Considering Patent Infringement Damage Calculations under
the Unified Patent Court
A primary benefit for future users of the UPC is that legal
proceedings in relation to a Unitary patent or a non-opt-out European patent
will not need to be divided throughout Europe and can instead be heard by a
single court, with judgement applied to the entire territory – potentially 24
countries. This promises to reduce costs and time associated with the
litigative process and may minimize the risk of ‘Forum Shopping’ within the
E.U., where parties seek to take advantage of differences in the procedures and
judgements of national courts. Given the importance of the UPC, we wish to
outline the important factors that must be considered by parties when it comes
to damage calculations.
Determination of damages: routes
On the 8th July 2022 the UPC’s Administrative Committee
adopted the final version of the Rules of Procedure (RoP, accessible here).
Those rules offer two routes for determining damages and compensation in the
event patent infringement is found to have occurred. Rule 118.1 outlines that
“[t]he amount of the damages or the compensation may be stated in the order or
determined in separate proceedings”. A successful party can – within one year
of the final decision – apply for separate proceedings for the determination of
damages (Rule 126). The court may also award interim damages (Rule 119), to
“cover the expected costs of the procedure for the award of damages … on the
part of the successful party”.
Determination of damages: calculation factors
When seeking to understand what factors contribute to damage
calculation we look to the UPC Agreement (UPCA, available here),
which defines the legal basis of court activity. That makes two commitments in
relation to the award of damages: (1) the court will instruct an infringer to
pay the injured party damages “appropriate to the harm actually suffered … as a
result of the infringement” and (2) the court will – as far as is possible –
place the injured party in a position as if no infringement had taken place.
Additionally, the infringer shall not benefit from the infringement and damages
shall somewhat not be punitive.
Having made these commitments the Agreement then seeks to
define what the court should look to when calculating damages. The court is to
take account of “all appropriate aspects” such as negative economic
consequences, which may include lost profits, any unfair profits made by the
infringer, and non-economic factors where necessary (for example, damage to a
brand’s reputation). The court can also set damages on the basis of royalties
that would have been due if the infringer had sought a licence. In a case where
the infringer did so not knowingly, the court can order compensation.
Determination of damages: IP valuation expertise
Whilst the UPCA suggests areas of consideration for damage
calculation, there remains substantial room for the presence of expert analysis
in reaching that calculation. OxFirst Director Dr Roya Ghafele has authored many
scholarly articles on patent valuation methods for assessing damages in patent
infringement cases before the UPC. This work illustrates three important means
of valuation: the income, cost and market approaches. These approaches appear
in publicly sanctioned IP guidelines and assist in portraying value in a
dynamic manner. All three play a role in delivering effective valuation and
OxFirst operates a proprietary valuation method which accounts for their
advantages. Method selection represents a crucial consideration when embarking
upon a valuation and pays particular attention to the utility of the income
method as the only method that can incorporate risk as a consideration. Using
the income method, patent value is presumed to be based on future returns over
the course of the time it retains protection. Whilst the commonly applied
method by courts and regulators, the income method requires particular
attention to be paid to contextual information and so requires particular
expertise for its effective application.
The UPC is well equipped to exercise judgement on patents at
question themselves – the technical judges bring the specialist knowledge
required for this. Yet when calculating appropriate damages, the UPC will –
like other courts – require assistance from patent valuation experts. This will
be particularly true when the UPC has to, inevitably, consider FRAND cases. In
these cases, debate has already been established around defining a royalty
base, either the smallest saleable practicing unit (SSPU) or the entire market
value (EMV). The choice of royalty base is decisive in calculations of
appropriate FRAND rates as, in most cases, damages are calculated by factoring
a royalty base with a royalty rate to establish a valuation. Patent valuation
expertise will therefore be especially valuable in such circumstances. https://oxfirst.com/insights-&-news/considering-patent-infringement-damage-calculations-under-the-unified-patent-court/
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