Calculating Damages When a Contract Is Performed in a Patent-Free Foreign Country

Patent Act Secs. 9, 139(2); Civil Code Sec. 249 Bb – Verdampfungstrockneranlage [Evaporation Dryer System]

Official headnotes (translated from the German by David Wright-Policepayeh)

a) Profits from the performance of a contract, which is causally related to a patent-infringing offer, may not be disregarded when calculating the damage caused by this offer simply because the acts carried out in the performance of this contract took place in a patent-free foreign country.

b) If there is a sufficient causal connection, the injured party is generally free to calculate his damages on the basis of its own lost profit or a reasonable licence fee.

c) In the event of a patent infringement, the defence that the same economic effect could also have been achieved by non-infringing acts cannot in principle lead to the exclusion of a claim for damages.

d) The calculation of damages on the basis of a reasonable licence fee is not excluded simply because there is no relevant licensing practice in the industry.

e) From the point of view of a commercially minded right holder, the low level of protection provided by a prohibition relating solely to the offering is not a sufficient reason to authorise offers in Germany free of charge and thus to waive part of the protection to which he is entitled.

Federal Supreme Court (Bundesgerichtshof), judgment of 7 May 2024 – X ZR 104/22

Facts:

[1] The plaintiff claims payment of damages from the defendant for patent infringement.

[2] The plaintiff is the exclusive licensee of European patent 1 070 223 (the patent at issue), which was granted with effect for the Federal Republic of Germany and relates to an installation for drying by superheated steam. The patent at issue was originally also granted with effect for the Kingdom of Sweden, but this part expired at the end of 27 May 2005.

[3] In 2012, the defendant made an offer to construct a fluidised bed evaporation dryer plant in Sweden from its registered office in B. to a company based in Sweden. After the construction of the plant, the defendant invoiced the purchase price and collected the payment.

[4] On the basis of this conduct, the plaintiff requested a declaratory judgment to the effect, inter alia, that the defendant must compensate all damages incurred by the plaintiff as a result of the producing, offering, putting into circulation, using, importing and possessing of patented equipment. The Düsseldorf Regional Court issued the requested declaratory judgment. The Düsseldorf Superior Regional Court limited it to the form of exploitation of offering and dismissed the more extensive claim (Düsseldorf Superior Regional Court, judgment of 6 April 2017 – 2 U 51/16, GRUR-RS 2017, 109833).

[5] The plaintiff is now seeking payment of EUR 1,986,000 plus interest. It is basing this claim on the profit that the defendant made through the construction of the plant, according to its submission, alternatively on its own lost profit and, in the further alternative, on a reasonable licence fee.

[6] The regional court dismissed the action. The appeal court dismissed the plaintiff’s appeal.

[7] With its appeal on the law, which was admitted by this Court, the plaintiff continues to pursue its claim. The defendant opposes the appeal.

Grounds:

[8] The appeal is admissible and leads to the annulment of the contested judgment and its referral back to the appeal court.

[9] I. The appeal court justified its decision, insofar as is relevant to the appeal on the law, essentially as follows:

[10] The necessary connection attributing the claimed damage to the infringing offer was missing. Due to the principle of territoriality, this was not within the scope of protection of the provision. The remuneration received by the defendant constituted a quid pro quo for the delivery and construction of the patented object in Sweden, but not for the offering of this object. Any lost profit on the part of the plaintiff would have been realised in Sweden. Nor could the amount of a reasonable licence fee be based on a turnover achieved in a patent-free foreign country. A different assessment would amount to the penalisation of a profit generated by patent-free activities.

[11] Irrespective of this, a claim to a fictitious licence fee under the special conditions of the dispute would fail in any case because the parties had not, according to the court’s discretion and conviction in accordance with Sec. 287(1) of the German Code of Civil Procedure, agreed such a fee. Licence fees for the mere submission of an offer to an individual potential customer were not customary. It was already consistent with the plaintiff’s submission that there was no licensing practice for offers for sale. Nor was this to be expected, as the defendant could have acted in accordance with the patent without effort or other disadvantages by submitting the offer via its subsidiary in Sweden, for example. No commercially minded businessperson would enter into licence negotiations with the plaintiff and pay a licence fee in order to avoid this and to be able to send the offer from Germany. Conversely, a reasonable patent proprietor would neither demand nor reasonably expect a licence fee in such a situation. The mere preparation of an offer at the German registered office did not constitute an offer within the meaning of the Patent Act.

[12] For the same reason, a claim for damages under the aspect of lawful alternative behaviour was excluded.

[13] II. This decision does not withstand legal review.

[14] 1. The appeal court wrongly assumed that a connection attributing the asserted damage to the patent-infringing offer is already excluded due to the protective purpose of the provision.

[15] a) As this Court recently ruled in connection with profits from additional transactions, when calculating the damage resulting from a patent infringement on the basis of the profit made by the infringer, all profits causally related to the infringement of the patent must as a matter of principle be taken into account (Federal Supreme Court, judgment of 14 November 2023 – X ZR 30/21, GRUR 2024, 273 para. 18 – Polsterumarbeitungsmaschine).¹

[16] However, adequate causality is not sufficient for a causal connection in this sense. Rather, there must also be an intrinsic connection between the infringing act and the profit realised. In the case of profits from the putting of patented devices into circulation, this requirement is satisfied if the profit made is based on the properties of the sold item associated with the infringed patent (Federal Supreme Court, judgment of 14 November 2023 – X ZR 30/21, GRUR 2024, 273 para. 24 – Polsterumarbeitungsmaschine).

[17] The same applies to profits from additional transactions that are causally related to the infringing act. Such profits must also be taken into account when calculating damages if the additional transaction does not constitute a patent infringing act in itself, but is related to patent infringing objects, for example because an object supplied in addition is used together with the patent infringing object or because a service provided in addition is provided on this object (Federal Supreme Court, judgment of 14 November 2023 – X ZR 30/21, GRUR 2024, 273 paras. 28 et seq. – Polsterumarbeitungsmaschine).

[18] b) According to these principles, profits from the performance of a contract which is causally linked to a patent-infringing offer may not be disregarded when calculating the damage caused by this offer simply because the acts carried out in the performance of this contract took place in a patent-free foreign country.

[19] aa) As the appeal court’s approach correctly assumed, the acts carried out abroad do not fall within the scope of protection of the patent. However, according to the principles outlined above, profits from acts that do not constitute a patent infringement can be included in the calculation of damages if there is the required causal connection with an infringing act.

[20] The connection required for this generally exists in the case of profits from the performance of a contract that has come about due to a patent-infringing offer.

[21] bb) This is not precluded by the fact that the right holder does not suffer any damage in the event that unauthorised offer as such is made.

[22] This Court has decided on several occasions that making a patent-infringing offer as such does not typically lead to damage (see Federal Supreme Court, judgments of 5 December 2006 – X ZR 76/05, BGHZ 170, 115 = GRUR 2007, 221 para. 12 – Simvastatin; 16 May 2006 – X ZR 169/04, BGHZ 167, 374 = GRUR 2006, 927 para. 19 – Kunststoffbügel). In this context, however, it has already clarified that damage occurs in any case if the offering actually results in business transactions or deliveries relating to the protected object and that such damage is covered by the offering infringer’s obligation to pay compensation (Federal Supreme Court, judgment of 16 May 2006 – X ZR 169/04, BGHZ 167, 374 = GRUR 2006, 927 para. 19 – Kunststoffbügel).

[23] Contrary to the opinion of the appeal court, an obligation to pay damages on the part of the infringer making the offer is not only possible from this point of view if the delivery following the offer itself constitutes a patent infringement. Rather, the connection required for the obligation to pay damages is already established by the fact that a product has been delivered which was the subject of the patent-infringing offer leading to the conclusion of the contract.

[24] c) The same applies if a patent-infringing offer leads to deliveries or other acts abroad, because it would be within the patent proprietor’s power to obtain patent protection there as well.

[25] aa) If the patent proprietor can also assert claims against the infringer for acts committed abroad, this may have the consequence that these acts are included several times in the calculation of damages. However, a comparable situation may also arise if one act infringes several intellectual property rights within the same country.

[26] Even if only one right is infringed, an assessment must be made whether and to what extent the profit achieved is based on the sold item’s properties associated with the infringed property right or other factors (Federal Supreme Court, judgments of 14 November 2023 – X ZR 30/21 – GRUR 2024, 273 para. 25 – Polsterumarbeitungsmaschine; 24 July 2012 – X ZR 51/11, BGHZ 194, 194 = GRUR 2012, 1226 para. 20 – Flaschenträger; 3 September 2013 – X ZR 130/12, GRUR 2013, 1212 para. 5 – Kabelschloss).

[27] If several intellectual property rights are infringed, the parts of the profit that are attributable to the individual property rights must be distinguished accordingly. Consequently, in the case of multiple acts of infringement, a value-based attribution must also be made between the profit realised and the individual acts.

[28] These principles must also be applied if only individual acts, which in their entirety led to the profit realised, infringe the relevant property right. Under the aforementioned conditions, each of these acts is indeed causal for the profit. Nevertheless, it is possible and necessary to weigh the contributions of the individual acts and to attribute them in a value-based consideration to a certain part of the profit.

[29] bb) This assessment does not lead to a territorial extension of patent protection that contradicts the principle of territoriality.

[30] Only acts of infringement committed within the territorial scope of the patent can be considered as a connecting factor for an obligation to pay damages. In this way, and through the limitation of the obligation to pay damages to that part of the damage that can in a value-based consideration be attributed to the infringing act, sufficiently account is taken of the principle of territoriality.

[31] d) If there is a causal connection in the sense described above, the injured party is in principle free to calculate its damages on the basis of its own loss of profit or a reasonable licence fee.

[32] As this Court has already held in connection with additional transactions, the damage to be compensated due to a patent infringement consists of the infringer utilising the specific market opportunities conveyed by the intangible property for himself and thus at the same time withdraws them from use by the owner of the property right. The economic value of the property right and the market opportunity embodied in it must be reimbursed. This is covered by the expected but lost profit of the property right holder, by the actual profit of the infringer or by the profit expectation that reasonable contracting parties would have associated with the conclusion of a licence agreement on the use of the property right (Federal Supreme Court, judgments of 14 November 2023 – X ZR 30/21, GRUR 2024, 273 paras. 20 et seq. – Polsterumarbeitungsmaschine; 24 July 2012 – X ZR 51/11, BGHZ 194, 194 = GRUR 2012, 1226 paras. 15 et seq. – Flaschenträger).

[33] These principles also apply if the market opportunity embodied in the property right is utilised by a patent-infringing offer that subsequently leads to the delivery of a product according to the patent abroad.

[34] When calculating damages on the basis of a reasonable licence fee in such cases, however, account must be taken of the fact that actions in patent-free foreign countries do not require a licence. The decisive factor is therefore the licence fee that reasonable parties would have agreed upon when concluding a licence agreement for the (mere) offering of patented products in Germany.

[35] e) The decisions in the preceding infringement dispute are not in conflict with the claim.

[36] aa) The rejection of the application for a declaratory judgment that the defendant is obliged to pay compensation for damages due to the placing of the system on the market does not mean that this event must be disregarded when assessing the legally established claim for compensation for damages arising from the unauthorised offering.

[37] Based on the decision in the preceding legal dispute, only the assertion of that damage is excluded which, in a value-based consideration, is solely attributable to the actions following the offer in the patent-free foreign country, but not the claim for compensation for the damage which, according to one of the calculation methods in question, is already attributable to the patent-infringing offer.

[38] f) The fact that the Düsseldorf Superior Regional Court rejected an application for the imposition of a penalty payment to enforce the claim to a rendering of accounts for the profit made, based on the grounds that the provision of a ‘no profit’ statement was sufficient, to fulfil this claim does not preclude the claim either.

[39] This judgment contradicts the legal situation described above. However, the decision of the Superior Regional Court neither concerns the same subject matter of the dispute as the present action nor a question that is prejudicial to it and therefore has no binding effect.

[40] g) Contrary to the appellant’s opinion, the judicial practice of the Court of Justice of the European Union (CJEU) on Art. 8(2) of the Rome II Regulation does not indicate any different conclusions for the constellation at issue here.

[41] According to the judicial practice of the Court of Justice, when determining the applicable law for non-contractual obligations arising from an infringement of intellectual property rights that are uniform throughout the Community, it is not necessary to look at each individual act of infringement of which the defendant is accused. Rather, an overall assessment of the conduct must be made in order to determine the place where the original infringing act giving rise to the alleged conduct was committed or threatened (CJEU, judgment of 27 September 2017 – C-24/16, GRUR 2017, 1120 para. 103 – Nintendo).

[42] The dispute does not concern an infringement of a Community-wide uniform right, but rather the infringement of a European patent granted, inter alia, with effect in Germany, by an offer in Germany. Such situations do not fall under Art. 8(2) Rome II.

[43] 2. Contrary to the opinion of the appeal court, the defence of lawful alternative conduct does not preclude the claim.

[44] a) According to the judicial practice of the Federal Supreme Court, the objection that the damage would also have occurred in the event of equally possible, lawful behaviour can be relevant for the attribution of damage. The relevance of the objection depends on the protective purpose of the infringed legal provision in question (Federal Supreme Court, judgments of 2 November 2016 – XII ZR 153/15, NJW 2017, 1104 para. 24; 24 July 2012 – X ZR 51/11, BGHZ 194, 194 = GRUR 2012, 1226 para. 35 – Flaschenträger).

[45] In the event of a patent infringement, the defence that the same economic result could also have been achieved by non-infringing acts cannot, in principle, lead to the exclusion of a claim for damages.

[46] A patent does not preclude third parties from competing with the entitled party by offering non-infringing products. However, the right holder reserves the right to offer and market the protected object. The culpable infringement of this exclusive right must result in the infringer being obliged to compensate the resulting damage even if he could have offered other products.

[47] b) These principles also apply to the patent-infringing offering of a product.

[48] According to Sec. 9 Patent Act, the right holder is not only authorised to manufacture and place protected products on the market, but also to offer them. Anyone who culpably infringes this right may not, in accordance with the protective purpose of the standard, argue, when faced with a claim for damages, that they could also have made a non-infringing offer.

[49] 3. Nor can a claim for damages on the basis of a reasonable licence fee be denied with the additional considerations made by the appeal court in this respect.

[50] a) The assessment of the extent to which compensation of the damage by payment of a licence fee is appropriate is primarily a matter for the judge of the facts of the case, who has special discretion under Sec. 287 Code of Civil Procedure.

[51] The evaluation of the judge of the facts in the case can only be reviewed on appeal as to whether he disregarded significant submissions of the parties, misjudged legal principles of damage assessment, disregarded essential assessment factors or based his estimate on incorrect standards (as example, Federal Supreme Court, judgment of 7 February 2023 – VI ZR 137/22, NJW 2023, 1718 para. 54).

[52] b) In the case at issue, the assessment by the appeal court is based on incorrect legal standards.

[53] aa) Contrary to the appeal court’s opinion, the calculation of damages on the basis of a reasonable licence fee is not excluded simply because there is no relevant licensing practice in the industry.

[54] The calculation of damages on the basis of a reasonable licence fee is permissible wherever the granting of exclusive rights for use by third parties in return for payment is legally possible and customary in the trade. Whether or not a practice is customary is not determined by the circumstances in the industry in which the parties are active, but rather by whether, in general, the granting of licences is and can be used in the case of an exclusivity right of this kind (Federal Supreme Court, judgments of 23 June 2005 – I ZR 263/02, GRUR 2006, 143, 145 – Catwalk; 29 July 2009 – I ZR 169/07, GRUR 2010, 239 para. 23 – BTK; 16 December 2021 – I ZR 201/20, GRUR 2022, 229 para. 81 – ÖKO-TEST III).

[55] It is not clear from the findings of the appeal court that the granting of a licence for the offering of patented objects is generally out of the question.

[56] The appeal court merely found that such licences are not customary. According to the judicial practice cited above, this does not preclude a calculation of damages on the basis of an appropriate licence fee as would reasonably be agreed by fictitious parties to a licence agreement.

[57] bb) Nor, contrary to the appeal court’s opinion, is a calculation of the damage on the basis of a reasonable licence fee excluded from the point of view of lawful alternative conduct.

[58] (1) As has already been explained above, the fact that the defendant could have submitted an offer abroad that did not fall within the scope of Sec. 9 Patent Act instead of the patent-infringing offer is not sufficient to deny the attribution of the damage incurred to the infringing act.

[59] (2) Against this background, the entitlement to use the protected object cannot be regarded as economically worthless solely because of the possibility of lawful alternative conduct.

[60] The possibility of making a non-infringing offer abroad may mean that the prohibition of an offer in Germany only offers the right holder comparatively little protection. Even if this were to justify the assumption that a third party would not be willing to seek a licence in return for permission to make such offers, this does not preclude the calculation of the damage caused by an unlawful offer on the basis of a notional licence fee.

[61] As already explained above, it is sufficient for the admissibility of this calculation method if the granting of licences for such acts is generally a possibility. The latter cannot be ruled out on the basis of the findings made by the appeal court.

[62] The low level of protection that a prohibition relating solely to the offering of the protected product may offer does not justify the conclusion that a reasonable right holder would grant a licence to carry out such acts free of charge. The fact that offers can only be made in patent-free foreign countries may cause only minor inconvenience to a competitor. However, from the perspective of a commercially minded right holder, this is not a sufficient reason to authorise offers in Germany free of charge and thus waive part of the protection to which he is entitled.

[63] III The case is not ready for a final decision (Sec. 563(3) Code of Civil Procedure).

[64] (1) In the reopened appeal proceedings, the appeal court will have to examine the question of whether there is a causal link between the patent-infringing offer and the subsequent conclusion of the contract and the services rendered in its wake in the sense described above.

[65] 2. If the answer is in the affirmative, the appeal court will have to determine in a value-based consideration which part of the realised or lost profit is to be attributed to the infringing act.

[66] a) As in cases of putting into circulation in Germany, the appeal court will first have to clarify to what extent the profits are based on the properties of the sold item that are related to the patent infringement or on other factors (Federal Supreme Court, judgments of 24 July 2012 – X ZR 51/11, BGHZ 194, 194 = GRUR 2012, 1226 para. 20 – Flaschenträger; 3 September 2013 – X ZR 130/12, GRUR 2013, 1212 para. 5 – Kabelschloss).

[67] b) An assessment will then have to be made as to which part of the profit thus determined is to be attributed to the infringing offer.

[68] The scope and intensity of the infringing acts of offering in Germany may be relevant here, but also the advantages that the infringer could hope to gain from the infringing behaviour. In addition to the submission of an offer, the relevant acts in this respect may also include contract negotiations and other communication with the potential customer aimed at concluding a contract. The advantages resulting from such acts can be of great importance, in particular if the potential customer attaches particular importance to contract negotiations in Germany or if the making of the offer in Germany is easier for the infringer from an organisational or financial point of view than a corresponding activity abroad.

[69] c) A calculation based on the plaintiff’s own lost profit requires the appeal court to come to the conclusion that the plaintiff would have been awarded the contract for the construction of the plant if the defendant had refrained from making an offer in Germany.

[70] In this context, the fact that the defendant would have had the opportunity to make an offer abroad may be significant.

[71] As explained above, this circumstance does not exclude the defendant’s liability for damages. However, a claim for compensation for lost profits presupposes that without the patent infringement, a profit of the entitled party could in the normal course of events or in the special circumstances be expected to be attained as a matter of likelihood (Sec. 252 second sentence Civil Code). The hypothetical causal course of events that could have been expected without the patent infringement is relevant here.

[72] d) The calculation of damages on the basis of a reasonable licence fee may be similar to the calculation on the basis of the infringer’s profit in that the licence fee is calculated on the basis of the turnover of the products which were the subject of the infringing offer, with however the fee being reduced if only the offering, but not the putting into circulation of the products constitutes a patent infringement (for a similar constellation in the case of trademark infringements, see Federal Supreme Court, judgment of 22 September 2021 – I ZR 20/21, GRUR 2022, 82 para. 38 et seq. – Layher).

Translated from the German by David Wright-Policepayeh,

Kilb, Austria.

Footnotes