By its 17 March 2016 decision (here), the CJEU cleared the doubts raised by the Spanish Tribunal Supremo as to an IP holder’s right to be compensated, in accordance with Article 13(1) of the Enforcement Directive (Directive 2004/48), for both material damage on the basis of the hypothetical royalty criteria laid down by subparagraph 2, heading (a), of said article, and moral damage under heading (b) of the same subparagraph 2.

The Tribunal Supremo’s doubts arose from the wording of Article 13(1), whose subparagraphs 1 and 2 read as follows (emphasis and numbers added):

“[1] Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement.

[2] 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 rightholder by the infringement;

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”.

Indeed, the expressions “or” and “as an alternative to (a)” contained in subparagraph 2 of Article 13(1) may well be read as dividing the criteria for setting damages provided by headings (a) and (b), in such a way that the two cannot be invoked together by IP holders (nor merged by the judicial authorities). The CJEU did not stop at a literal interpretation of Article 13(1), though, but looked at the article “in light of the objectives” pursued, in its view, by the Enforcement Directive.

From this perspective, the Court said that subparagraph 1 of Article 13(1) was aimed at ensuring full compensation for the “actual prejudice suffered” by right-holders, which means compensation for both material and moral prejudice (see paragraph 25 of the ECJ decision).

As the “hypothetical royalty” criterion provided by heading (b) of Article 13(1), subparagraph 2, does not take into account moral prejudice, each time an IP holder suffered moral prejudice in addition to material prejudice, application of this criterion alone would prevent full compensation being awarded. This outcome is inconsistent with the goal and the very rationale of said provision.

On these grounds the Court of Justice, upholding the opinion of Advocate General Whatelet (here), answered the preliminary questions raised by the Tribunal Supremo by stating that Article 13(1) must be interpreted as permitting a party injured by an IP infringement, who claims compensation for his material damage as calculated on the basis of the “hypothetical royalty”, to also claim compensation for the moral prejudice he/she has suffered.

It may be noted that, from a strictly Italian standpoint, the CJEU decision does not really add anything new, as the national provisions into which Article 13(1) of the Enforcement Directive has been transposed do not contain any reference to an alternative between compensation for moral prejudice and for material prejudice. Article 158(3) of Italian Copyright Law expressly states that moral damages can be recovered in addition to material damages calculated on the basis of the “hypothetical royalty” criterion. And, albeit less explicitly, but nevertheless clearly, Article 125 of the Italian IP Code, concerning IP rights other than copyright, does the same.

Riccardo Perotti

CJEU, 17 March 2016, C-99/15, Liffers