Compensation For Infringement Of Intellectual Property Rights in the UK
Infringement of intellectual property (IP) rights entitles the holder of such rights to a number of remedies. An order for delivery (or destruction) of the infringing products, an interdict (injunction) to prevent further infringement, and damages or an account of profits are some of the options.
This article focuses on the financial compensation available to IP rights holders once their rights have been proved to have been violated. Infringements of some IP rights can result in criminal sanctions, such as fines and imprisonment under the Trade Marks Act 1994, as well as forfeiture and seizure orders under proceeds of crime legislation. These, however, are outside the scope of this article.
General principles
General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 is the leading case in this field, in which the court provided advice on calculating damages for patent infringement, saying:
- the court’s aim in awarding damages is to restore the injured party to the same position as they would have been in had they not sustained the wrong (in other words, damages are compensatory and not punitive); and
- the burden of proof rests with the party making the claim, but because the other side is the wrongdoer, damages should be assessed liberally.
What criteria are used to evaluate the claimant’s loss?
In the General Tire case, the court established three criteria for determining loss:
- if the claimant exploits the patent by manufacturing and selling goods at a profit and the effect of the infringement has been to divert sales to the wrongdoer, the “measure of damages will … normally be the profit which would have been realised by the owner of the patent if the sales had been made by him”.
- if the claimant exploits the patent by granting royalty-bearing licences, “the measure of the damages he must pay will be the sums which he would have paid by way of royalty if, instead of acting illegally, he had acted legally.”
- if it is not possible to prove there is a normal rate of profit (as in 1), or there is a normal established licence royalty (as in 2), damages are assessed by working out what could reasonably have been charged for permission to carry out the infringing acts. Usually, the claimant will produce evidence to guide the court, such as expert reports, evidence from analogous trades or any other factor that assists the judge with deciding the loss.
Is this simply applicable to patents, or can these measures be used to other intellectual property rights as well?
Following that, the courts have recognized that these principles apply to all cases involving the violation of intellectual property rights, not only patent disputes.
Causation and foreseeability
The capacity to claim damages for infringement of IP rights, as in other areas of law, is contingent on your ability to demonstrate that the loss was: predictable; caused by the wrong; and not excluded from recovery by public or social policy. The misconduct or infringement, on the other hand, does not have to be the exclusive or primary source of the loss.
Damages for the loss of production and sales
The proprietor of an IP right can sue for the following damages:
- the lost profit on sales they would have made, had the defendant not exploited their IP;
- the lost profit on their own sales, if they were forced by the infringement to lower their own prices; and
- a reasonable royalty on sales by the defendant that the claimant would not have made.
Loss of royalties damages
If the claim is for a loss of royalty, proof showing the claimant really tendered a license at a royalty rate that was refused will not entail that the court will calculate the royalty rate at that rate. The court will determine damages objectively, taking into consideration any proof of past licenses granted and the prices at which they were given.
In a case involving infringement of copyright in song lyrics featuring Robbie Williams, for example, the judge ordered damages based on a 25% royalty share.
The ‘user principle’
The ‘user principle,’ as identified in the General Tire case, is the third technique. The court analyzes what the ‘willing licensor’ and the ‘willing licensee’ would have agreed to if the parties had engaged in hypothetical negotiations that resulted in a hypothetical licensing agreement. When this approach is employed, all of the infringer’s sales are taken into account. After that, a hypothetical royalty value is imposed that matches the royalty that would have been requested by the rights holder. This strategy is intended to alleviate inequity in situations where the parties aren’t actively competing.
Despite the fact that damages are supposed to be compensatory rather than punitive, different methods are used to calculate them. When there is infringing behavior, the court will frequently be forced to guess about what could have happened unless it is a simple question of calculating how much profit was lost as a result of the infringing conduct. This usually entails hiring an expert to report about the loss.
