surrender of profits is claimed, a reasonable interpretation, fitting the laws of property, leads to the conclusion that not more than an amount equal to the highest of both amounts can be awarded. Nevertheless, damages of a nature, different from lost profits as result of the sale of infringing products, can be awarded in addition.

• E.g. loss of reputation, erosion of patent rights etc.

Damages of licensees

• Art. 70 (5) Dutch Patent Act 1995• Licensee can join patentee in proceedings to claim

damages or lost profits• Patentee is also allowed to claim damages and surrender

of profits also on behalf of its licensees or pledgees.

IP Enforcement Directive

• Directive 2004/84 of 29 April 2004• Implementation period ended by 29 April 2006• Implementation in Dutch IP (patent) law

IP Enforcement Directive (2)

Article 13 (1) sub (a)

‘When the judicial authorities set the damages:(a) They shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the right holder by the infringement.’

IP Enforcement Directive (3)

• Article 13 (1) sub (b)

or…

(b) As an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.

IP Enforcement Directive (4)

Two choices:

(a)Take into account all appropriate aspects• lost profits• Infringer’s profits and• elements other than economic factors (immaterial loss)

(b) Lump sum (amount of royalties)

Implementation

• Explanatory Memorandum to article 13 (1) sub (a):Dutch Civil Code contains damages, including lost

profits, immaterial loss and surrender of profitsDutch copyright law and trade mark law provide for

immaterial (moral) damages.Dutch patent law: no change necessary: article 6:106

Dutch Civil Code applies.

• Conclusion: no changes in Dutch law

Implementation (2)

• Explanatory Memorandum to article 13 (1) sub (b):Article 6:95-98 and 104-106 Dutch Civil Code provide

comprehensive rules for damages that also apply to intellectual property matters

Article 6:95 Dutch Civil Code gives courts the discretionary power to estimate damages in the nature they believe is most suitable. This includes an estimation on the basis of reasonable royalties

• Conclusion: no changes in Dutch law

Legal costs: IP Enforcement Directive and implementation• Article 14: ‘all reasonable and appropriate legal costs’• Implemented in 1019h Dutch Code of Civil Procedure• BIG CHANGE!

Before: only € 2.000 – 5.000, even in complicated patent cases

Now: full recovery of fees attorney-at-law and patent-attorney!

Record amount awarded: € 505.000 (District Court in The Hague MSD / Generieken [2008]

Summary

• Liability for damages starts when the infringer knows he is infringing or has reasonable grounds of knowing this• Warning letter• Formal notice by bailiff

• Damages primarily financial loss• Methods for establishing amount of damages

• Lost profits, by calculating reasonable royalties (lost license fee)

• Estimation at aequo et bono

Summary (2)

• Patentee can also claim surrender of profits• The Court must accept if the patentee chooses surrender

of profits instead of damages (e.g. lost profits), unless in exceptional circumstances

• Surrender of profits ánd damages can be claimed (accumulative), but in that case, the additional compensation for damages shall not cover lost profits

• No changes to Dutch law as a result of IP Enforcement Directive…

• Except for legal costs: NOW FULL RECOVERY!

Practical example: BOM vs Alcoa

DC The Hague BOM vs Alcoa [2006]:• BOM owns patent for aluminum gutters for greenhouse• Alcoa infringed until 18 November 1992 and acted

‘knowingly’ since 11 May 1988• BOM claims damages (not surrender of profits)• Alcoa sold 1.357.890 m2 greenhouse of infringing gutters• (Non-infringing) aluminum gutters were sold through

BOM, but also through its licensees Gakon and Alcomij• Buying individual gutters (separate from greenhouse) was

not common, but possible

BOM vs Alcoa (2)

• Separate damages proceedings: what are the damages?• DC The Hague:

lost profits method must be usedKey question is if, and if so, how much, BOM has lost

profits because they did not only miss sale of gutters, but also of (connected) complete greenhouse.

This ‘connected’ sale question is not dealt with convincingly by the expert advisors of the court

No adequate assessment can be made if buyers of a greenhouse would have bought the gutters separately

Thus: no calculation, but estimation

BOM vs Alcoa (3)

How does DC The Hague make this estimation?

• Court takes fictitious situation that BOM would have granted a license to Alcoa, even though that is not what BOM would have wanted

• Court establishes four items of loss (damages)

BOM vs Alcoa (4)

a) The low license fee from Alcomij and Gakon, which BOM was forced to accept because of the unlawful (infringing) competition by Alcoa

b) The lower profit margin that BOM was forced to apply to the gutters it sold itself

c) The license fee that Alcoa would have had to pay to BOM

d) The legal costs and costs incurred by BOM for experts to advise on liability for damages and to advise on amount of damages

BOM vs Alcoa (5)

Ad (a) What license could BOM have asked from Alcomij and Gakon without unlawful competition from Alcoa?

• Market information dictates that 1/3 of profit margin of the gutters could have been asked as license fee

• Advisors: aluminum gutters give buyer advantage of FL13,34 per m2 greenhouse over steel gutters. FL 6 of this advantage in the sale price of the aluminum gutters.

• 1/3 of FL 6 = FL 2 per m2 greenhouse is the license fee that BOM could have asked

BOM vs Alcoa (6)

However, there are price decreasing factors…• No patent protection for BOM outside the Netherlands• Steel gutters also have certain advantages• Threat of ‘design around’ aluminum gutters• BOM did not serve notifications of infringement during 6

year grant procedure

DC The Hague: not FL 6, but FL 3 is the advantage in the price. 1/3 of FL 3 = FL 1 per m2 greenhouse is the license fee BOM could have asked.

BOM vs Alcoa (7)

• Gakon and Alcomij paid a license fee of FL 0,5352 per m2 greenhouse

• Gakon and Alcomij sold 1.071.148 m2 greenhouse in the period between 11 May 1988 and 18 November 1992

• The lost license fees for BOM = FL 1 minus FL 0,5352 x 1.071.148 = FL 500.761

BOM vs Alcoa (8)

Ad (b) What was the lower profit margin that BOM

was forced to ask for its own gutters?

• Applying the same method BOM could have asked FL 3 per m2 greenhouse instead of FL 1,50

• BOM sold 3.759.504 m2 greenhouse in the period between 11 May 1988 and 18 November 1992

• The lost profit margin = FL 1,50 x 3.759.504 = FL 5.639.256

BOM vs Alcoa (9)

Ad (c) What license fee would Alcoa have had to

pay to BOM?• Proper license fee by Alcomij and Gakon: FL 1 • However, Alcoa was biggest competitor and BOM would

not have agreed to the same fee: raise of 50% is appropriate: FL 1,50 is the license fee for Alcoa

• Alcoa sold 1.357.890 m2 greenhouse• The lost license fees for BOM:

FL 1,50 x 1.357.890 = FL 2.036.835

BOM vs Alcoa (10)

Ad (d) What costs for expert advise can be awarded?• BOM claims NL 141.902 patent attorney costs and NL

18.750 costs for advise on infringement of 14 gutters. • Alcoa argues that advise reported that only 5 gutters were

found infringing• DC The Hague: half costs can be awarded

PLEASE NOTE: • BOM did not claim costs attorney at law• As per 2006 these costs can be fully claimed!

Any questions…?

Mr. Otto Swens, Vondst Advocaten

Van Leijenberghlaan 199

1082 GG Amsterdam

The Netherlands

t: + 31 20 504 20 00f: + 31 20 504 20 10

e: otto.swens@vondst-law.com