Global menu

Our global pages

Close

The Italian Supreme Court provides guidance on compensation for damages due to IPRs infringement

  • Italy
  • Intellectual property

13-10-2021

With two recent decisions, the Supreme Court has clarified the interpretation of Article 125, para 2 and 3, of the Industrial Property Code (IPC). Article 125 of the IPC deals with the compensation of damages for IPRs infringement. It is a significant provision and its interpretation has been the subject of in-depth discussion among scholars and case law.

Art. 125 IPC provides as follows:

125. Compensation for damages and disgorgement of profits realised by the author of the infringement.

1. Compensation due to the damaged party shall be set according to the provisions of Articles 1223, 1226 and 1227 of the Civil Code, taking into account all of the pertinent aspects, such as the negative economic consequences, including lost income, suffered by the owner of the infringed right, the benefits achieved by the infringer, and in the appropriate cases, non-economic elements, such as the moral damage caused to the owner of the right by the infringement.

2. The judgment that rules on the compensation of damages may establish payment of an overall sum set based on the proceedings in the case and the presumptions that result from them. In this case the loss of profits shall however be determined as an amount not less than the royalties that the author of the infringement would have had to pay, had he obtained a license from the owner of the infringed right.

3. In any event, the holder of the infringed right may request the disgorgement of profits obtained by the infringer, either as an alternative to compensation for the loss of profits or to the extent that they exceed that compensation

Art. 125 of the IPC refers to the general principles of Art. 1223, 1226 and 1227 of the Civil Code as the rules for determining the measure of compensation for damages, and therefore to the criterion of direct prejudice and loss of profits suffered by the IPR holder. This last criterion includes the decrease in turnover of the IPR holder, the disgorgement of the profits realised by the infringer and the so-called “price of consent” (the royalty that the infringer would have paid if he had asked for - and obtained - a licence or rather the so-called “reasonable royalty”, which is a judicial royalty rather than a consensual royalty). The interpretation and application of these compensatory criteria have been a source of discussion among scholars and judges, namely with regard to the (burden of) proof of damages as well as to the causal link between the illicit act and claimed damages. 

The above issues recently reached the Supreme Court. The Court issued two decisions with an in-depth analysis on the interpretation and application of Art. 125, para 2 and 3, IPC, including two controversial topics on proof for damages (with particular reference to the so-called “price of consent” or “reasonable royalty”) and on the awareness of the infringer (acting wilfully, negligently, with reasonable grounds to know or innocently) in relation to the so-called disgorgement of profits.

With decision no. 24635 of 13 September 2021, the Supreme Court addressed the issue of the so-called “price of consent”. This criterion is applied when it not possible to determine the measure of the damages suffered by the IPR holder or when lacking any specific claim for disgorgement of profits. One of the questions submitted to the Court was whether Article 125, para 2 of IPC derogates from the general principles of liability for damages in tort, by simplifying the burden of proof and therefore by merely requiring the IPR holder to prove infringement (so called an debeatur) and then automatically admitting damages for infringement itself (so called damages in re ipsa).

The Court thus reaffirmed its previous case law by confirming that the judge may determine the measure of damages on an equitable basis by an overall sum established on the basis of the documents filed in the proceeding and inferences that can be drawn from them. The Court stated that this provision does not constitute a derogation from the burden of proof, but consists in a simplification of the ordinary rule on evidence of damages and of the consequent burden of proof.

Therefore, while the effective proof of the causal link between infringement and damages remains unchanged (with exclusion of damages in re ipsa), from a purely compensatory point of view, the burden of proof is merely attenuated, requiring at least proof of the damage by means of documents filed in the proceeding and inferences. Thus, opening the way to a simplification of evidence. In the case at issue, the result was anyway negative. The loss of profits was deemed to be non-existent on the basis of the documents filed in the proceeding, thus precluding any possible inference (presumptive or circumstantial). In the opposite case, an equitable assessment would have been applied.

With its second decision no. 21832 of 29 July 2021, the Supreme Court addressed the issue of the interpretation of Article 125 para 3 of IPC.

The first of the two principles set out by the Court provides that the IPR owner is entitled to claim, instead of compensation for loss of profits, the disgorgement of profits realised by the infringer, without it being necessary to specifically allege and prove that the profits made by the infringer correspond to a loss of profits. In fact, Article 125, para 3, provides that "in any event" the IPR holder may, upon specific claim, seek the disgorgement of the profits realised by the infringer as an alternative criterion to the loss of profits, if such profits exceed the loss of profits. The Court's first conclusion is that this criterion can be cumulated (and therefore applied jointly) with the criterion of direct prejudice.

The Court then analyses the various positions of scholars and case law on this issue, considering the need to prevent the infringer from profiting in any event from the infringement (unjust enrichment) and thus conceiving a preventive and dissuasive function of infringement (deterrent function). The Court observes that not allowing cumulation would allow the infringer to profit from the infringement and would lead to a less severe sanction for wilful or negligent infringement compared with innocent infringement.

 

The second statement by the Court is that the IPR holder has the right to request, instead of the compensation for loss of profits, the disgorgement of profits realised by the infringer, thus without it being necessary to allege and prove that the infringer was wilful, negligent or had required knowledge (subjective knowledge). Pursuant to Italian law, knowledge of the infringer plays a part in relation to the assessment of damages. Damages can be compensated only if the infringement is wilfully or negligently committed. For registered IPRs there is a sort of presumption of such knowledge (for example, knowledge of the existence of a patent, registered trademark, registered design/model). The Court, by recalling the international agreements that led to the revision of art. 125 IPC (namely art. 45 of the TRIPs and art. 13 of the so-called EU Enforcement Directive), then clarified that disgorgement of profits must be recognised in any case, even including those cases of innocent infringement where there is an (unjustified) enrichment through an objective IPR infringement and with an anti-competitive advantage.

It will be interesting to see the future application of the above principles by the Courts of merit.