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Lump sum compensation for software infringement: could do better

06/02/2018

In a judgement dated 23 September 2016, the Court of Appeal in Rennes declared a defendant guilty of selling and possessing 13,653 Windows software packages presented under a counterfeit trademark and for violation of copyright.

The court evaluated the Microsoft Corporation’s loss on a lump-sum basis at €819,855.75 and the Court of Appeal ruled that "Mr X. was ultimately found guilty of counterfeiting and selling OEM (Original Equipment Manufacturer) software, licensed by Microsoft to manufacturers for installation on new computers."

Unlike “full package product” (FPP) software, which is 25% more expensive, OEM software cannot be transferred to other computers. Microsoft Corporation took account of this when calculating its loss and lodging an appeal.

In a judgement handed down on 19 April 2017, the criminal chamber of the Court of Cassation upheld the defendant's sentence "since the compensation was not less than the fees which would have been due if the perpetrator had asked permission to use the right which he infringed" (Cass. crim., 19 April 2017, no. 16-86.140).

However, the Court overturned the appeal judgement for having reduced the American publisher's compensation  for non-pecuniary loss, "thereby aggravating the situation of the civil party, the sole appellant.” Under the terms of articles 509 and 515 of the French Code of Penal Procedure, in response to an appeal solely by the civil party, the Court of Appeal cannot amend the judgement in a way that it unfavourable to that party.

This case therefore once again illustrates the difficulties raised by the choice of method for calculating damages, which is not purely compensatory but also takes into account other essential aspects of infringement such as deterrence.

On this point, directive 2004/48 of 29 April 2004 relating to compliance with intellectual property rights stipulates a method for calculating damages as a lump sum (article 13) "based on elements such as, at least the amount of royalties or fees which would have been due if the perpetrator had asked for permission to use the intellectual copyright in question." This provision specifically requires the judge not simply to grant the royalty amount, which would fail to achieve the main objective of damages, which in this case are not purely compensatory but design to provide restitution and even act as a deterrent. 

The directive was transposed into article L.331-1-3 of the French Intellectual Property Code, which stipulates that the lump sum allocated by the court as damages "is higher than the royalties or fees which would have been due if the perpetrator had asked permission to use the right which he infringed. This sum is not exclusive of compensation for the non-material prejudice caused to the injured party." Not only must the lump sum allocated therefore be higher than the amount of the royalty or the cost of amicable permission, but the non-material prejudice must also be compensated.

In a judgement handed down on 13 October 2015 (Cass. crim., 13 October 2015, no.14-88.485), the criminal chamber of the Court of Cassation had previously ruled on an appeal lodged by Microsoft, contesting the method used to calculate damages allocated to compensate software counterfeiting. However, based on the same reasoning as in this case, the Court of Cassation had rejected the appeal on the grounds that the lump-sum compensation was not less than the fees which would have been due if the perpetrator had requested permission.

In both 2015 and 2017, the Court of Cassation maintained the principle of complete compensation for the loss, to the exclusion of any punitive damages.

Authors

Anne Laure Villedieu
Anne-Laure Villedieu
Partner
Paris