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Punitive damages for IP infringements can be provided for by EU countries, rules EU court

Businesses that infringe the intellectual property (IP) rights of others can be ordered to pay damages that value multiple what it would have cost them to licence the use of that IP legitimately, the EU's highest court has said.

The Court of Justice of the EU (CJEU) said EU law does not preclude EU countries from drawing up national legislation that provides for punitive damages to be awarded to rights holders where their IP has been infringed.

The CJEU was asked to rule on the issue by a court in Poland which had raised a question over how the EU's directive on enforcement of IP rights should be interpreted. The issue is pertinent to a dispute before the Polish court between a copyright licensing body and cable TV broadcaster in the country.

The directive on enforcement of IP rights requires each EU member state to implement "the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights".

The measures, procedures and remedies introduced must be "fair and equitable" and not be "unnecessarily complicated or costly, or entail unreasonable time limits or unwarranted delays", but must be "effective, proportionate and dissuasive and … be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse".

On the issue of damages specifically, the directive requires each EU country to ensure that courts, when assessing claims for damages for IP infringement, "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".

According to the directive, there are two approaches courts can take when setting damages for IP infringement.

The first option is to 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".

Alternatively, courts "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".

A recital to the directive said the aim of the provisions is "not to introduce an obligation to provide for punitive damages but to allow for compensation based on an objective criterion while taking account of the expenses incurred by the rightholder, such as the costs of identification and research".

However, the CJEU ruled that the directive does not prevent EU countries from providing for the award of punitive damages for IP infringement under their own national laws.

"The fact that [the directive] does not entail an obligation on the member states to provide for ‘punitive’ damages cannot be interpreted as a prohibition on introducing such a measure," the CJEU said.

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