The Milan Business Court rules on the amount of damages resulting from a design infringement

(Published also on Diritto24, Il Sole 24 Ore)

By judgment of 14 November in proceedings with docket no. 76679/08, the Milan Business Court “A” ruled on the amount of damages suffered by the plaintiff due to the commercialisation of products infringing one of its registered designs. The decision matters for the application of the criteria that, under art. 125 of the Italian IP Code (“IPC”), shall be applied in order to determine damages in case of IP rights infringement, which are, in short: i) the right holder’s lost profit and consequential damages; ii) the reasonable royalty that the infringer would have paid if they had obtained a regular licence to commercialise the product (which criterion constitutes an alternative way to determine the right holder’s lost profit); iii) the infringer’s profit, alternatively to the right holder’s lost profit or insofar as they exceed it. We already discussed the application of art. 125 IPC and the relations between the three abovementioned criteria here on the blog.

In the course of the proceedings at issue, the Court ordered the exhibition of the infringer’s accounting records and appointed an accountant expert witness to provide his opinion on the amount of damages to be awarded. In light of the expert witness’s report, the judging Panel first pointed out its intention not to apply the reasonable royalty criterion, based on these grounds: “The analysis performed allow damages to be determined in a convincing manner that considers all the aspects of the specific case. Therefore, the reasonable royalty criterion provided by art. 125 (2) IPC, in the case at issue, cannot be applied, given its residual nature”.

The Panel then decided to determine the lost profit suffered by the plaintiff based on the decrease in the sale of the original products due to the simultaneous commercialisation of the counterfeits. However, having identified the number of counterfeits sold, the Panel said that it could not assume that, in the absence of those sales, the plaintiff would have sold an equal number of original products. The judgement in fact notes that “the accountant expert witness’s analysis did not identify concrete elements to effectively support such a close correlation between the marketing trends of the two products“; this is because, as the parties did not provide the necessary elements to that purpose, “the following were not considered: … the actual overlapping of the parties’ respective sales networks and the nature and incidence of the parties’ respective trade policies, … the general depressive effects generated over the relevant years on the reference market, the opposing companies’ dimension and organisation and, in the end, also the changes in the consumers’ taste both due to the introduction onto the same market of competing products by third party manufacturers, and in relation to the persistence of the consumers’ interest in such a product“. In this situation, the Panel noted, the absence of a complete overlap between the infringer’s sales and the decrease in the plaintiff’s sales is also proved by the fact that the plaintiff’s sales decreased, after the peak following the beginning of the commercialisation, even before the beginning of the commercialisation of the infringing products.

In the end, the judgment appraises that, “by way of equity and prudence”, 50% of the infringer’s sales may correspond to the plaintiff’s lost sales. Then, the original product’s gross margin has to be applied to the number of products thus identified, to estimate the losses suffered by the plaintiff, which losses the defendant is ordered to pay.

The decision at issue then focuses on the plaintiff’s claim to also obtain the return of the infringer’s profits, insofar as they exceed its lost profits, as allowed by art. 125 (3) IPC. In this respect, the Panel states that the claim cannot be granted, basically because of a lack of evidence: “Although the plaintiff requested the return of the infringer’s profits, such claim has not been reiterated when the expert witness was given his task, and, in the course of the analysis carried out by him, no documents relevant to this possible investigation were submitted by the plaintiff. The lack of any element allowing the identification of the infringer’s gross margin therefore does not allow this claim to be granted, as there is no evidence that it exceeds the damages already awarded to the plaintiff“.

The decision appears in line with the trend of the Milan Business Court “A”, which requires that claims for damages are expressed in a precise way and be supported by rigorous documental evidence.