Injunctions and Damages for Patent Infringement under the Upca in Light of the Principle of Proportionality—part Ii: Damages

If the court has found the product to be infringing but has denied, delayed or narrowly scoped the injunction, it has no impact on the (il)legality of the past and the future use of the patented invention. In other words: the denial of an injunction does not justify the infringement but merely suspends the exclusivity of the patent.¹

As the use of the patented invention is still an infringement, the patent proprietor is entitled to damages for the infringing use due to Article 68 (1) UPCA.² After the court finds that the product infringes the asserted patent, infringers knowingly³ engage in further patent infringing activities if they continue to produce and/or sell the product.⁴ Therefore, the infringer owes damages of at least a reasonable royalty (Article 68 (3)(b) UPCA)⁵ to the patent proprietor. Nevertheless, if the limitation, stay or denial of the injunction by the court is considered to eliminate the fault of the infringer, compensation for the patent proprietor can be based on Article 68 (4) UPCA. It is usually calculated on the basis of a reasonable royalty.⁶

The award of damages is—by definition (see Article 68 (2)(1) UPCA)—generally sufficient to compensate the infringer for the infringing use.⁷ However, as damages are rewarded retrospectively there is usually a time gap between the infringing use and the payment of adequate compensation. During that time, the patent proprietor has to accept the use of his patent without payment and, by that, has to bear the insolvency risk of the infringer.

In order to close the time gap and to ensure proportionality towards the patent proprietor,⁸ the court may order an interim award of damages under R. 119 UPC Rules of Procedure (RoP).⁹ The conditions of that interim award are at the discretion of the court (‘subject to any conditions that the Court may order’). Thereby, it can simulate a provisional reasonable licence agreement:

First, it may award an ongoing licence fee of a prima facie appropriate amount to be paid by the infringer in an interval that is customary in the respective industry (eg monthly or quarterly); it may also address the question of securities.¹⁰

Second, it may make the stay or limitation of the injunction dependent on compliance with the interim award of damages. By that, the court may close the time gap between the denial of an injunction for future infringements and the payment of damages that are awarded retrospectively after the infringement occurred.

The assessment of the definitive amount of the damages payable by the infringer can be determined in the separate proceedings for determining the amount of damages (R. 125 and seqq. UPC RoP). In any case, the provisional damages paid are deductible from the final award of damages. Damages aim to compensate, not to enrich, the infringed party.¹¹ The same applies if payments in lieu are awarded based on the proportionality principle.¹²

It is unclear whether the court has discretion to award (definite) damages pro futuro ‘for any future acts of infringement which the defendant might commit’¹³ and whether this should be a ‘running royalty’ or a high upfront lump sum.

Looking at it from a practical point of view, the combination of an award of interim damages, a conditional stay/limitation of the injunction based on compliance with the first and a definitive and appealable assessment on the amount of damages after use of the patent, provides the court with sufficient instruments to simulate the effect of payments in lieu of an injunction.

Before answering the question on how to calculate damages in the scenarios under review, we will have a look into the principles of the calculation of damages under the UPCA. As the court has to interpret the Agreement in an autonomous and uniform way, those principles are an important source of interpretation.

In Article 68 (2), the UPCA lays down three fundamental principles of calculating damages:

Additional guidelines on how to calculate damages stem from Union law, which the court shall apply in ‘its entirety and shall respect its primacy’ (Article 20 UPCA).¹⁴ Therefore, principles and jurisprudence regarding Article 13 Enforcement Directive 2004/48/EC (IPRED) have to be considered.¹⁵ The Union acquis in damages law is summarized in the Antitrust Damages Directive 2014/104/EU.¹⁶ Although the Directive primarily harmonizes damages for harm caused by infringements of Union competition law, it is still an important legislative source of the Union acquis on damages that can be generalized for want of better insights.