ACTA’s Article 2.2.1, on damages:the July 1, 2010 text

The July 1, 2010 ACTA text includes several provisions that would set global norms for damages, including most importantly, on pages 6 and 7, Article 2.2 on Damages. Also relevant are the provisions in Article 2.X on General Obligations with Respect to Enforcement, on page 5.

Article 2.2: Damages, is divided into the 5 sections. In Article 2.2.1, the first sentence is a requirement that judicial authorities have the authority to “order the infringer who knowingly or with reasonable grounds to know” is engaged in infringing activity, to pay right holders “damages adequate to compensate for the injury the right holder has suffered as a result of the infringement.” The second sentence says that judicial authorities shall have the authority to consider “any legitimate measure of value submitted by the right holder,” including specifically, “the value of the infringed good or service, measured by the market price, the suggested retail price.”

Page 6
Article 2.2: Damages

1.Each Party shall provide that in civil judicial proceedings, its judicial authorities shall have the authority to order the infringer who knowingly or with reasonable grounds to know, engaged in infringing activity of [intellectual property rights] [copyright or related rights, or trademarks], to pay the right holder damages adequate to compensate for the injury the right holder has suffered as a result of the infringement.

In determining the amount of damages [US: for copyrights and related rights *page 7* infringements and trademarks counterfeiting], its judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value submitted by the right holder, which may include the lost profits, the value of the infringed good or service, measured by the market price, the suggested retail price.

While these proposals are appropriate for some cases, they are not appropriate for all cases as is evidenced by the many areas where the ACTA language would conflict with laws now in place in several countries involved in the ACTA negotiations. For example, in some well known cases, national laws in countries set damages by statute at zero, or limit damages to a reasonable royalty — two areas that are inconsistent with the current Article 2.2 text.

The proposal in ACTA that the right owner shall have the right to ask judicial authorities to consider as damages “the value of the infringed good or service, measured by the market price, the suggested retail price,” separately from “lost profits,” is particularly aggressive, since “lost profits” is a common European statutory standard, and either the lost profits or reasonable royalty rule would result in damages that would be a fraction of the market price, and certainly much lower than the “suggested retail price.”

Somewhat helpful would have been language proposed by Canada and New Zealand earlier that would have allowed statutory exceptions. From the January 18, 2010 consolidated text was this language.

[(iii) Can/NZ: For greater certainty, a Party may limit or exclude damages in certain special cases.]

It is part of the continuing mystery of the motivations and qualifications of the ACTA negotiators that the Canadian/New Zealand suggestion was rejected, and is no longer in the ACTA text.

This is particularly surprising for the USA, which is a leader in statutory exceptions. For example, in the area of patents on nuclear energy, generic biologic drugs or use by medical practitioners, there are special statutory standards for damages.

Nuclear Energy: 42 USC 2184. Injunctions; measure of damages

Infringement of Patents by Medical Practitioners: 5 USC 287, Limitation on damages and other remedies; marking and notice.

Non-disclosed biological product patents. 35 USC 271(e)(6)(B-C)

In the case of nuclear energy patents, the damages are limited to a reasonable royalty, with specific statutory standards. In the case of medical practitioners, the damages for use of a patent are zero. In the case of non-disclosed biological product patents, the damages are limited to either zero, or a reasonable royalty, depending upon the facts.

ACTA Article 2.2 in conflict with TRIPS Article 37.1

In some cases, damages are even limited by the TRIPS Agreement. For example, in Article 37.1 of the TRIPS, on Layout-Designs (Topographies) of Integrated Circuits, damages for certain infringements are limited as follows:

Members shall provide that, after the time that such person has received sufficient notice that the layout-design was unlawfully reproduced, that person may perform any of the acts with respect to the stock on hand or ordered before such time, but shall be liable to pay to the right holder a sum equivalent to a reasonable royalty such as would be payable under a freely negotiated licence in respect of such a layout-design.

Use by or for governments

The United States has special rules for damages concerning patents, copyrights, plant breeder rights, designs (including designs of a vessel hull or deck), and a mask work fixed in a semiconductor chip product, under 28 USC 1498. In caselaw relating to this statute, courts have frequently held that: [t]he proper measure [of damages] is what the owner has lost, not what the taker has gained.” Leesona Corp. v. United States, 599 F.2d 958.

On page 5 of the July 1, 2010 text, in Article 2.x, General Obligations with Respect to Enforcement, the United States has proposed the following text:

4. [US: Notwithstanding the other provisions of this Agreement, the Parties may limit the remedies available against a government’s unauthorized use of intellectual property covered under this Agreement, or against such unauthorized use by a third party that was authorized by a government, to payment of remuneration. Such remuneration shall be adequate to compensate for the injury the right holder has suffered, taking into account the economic value of the use.]fn9

9. Delegations need more time for further consultations.

The US proposal on use by and for governments is designed to address the 28 USC 1498 issue, but it does not address another area of U.S. law, which concerns the current exception on intellectual property damages in cases of infringement by state governments, under the US legal doctrine of State Sovereignty. The legal basis for the exception was addressed in this 1999 U.S. Supreme Court decision.

Florida Prepaid Postsecondary Ed. Expense Board v. College Savings Bank (98-531) 527 U.S. 627 (1999), 148 F.3d 1343, reversed and remanded.

Future Norm Setting

For the past few years, the Congress has struggled to modify U.S. patent law. One of the several issues under consideration are those that related to damages. A number of proposals have been considered, in an effort to find language that is not objectionable to various groups actively engaged in lobbying.

On March 4, 2010, the Senate Judiciary Committee released its new “compromise” on patent reform. Senator Leahy described the objectives of the bill as follows:/fn1/

“we wanted to improve patent quality and the operations at the [Patent and Trademark Office], and address runaway damage awards that were harming innovation. We are close to a compromise that will address these issues.”

Damages in patent disputes are among the most difficult issues to address in the negotiations over patent reform. Leahy and others settled on the so called “gatekeeper compromise,” which allows the court to strictly limit the methodologies and factors relevant to the determination of damages.

5 SEC. 4. DAMAGES.
‘‘(b) PROCEDURE FOR DETERMINING DAMAGES.—
‘‘(1) IN GENERAL.—The court shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such determination.

In the 110th Congress, the U.S. Senate approved the Shawn Bentley Orphan Works Act of 2008, but the measure did not pass the House of Representatives. The provisions in the Senate bill that are relevant to ACTA provisions on damages follow:

S.2913 Shawn Bentley Orphan Works Act of 2008 (Engrossed as Agreed to or Passed by Senate)
`(a) Definitions- In this section, the following definitions shall apply:
`(3) REASONABLE COMPENSATION- The term `reasonable compensation’ means, with respect to a claim of infringement, the amount on which a willing buyer and willing seller in the positions of the infringer and the owner of the infringed copyright would have agreed with respect to the infringing use of the work immediately before the infringement began.
`Sec. 514. Limitation on remedies in cases involving orphan works
`(c) Limitations on Remedies- The limitations on remedies in an action for infringement of a copyright to which this section applies are the following:
`(1) MONETARY RELIEF-
`(A) GENERAL RULE- Subject to subparagraph (B), an award for monetary relief (including actual damages, statutory damages, costs, and attorney’s fees) may not be made other than an order requiring the infringer to pay reasonable compensation to the owner of the exclusive right under the infringed copyright for the use of the infringed work.
`(B) FURTHER LIMITATIONS- An order requiring the infringer to pay reasonable compensation for the use of the infringed work may not be made under subparagraph (A) if the infringer is a nonprofit educational institution, museum, library, archives, or a public broadcasting entity (as defined in subsection (f) of section 118), or any of such entities’ employees acting within the scope of their employment, and the infringer proves by a preponderance of the evidence that–
`(i) the infringement was performed without any purpose of direct or indirect commercial advantage;
`(ii) the infringement was primarily educational, religious, or charitable in nature; and
`(iii) after receiving a notice of claim of infringement, and having an opportunity to conduct an expeditious good faith investigation of the claim, the infringer promptly ceased the infringement.

While the U.S. has yet to adopt legislation to expand access to for orphaned copyrighted works, the ACTA should not prejudice a solution along the lines set out by the U.S. Copyright Office or the proposals considered in the 110th Congress by the House and the Senate.

Statute of limitations, and registration requirements

One topic missing from the ACTA concerns the statute of limitations on damages found in many national laws.

Another topic concerns the obligation of right owners to satisfy registration requirements to qualify for damages found in a variety of different laws.

The “Suggested Retail Price” is an inappropriate global norm for damages

The proposal by the United States and other countries to require judges to consider the suggested retail price of a good in a proceeding on damages for infringement was recently criticized by Professor Fred Abbott, in the context of a similar provision in a US FTA./f2/ Abbott explains that:

Under US law, “suggested retail price” is used in only one of the many U.S. statutes regulating intellectual property, that is, the prohibition in the Tariff Act of 1930 against the importation of goods bearing an infringing trademark. US. courts generally have substantial discretion in determining the basis for establishing the level of damages in cases of infringement. In a trademark infringement suit, the trademark holder is ordinarily required to prove its “actual damages” which would be based on the market price of its goods. The “suggested retail price” of a good or service will be the “market price” in only a limited number of cases. The Copyright Act also uses the measure of “actual damages,” providing:

“(b) Actual damages and profits. The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” 17 USC §504

A U.S. court might allow a trademark, copyright or patent holder to base its claim for remedies in an infringement action on the suggested retail price of its goods if there was no reasonable way to prove the actual selling price of the goods in the market. However, because the suggested retail price is a hypothetical price this would not be a first option.

The use of “suggested retail price” as the basis for calculating damages is also problematic because it suggests that the IPRs holder receives the “retail” price for its goods or services. In many cases, the IPRs holder will sell to intermediaries such as wholesalers and distributors and will receive a price substantially discounted from the suggested retail price, even assuming that the suggested retail price represents the price paid by the consuming public. The IPRs holder’s “actual damages” should instead be based on the price it receives from the intermediaries.

While the ACTA proposal for damages does not limit courts solely to the consideration of the “suggested retail price,” in the calculation of damages, it requires the courts to take this measure into account when presented by the right holder, even in cases where it is clearly inappropriate.

Footnotes

1. Juliana Gruenwald, “Leahy: Patent Deal Is Close,” Tech Daily Dose, National Journal. February 25, 2010.
2 Frederick Abbott: Intellectual Property Provisions of Bilateral and Regional Trade Agreements in Light of U.S. Federal Law. February 2006. UNCTAD – ICTSD Project on IPRs and Sustainable Development

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