Damages for moral losses from infringement of intellectual property rights
A holder of intellectual property rights that have been infringed may demand damages for non-economic loss even when the holder also seeks damages on the basis of hypothetical royalties.
Liffers v Producciones Mandarina SL (Case C-99/15), judgment of the Court of Justice of 17 March 2016
The judgment by the Court of Justice was issued in this case under an interesting set of facts. Christian Liffers was the director, writer and producer of an audiovisual work entitled Dos patrias, Cuba y la noche (Two Homelands: Cuba and the Night), which relates six personal, intimate stories of gay and trans inhabitants of Havana. Mandarina produced a documentary on child prostitution in Cuba, showing criminal activity recorded with hidden cameras. The film used passages from Two Homelands: Cuba and the Night without Liffers’s permission. The documentary was then broadcast by the Spanish channel Telecinco, owned by Mediaset.
Liffers filed suit in the commercial court in Madrid against two companies, Mandarina and Mediaset. He sought an injunction against infringement of his intellectual property rights and payment of damages for economic loss (EUR 6,740) and moral prejudice (EUR 10,000).
The legal systems in EU member states, including Spain (as well as Poland), provide for two possible methods of calculating damages for infringement of intellectual property rights. This is guaranteed by the IP Enforcement Directive (2004/48/EC) as implemented in the member states. The first (general) method is based on a calculation of the negative consequences of the infringement, including lost profits and moral prejudice. The second (lump-sum) method is based on an estimate of the value of hypothetical royalties, i.e. the fee the holder would have obtained if the infringer had obtained consent to use the work.
Liffers chose the option of demanding the hypothetical royalties he would have been due if Mandarina and Mediaset had requested consent to use scenes from Two Homelands: Cuba and the Night. The issue that arose in the case is basically whether in selecting this method, Liffers could also demand damages for moral prejudice, which is expressly referred to only in the section on calculating damages under the first (general) method. The Spanish courts did not agree on this issue. The court of first instance awarded damages on both counts. The appellate court set aside that ruling. In its view, when selecting the method based on hypothetical royalties, Liffers could no longer claim separate damages for moral prejudice. If he wished to do so, he had to calculate damages under the general method. In the court’s view these two methods were mutually exclusive, and thus combining the two methods was impermissible.
The Supreme Court of Spain, reviewing the case, had doubts about interpretation of Art. 13(1) of Directive 2004/48/EC and the correctness of its implementation into Spanish law. The court sought a preliminary ruling from the Court of Justice on whether a person injured by infringement of intellectual property rights and seeking damages under hypothetical royalties (the second method) may also claim damages for moral prejudice.
The Court of Justice found that Art. 13(1)(b) of the directive, which governs the second method for calculating damages, does not expressly include moral prejudice as a factor that should be taken into consideration in determining the amount of damages to be awarded to the right holder, but it does not exclude consideration of this type of injury. It provides for the possibility of establishing a lump-sum amount of damages in which this amount includes other elements, such as moral prejudice suffered by the holder. The Court of Justice stressed that injury—for example infringement of the reputation of the author of the work—could, if proved, constitute an element of the actual loss suffered by the author. The court also stressed that the amount of damages that should be paid to the holder of the IP rights must serve to fully make up for the loss actually suffered, including also any moral losses. Thus the holder should have the right to seek damages for any moral prejudice, on top of other damages, regardless of the method of calculation applied.
This ruling is advantageous to holders of various types of intellectual property rights. Firstly it should be emphasised that damages can be sought for moral prejudice suffered as a result of infringement. Art. 13(1) of the Enforcement Directive, providing for two alternative methods for calculating damages, has been implemented in Poland in several acts related to IP rights: the Act on Copyright and Related Rights (Art. 79(1)(3)), the Industrial Property Law (Art. 287(1) and Art. 296(1)), the Database Protection Act (Art. 11(1)(3)), and the Plant Varieties Protection Act (Art. 36a(1)(3)).
In practice, IP rights holder deciding to pursue financial claims before the courts by and large elect (for evidentiary reasons) to calculate damages not under general rules but on the basis of hypothetical licence fees. As held in the Liffers case, damages for non-economic losses may be sought even if the lump-sum method is selected. As the Court of Justice stressed, regardless of the method used, the injury should be redressed in full.
Lena Marcinoska, Intellectual Property Practice, Wardyński & Partners
