Damages for Patent Infringement in The Netherlands Munich, October 27, 2008 Mr. Otto Swens, Vondst Advocaten Van Leijenberghlaan GG Amsterdam The Netherlands t: f: e:

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 only  Urgent interest  Only if the chances of success for the patentee in proceedings on the merits are high  Immediate decision  Generally 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 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 profits  other 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 occurred  Court can make assessment beforehand  Court 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 price  Other 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 choice  Dutch 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 profits  Dutch 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 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 € – 5.000, even in complicated patent cases  Now: full recovery of fees attorney-at-law and patent- attorney!  Record amount awarded: € (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 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 used  Key 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 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 = FL

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 m2 greenhouse in the period between 11 May 1988 and 18 November 1992 The lost profit margin = FL 1,50 x = FL

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 m2 greenhouse The lost license fees for BOM: FL 1,50 x = FL

BOM vs Alcoa (10) Ad (d) What costs for expert advise can be awarded? BOM claims NL patent attorney costs and NL 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 GG Amsterdam The Netherlands t: f: e: