Scope of compensation due in cases of patent and/or industrial design registration infringement

This article aims to analyse the legal and case law issues regarding the delimitation of compensation due in cases of patent and/or industrial design registration infringement, based on the scope of protection of the infringed industrial property right.

Note that once the infringement of industrial property rights has been established, the obligation to redress the damage arises for the infringer. This is the understanding of the Venerable Superior Court of Justice, adopted in the judgment of Special Appeal No. 710.376-RJ, reported by Honorable Justice Luis Felipe Salomão, judged on 15 December, 2009, the summary of which is transcribed here:

“INDUSTRIAL PROPERTY. UNDUE USE OF A TRADEMARK. COMPENSATION FOR MATERIAL RIGHTS. PROOF. CASE LAW DISCORD TYPIFIED. CRITERIA FOR CALCULATION.

1. (…)

2. In the event of undue use of a trademark, with the aim of causing confusion for the consumer, the prevailing understanding of this Court is that the simple infringement of the law gives rise to the obligation to compensate the damage.

Precedents.

3. Although loss of profits due to the undue use of a trademark are determined by the criterion that is most favorable to the injured party, in accordance with Article 210, heading, of Law 9,279/96, the calculation criterion set out in the law must be interpreted restrictively, making the term “benefits” present in item II of Article 210, in this case, coincide with the idea of “profits”.

4. Special appeal admitted in part, and, in this part, granted.”

Thus, following the granting and infringement of industrial property rights, compensation is deemed due. In this regard, Brazilian law gives broad support to the owner of a patent to seek redress for the damages borne, as can be seen in Article 44 of the Industrial Property Law (Law 9,279/96 – IPL):

“Article 44. A patent owner is guaranteed the right to obtain compensation for the unauthorised exploitation of its subject matter, including exploitation that took place between the date the application was published and the date the patent was granted.”

With respect to the amount of compensation, it must be calculated observing the provisions of Articles 208 and 210 of Law No. 9,279/96, most of the time settled by an arbitral award, when the parties will be notified to present the documents necessary for settlement in the term established by the judge. This is what Gama Cerqueira teaches:

“The simple infringement of the right requires satisfaction of the damage, pursuant to Article 159 of the Civil Code (CC), so it is not necessary, in our view, for the plaintiff to prove the damage in the course of the lawsuit. Once the infringement has been verified, the lawsuit must be upheld, with the defendant being ordered to compensate the consequential damages and the loss of profits (CC, Article 1,059), which are calculated in the execution. And if there are not enough elements to set the “quantum” [amount] of damages suffered, the compensation shall be fixed by arbitration, in accordance with Article 1,553 of the CC.”

(GAMA Cerqueira, João da, “Tratado de Propriedade Industrial” [Work on Industrial Property], volume 2/1,129-1,131.)

Given this reality, the Brazilian legislator set out, in Article 210 of the IPL, three alternative ways to determine the loss of profits in cases of infringement of industrial property rights. Let us confer:

“Article 210 – Loss of profits will be determined by the criterion that is most favourable to the injured party of the following criteria:

I – the benefits that would have been gained by the injured party if the infringement had not taken place;

II – the benefits gained by the perpetrator of the infringement of the rights; or

III – the remuneration that the perpetrator of the violation would have paid the owner of the infringed rights for a license to be granted that would have legally permitted the former to exploit the property.”

In the first hypothesis, it will be owner of the right’s responsibility to demonstrate a reduction in the profits earnt, resulting directly from the unfair competition committed by the infringer. It so happens that such demonstration may become unfeasible in forensic practice, as has already been pointed with proficiency by the illustrious Professor Cerqueira Range:

“The proof of losses, in lawsuits for damages, deserves, however, special reference. This evidence, often difficult in cases of infringement of industrial property rights, is particularly thorny when it comes to infringement of trademark registrations, and Judges cannot demand it too severely. Trademark infringement offences strongly damage its owner’s assets and is one of the most dangerous forms of unfair competition, so much so that laws in all countries highlight it as a specific offence. However, it is often found that, despite the infringement, the trademark owner’s profits do not decline, remaining at the same level or progression, and not infrequently increasing. It should not be concluded, however, just because of this fact, that the infringement did not cause damage, because it is not necessarily revealed in the reduction of profits or their stabilisation at a certain level. What common sense indicates is that the trademark owner would make even bigger profits if it did not suffer the infringer’s criminal competition.”

(GAMA, João Cerqueira da, cited work)

It is the second hypothesis set out by the legislator, concerning the calculation of the “benefits that were obtained by the perpetrator of the infringement of the rights”, that is most frequently used, mainly because it allows the calculation of the damages borne to be carried out more broadly, more assertively expressing the reality of the market actually affected by the infringement. In this case, however, the carrying out of a technical and accounting expert investigation will depend on prior access to the infringer’s accounting books and documents.

With respect to the third hypothesis set out by the legislator, Denis Borges Barbosa characterises it as a form of compensation that, although not the most appropriate – since it is often insufficient to actually redress the damage suffered – may prove to be useful and advantageous, especially in cases where it is difficult to prove the actual amount of damage sustained:

“The peculiarities of the third manner described in Article 210 of the Industrial Property Code of 1996 [CPI/96] are carefully described by the doctrine. Technically, this is a form of compensation for unjust enrichment, which is essential where evidence cannot be produced that the infringement of the law has benefited the infringer. Although it has been discussed much in comparative doctrine, either for the idea that it would be an inappropriate form (since it is insufficient and, in being equivalent to a price for freely infringing, that is, ….non- punitive….) of reconstituting assets, this formula is always useful and sometimes advantageous. In the American system the royalty ficto arises as the minimum legal compensation.”

(BARBOSA, Denis Borges, Valor indenizável das violações da Propriedade Intelectual [Compensatable amount for infringements of Intellectual Property], available at https://denisbarbosa.addr.com/recomposicao.pdf)

As has been mentioned above, Brazilian legal practice has determined, more often than not, the application of item II of Article 210 of the IPL, determining that the compensation be ascertained at the award setting stage, through the calculation of the benefits that were gained by the perpetrator of the infringement by accessing its accounts.

In this context, to enable an accounting expert investigation to be carried out, it will be necessary to determine in advance what Denis Borges Barbosa calls the “counterfeit mass” (work mentioned above), that is, the correct delimitation of the subject matter that should be the subject to compensation. As a rule, there is no doubt that the counterfeit mass is precisely that outlined by the scope of protection in the patent’s claims.

Although the finding seems obvious, in practice there may be some controversy. This is because often the ‘counterfeit mass’; may possibly prove to be broader than what is actually claimed in the patent. Again, quoting Denis Borges Barbosa “The element that the infringement of exclusivity or unfairness affects may be equal to, greater or lesser in extent than the product or service in question.”

Let us confer:

“Determining what the “counterfeit mass” is, that is, the items contained in the exploitation of the market by the injured party, affected by the infringement. Such determination is objective (which elements) and temporal (for how long the infringement took place). Always taking into account the accuracy of the determination, and with no punitive purpose that broadens this definition in favour of the injured party, it is necessary to determine which element is a patient of the market injury in question.

The element that the infringement of exclusivity or unfairness affects may be equal to, greater or lesser in extent than the product or service in question. It will be equal if the entire product or service is affected by the infringement. It will be smaller if only part of the product or service is affected (for example, on a car, only the design of the hubcap has been infringed). It will be greater when the infringement entails gains for the infringer, or loss for the injured party, of other market opportunities that necessarily and unconditionally accompany the economic operation carried out (for example, when the counterfeiting of a cup design frustrates the sales by the holder of the design of the respective saucer).

Once the counterfeit mass has been determined, the net inflow attributable to that mass will be determined.”

(BARBOSA, Denis Borges, cited work)

Thus, in some more specific cases the “counterfeit mass” may even be broader than that claimed in the patent.

For example, imagine an industrial design registration for the sole of a shoe. In the event of infringement of such industrial design registration, there is support for the compensation to be calculated taking into account the value of the entire footwear, and not only the value of the sole that is the subject matter of the registration, which cannot be exploited in isolation, dissociated from the entire shoe.

In this regard, the legislation allows compensation to be calculated broadly, in the most beneficial way to the patent holder, considering the entirety of what the owner failed to be profit. In fact, in the above hypothesis, the element that is a patient of the infringement, the sole of the shoe, is inseparable from the shoe, since it does not seem reasonable to market the sole independently of the shoe.

Usually, however, it is correct to calculate compensation based precisely on the subject matter protected by the patent, that is, the right to compensation is limited to the content of the claims.

Incidentally, this is what the legislation in force determines, as expressed in §3 of Article 44 of the IPL:

§3 The right to obtain compensation for undue exploitation, including with respect to the period prior to patent being granted, is limited to the contents of its subject matter, pursuant to Article 41.

In this regard, let us confer the application of the “counterfeit mass” doctrine by the São Paulo State Court of Appeal (TJSP):

“(…) The amount of compensation must be calculated only on the value of the socket that is the subject matter of invention PI 9505263-1, and not on the value of the light as a whole – Motion for clarification lodged by Magneti Marelli accepted and that by Indústrias Arteb S/A rejected. (…) Thus, it seeks that the amount of compensation apply to the value of sales for the final product (light + socket). Now, the judgment under appeal is clear in the sense that the amount of compensation must be calculated only on the value of the socket that is the subject matter of the patent for invention PI 9505263-1, and not on the value of the light as a whole (sheet 588). The infringement covers the socket and not the final product as a whole. Incidentally, the patent for na invention is entitled “Improvement to the socket fixing system for the H1-type Lamp”, which demonstrates that it applies only to this part, which, moreover, can be marketed separately from the whole and can be seen from the invoice on sheet 1,132. In light of the above, Magneti Marelli’s motion for clarification is accepted and that of the company Indústrias Arteb S/A is rejected.”

(TJSP – Motion for Clarification no. 994.07.017571-0/50000 Reporting Justice Silvério Ribeiro – judged 02 June, 2010 – highlighted and emphasis added – sheets)

In another case, the Rio Grande do Sul State Court of Appeal [TJRS], in reviewing a first instance ruling that determined at the award setting stage that the compensation would be calculated considering the value of the main element, while the patent infringement affected a component of the invention, decided it was best to limit the compensation to the compactor mechanism, the subject matter of the infringement, in accordance with the excerpt of the judgment transcribed below:

“Interlocutory appeal. Industrial and intellectual property. Provision of the decision that was dubious with respect to the extent of the award.

Determination of payment for the infringement that is “proportionate” to each separate machine or mechanism that has been sold using the patented component.

Inappropriate to include in the calculation for compensation the full value of the planting or seeding machines in which the infringed mechanism was implemented. Compensation disproportionate to the actual damage caused.

Unjust enrichment. The amount of compensation must be calculated based on the value of the compactor assembly and not on the value of the seeding machine for crops. The aggregate value of the seeding machine is much higher than the value of the compactor assembly. Understanding of Article 44, §3 of Law no. 9,279/96. Interlocutory appeal granted by a majority.

(…)

The amount of compensation must be calculated baed on the value of the compactor assembly and not on the value of seeding machine for crops. The aggregate value of the seeding machine is much higher than the value of the compactor assembly. It does not seem fair to me that the compensation applies to the full value of the machine which can be freely marketed without this accessory.

(…)

It so happens that the expert investigation for setting the award expanded the subject matter of the compensable infringement, since it disregarded the protected patent and made the calculations taking into consideration the marketing value also of the planting machine, when in fact the infringement lies in the compactor that can be coupled to any planting machine.”

(TJRS – 6 th Civil Chamber – Interlocutory Appeal no. 70079819439, majority of votes, judged on 04 April, 2019)

The judgments transcribed above reveal the importance of accurately determining the compensable “counterfeit mass”, guided by the parameters already defined by current legislation, as well as by doctrine and case law, thus adjusting the expectations of the owner of the patent or industrial design registration to the scope of protection in its industrial property title.

Knowing such parameters, moreover, is essential for legal operators, especially those who work in the area of industrial property, who will thus have firm elements to defend the interests of their clients, appropriately supporting them, thus avoiding possible unjust enrichment.