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Italy Update: The Supreme Court on the criteria for determining compensation for damages
16/03/2021Civil Cassation (ord.), Section I, 02/03/2021, n. 5666, Pres. Genovese, Rel. Iofrida
With an order issued on 2 March 2021, the Supreme Court ruled on the equitable settlement of the loss of profit suffered as a result of violation of an industrial property right, in this case of a patent.
In particular, the main appellant complained that the Court of Appeal had failed to proceed with an equitable settlement of the damage, after having considered that the elements provided were not sufficient to prove the precise amount of the loss from profit, and had not applied the correct settlement criteria for counterfeiting damage according to equity. In this regard, on the one hand, the non-application of the criterion identified by the applicant on the profit margin achieved by the owner of the patent on the turnover of counterfeit products achieved by the infringer (which would have led to a much greater compensation than that granted) was contested. , on the other hand, the application of the so-called “fair royalty” average for the sector without any increase,
In examining the matter, the Court first stated that there is no effective prohibition on introducing a punitive function of damages.
The loss from profit, the Court affirms, corresponds to the loss of earnings of the owner, given by the difference between the sales flows that it would have had without the counterfeiting and those that it actually had. In this regard, we also speak of “marginal profit”, consisting of the difference between the revenue that would have derived from additional product units compared to those sold, and the marginal cost (cost incurred to produce those additional units). Furthermore, the postponement of art. 125 paragraph 1 CPI to art. 1226 of the civil code certainly allows recourse to the equitable settlement of the damage, the amount of which is not precisely proven. Indeed, according to the Court, this assessment is even more necessary in the case of violation of an industrial property right,
On the other hand, paragraph 1 of art. 125 CPI identifies a special rule in the context of the compensation remedy, usually aimed at compensating the injured party by equivalent, establishing specific parameters (negative economic consequences, including loss of earnings, benefits achieved by the author of the violation, non-pecuniary damage ) from which it is possible to deduce the amount of the damage, not only in terms of compensation but also restorative. The Court affirms that these parameters must also be considered for the purposes of equitable settlement in a “global” sum, therefore quantified without specifying the individual elements.
A special rule of equitable settlement is then also dictated by paragraph 2 of art. 125 CPI, which provides that the judge can liquidate the damage “” in a global sum established on the basis of the acts of the case and the presumptions deriving from it “, therefore also on the basis of circumstantial elements offered by the injured party. In this context, the provision of the criterion of the “fair price of consent” or “fair royalty” (ie the fee that the infringer would have had to pay to license the property rights) corresponds to a further element of simplification of the fair evaluation of the loss of profit – as such a “fair price” is quite easily ascertainable – and allows for the setting of a minimum or residual limit on the amount of the compensation, to guarantee the effectiveness of the compensation. Therefore,
As for paragraph 3 of art. 125 CPI, it provides for the further possibility of returning the profits made by the infringer. This too is a form of compensation for loss of profit, which can be requested either as an alternative to compensation for loss of earnings or to the extent that the infringer’s profits exceed the damage suffered. Even this provision, as the Court has specified, does not attribute to compensation for damage a mere restorative or compensatory function, but a function – if not strictly sanctioning – at least aimed at preventing the infringer from enriching himself through the illegal exploitation of the property rights of others.
In this regard, the Supreme Court cited a ruling by the United Sections (16601/2017), which referred to the legislation on the protection of intellectual property, according to which “civil liability is not only assigned the task of restoring the financial sphere of the subject who suffered the injury, since the deterrence and sanctioning functions of the civil liable party are internal to the system, so that the institution, of US origin, of punitive compensation is not ontologically incompatible with the Italian system “, provided that the measure is “On regulatory bases that guarantee the typical nature of the conviction hypotheses, the predictability of the same and its quantitative limits”. Another orientation recalled by the Court is that of sentence no. 8944/2020, according to which the profit received by the counterfeiter does not correspond to the entire revenue deriving from the sale of the counterfeit product, but to the profit margin achieved, by deducting the costs incurred from the total revenue.
In light of this, the Court upheld the appeal and affirmed the principle of law according to which “On the subject of industrial property, the owner of the injured property right can request to be reimbursed for the damage suffered by invoking the criterion consisting of the profit margin of the patent owner applied to the turnover of counterfeit products, made by the infringer, pursuant to Legislative Decree . n. 30 of 2005, art. 125, (the so-called “industrial property code”, in the text amended by Legislative Decree no. 140 of 2006, art. 17), in the light of which the damage must always be paid taking into account the profits made in violation of the law, that is, considering the profit margin achieved, deducting the costs incurred from the total revenue. In particular, in this context.
By Quorum, Italy, a Transatlantic Law International Affiliated Firm.
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