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Punitive damages permitted under Enforcement Directive

On 25 January 2017, in the case of OTK v Stowarzyszenie Filmowcow Polskich (C-367/15), the CJEU ruled that the provisions of Directive 2004/48/EC on the Enforcement of Intellectual Property Rights ("the Enforcement Directive") did not prohibit a Member State from making an award of exemplary or punitive damages.

On 25 January 2017, in the case of OTK v Stowarzyszenie Filmowcow Polskich (C-367/15), the CJEU ruled that the provisions of Directive 2004/48/EC on the Enforcement of Intellectual Property Rights ("the Enforcement Directive") did not prohibit a Member State from making an award of exemplary or punitive damages.

Background

The Enforcement Directive aims to eliminate restrictions on free movement within the internal market and to incentivise innovation and investment. This is the philosophy underlying most pieces of legislation issued by the European Parliament. The Enforcement Directive seeks to achieve this aim by ensuring minimum harmonisation of intellectual property laws in Member States relating to enforcement of rights, evidence and remedies. Article 2 of the Enforcement Directive makes clear that the measures, procedures and remedies adopted should be fair, equitable, not unnecessarily complicated or costly, and not entail unreasonable time-limits or delays. They should also be effective, proportionate and dissuasive.

Article 2 of the Enforcement Directive states that the provisions are without prejudice to national legislation and Article 16 allows Member States to apply additional appropriate sanctions where intellectual property rights have been infringed. As such, the provisions of the Enforcement Directive should be viewed as a floor rather than a ceiling to the remedies available to the proprietor of intellectual property rights. This means that the Civil Procedures in operation at national level are still valid.

Recital 26 of the Enforcement Directive states that the aim of the provisions is not to introduce an obligation on Member States to provide for punitive damages (exemplary damages), but to allow for compensation of a rights holder based on objective criterion.

The Facts of the Case

OTK is a television broadcaster through a cable network in Poland. SFP is a Polish organisation which manages copyright works. After notice of termination of a licence agreement, OTK continued to use copyright works and applied to the Polish Copyright Commission to set the fee payable for that use. The finding was that 1.6% of net income, exclusive of VAT, earned on re-transmission of the copyright works by OTK was payable. SFP subsequently issued proceedings under Art 79(1) of the Polish Law on Copyright and Related Rights 1994 seeking a remedy for copyright infringement. Art 79(1)(3)(b) states that the remedy may be a payment of a sum corresponding to twice, or in the case of culpable infringement, three times the amount of a licence fee payable to a rights-holder for use of their work.

The Polish Supreme Court queried whether this provision was compatible with Article 13 of the Enforcement Directive, which states that Member States will ensure that judicial authorities order an infringer who knowingly, or with reasonable grounds to know, engages in infringing activity, to pay damages appropriate to the actual prejudice suffered as a result of the infringement. Account must be taken of economic factors and moral prejudice to the rights-holder. In appropriate cases, damages may be a lump sum consisting of royalty fees due had authorisation from the rights-holder been obtained. The issues for the CJEU were, therefore:

  1. Whether the Art 79(1) of the Polish statute amounted to a penalty, contravening Art 13 and Recital 26 of the Enforcement Directive; and
  2. Whether a Claimant had to establish a causal link between any loss suffered and the infringement.

The Judgment

Prior to the CJEU determining the issues, the Constitutional Court of Poland declared Art 79 partially unconstitutional. Therefore, the issues for the CJEU to determine were purely hypothetical.

The CJEU emphasised that the Enforcement Directive requires the measures and remedies provided by Member States to be effective, proportionate and dissuasive. The provisions aim to achieve minimum standards of intellectual property protection and, therefore, more favourable measures for rights-holders under national law are permissible. As such, a provision requiring payment of a sum constituting twice the measure of a hypothetical royalty was not contrary to the Enforcement Directive.

The CJEU emphasised that any lump sum payable as a remedy would not, necessarily, reflect the Claimant's loss. In some instances it could be less than the sum necessary to compensate the Claimant for loss and in other instances, greater. Therefore, the sum was not, necessarily, punitive. Furthermore, Recital 26 states that the Enforcement Directive does not aim to obligate Member States to provide punitive damages, but that does not prohibit Member States from making punitive awards. As stated, the Enforcement Directive achieves minimum harmonisation without prejudice to more protective measures.

Regarding the issue of causation, the CJEU viewed the Polish construction as being excessively strict. This is because it required a causative link between the infringement and the precise quantum of the loss. This approach was irreconcilable with the ability to award the Claimant a lump sum under Art 13(1)(b) of the Enforcement Directive.

Comment

The case is a strong reminder that the Enforcement Directive serves as a floor rather than a ceiling to a Member State's enforcement of intellectual property rights. Indeed, the aim of the Enforcement Directive is to ensure a minimum standard of protection for intellectual property so as to remove barriers to free movement and to stimulate the internal market.

The CJEU has confirmed that an award of punitive damages is consistent with the Enforcement Directive. However, that in itself creates significant discrepancies between the remedies available to rights-holders in each Member State. In the UK, the award of punitive (exemplary) damages is rare and, generally, driven by cynical or unconscionable conduct by a Defendant. In this regard, section 97(2) of the Copyright Designs and Patents Act 1988 permits the UK Courts to award additional damages for flagrancy. However, in other jurisdictions punitive damages may be more freely available. This creates a disparity between the pecuniary awards available to a successful claimant in each Member State.

Recital 8 of the Enforcement Directive expressly states that such disparities are prejudicial to the proper functioning of the internal market and make it impossible to ensure an equivalent level of intellectual property protection throughout the Community. It is therefore unclear whether the Enforcement Directive is addressing, rather than exacerbating, the issues it seeks to resolve.

 

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